Gas prices are staying elevated as the Iran war escalates, adding fresh pressure on car shoppers already squeezed by high rates and vehicle prices—driving lower first-quarter sales.
The U.S. auto market is absorbing another shock as the Iran war pushes fuel costs higher.
New-car demand. already weakened by high interest rates and expensive vehicle pricing. has started to cool further—now with gas prices becoming a deciding factor for many households.. General Motors reported that first-quarter sales fell nearly 10% year over year, the company’s biggest drop in almost four years.. For automakers, the timing matters: sales momentum typically forms early in the year, and uncertainty can quickly change buying behavior.
For years, the auto industry has leaned on a relatively predictable relationship between affordability, financing costs, and household sentiment.. When interest rates rise, monthly payments rise too, which tends to delay purchases.. When vehicle prices are elevated at the same time, the squeeze intensifies.. Misryoum analysis suggests this is exactly why the market feels especially fragile now: fuel costs are adding a new affordability dimension on top of financing and sticker price.
Across the broader field, multiple brands are showing weaker demand.. Cox Automotive expects first-quarter sales to decline across several major automakers. with projected drops including Ford around 9%. Subaru about 16.7%. and VW near 19.8%.. Honda reported a 5% decline, while Toyota was roughly flat.. The pattern points to a market that is not just buying less overall. but also shifting how shoppers prioritize value—especially in the showroom and at the moment they are ready to sign.
A key detail in the current reports is the weakness in smaller vehicles, including compact cars and certain SUVs.. Misryoum sees that as a sign affordability pressure is filtering down.. When budgets tighten. buyers often look for lower total costs of ownership. and they can also become more selective about the “type” of vehicle that feels justified.. That may explain why demand is not spreading evenly—some segments feel the shock more sharply than others.
Toyota’s sales executive David Christ described how the decision cycle is stretching.. Shoppers are taking more time and questioning whether they truly need to purchase right now.. Misryoum understands the psychology here: when consumers face multiple cost pressures at once. they don’t just compare cars—they compare timing.. Higher fuel prices make fuel-efficient models feel more attractive. but they also raise questions that are harder to answer in the moment: will gas stay high. and can a household comfortably afford the vehicle they want if commuting costs rise further?
Gas prices have become a visible, real-time constraint.. Oil prices jumped to nearly $110 a barrel following the latest comments on the war, and gas prices have remained elevated.. AAA has put the national average for a gallon at $4.08, up from $2.99 one month earlier.. In practical terms, that change hits households week after week, not just when they browse listings.. Cox Automotive’s chief economist Jeremy Robb pointed out that early demand had been improving before the war shifted the outlook—suggesting the market can turn quickly when a familiar variable. fuel costs. moves decisively again.
Misryoum also sees a broader trend in how shoppers are reacting: the “showroom floor” conversation is increasingly about operating costs. not only monthly payments.. Vehicles. especially SUVs and crossovers. are often purchased for lifestyle and space—but fuel expenses are part of the ongoing monthly math.. If buyers suspect prices will stay high. they may hesitate to commit to higher-consumption vehicles. or delay the purchase altogether until they feel more confident about the future.
Despite the weak start, Cox Automotive has not meaningfully changed its full-year sales forecast.. That matters for how automakers plan production and incentives.. Misryoum interprets this as a cautious stance: forecasts can absorb early volatility. but uncertainty linked to the war and to affordability pressures still represents a risk factor for later quarters.. The challenge is that the auto cycle is slow and inventory decisions are complex—so even short-term demand softness can create longer operational consequences.
Looking ahead. Misryoum expects three forces to keep testing the market: fuel-cost uncertainty driven by geopolitical developments. ongoing pressure from interest rates. and broader economic conditions that influence consumer confidence.. If gas prices remain elevated and financing stays costly. the sales environment could stay difficult for automakers—especially in categories where customers are already stretching.. If the situation stabilizes. early demand could partially recover. but the current signals suggest many buyers will keep evaluating both price and timing with extra caution.
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