The AI-fueled boom in the stock market is aiding car sales via the 'wealth effect'
Sales of hybrid vehicles such as the Prius in the U.S. have never been stronger.
The AI-fueled bull market in stocks has shifted U.S. car sales into a higher gear - and the richest Americans are doing most of the buying.
Car sales in July rose nearly 5% from a year earlier to an annual rate of 16.3 million. That's how many new cars and trucks would be bought in the full year if sales were the same every month as they were in July.
Car sales have been surprisingly strong in 2026, benefiting from the so-called wealth effect tied to the boom in U.S. stocks. Huge investments in artificial intelligence have driven the S&P 500 SPX and Dow Jones Industrial Average DJIA to record highs.
Wealthier Americans, most of whom are heavily invested in stocks, have been big winners. Their retirement and investment portfolios have surged, creating a new phalanx of 401(k) millionaires.
The rising wealth of high-income households, combined with larger-than-usual tax refunds in 2026, has fueled the increase in vehicle sales.
Oxford Economics estimates the top 20% of earners have bought more than half of all the new vehicles sold in the past several months.
By comparison, that group of earners accounted for just 30% of overall new car sales before the 2020 pandemic, according to research from Cox Automotive.
The concentration in sales among higher-income households - those making $150,000 a year or more - helps illustrate the emergence of what's being called a K-shaped economy.
The rich are driving the economic bus, so to speak, and the rest of the country is just trying squeeze into the cheap seats.
At the start of the year, expectations for auto sales were tame. Record car prices, high loan rates, a weaker job market and stiff U.S. tariffs were seen as big obstacles for buyers.
The Trump administration also ended a $7,500 tax credit for buying new electric vehicles.
Carmakers have responded by offering other incentives and trying to restrain price increases. Prices of imported vehicles from the likes of Volkswagen (XE:VOW), Honda (JP:7267) and Toyota $(TM)$, for instance, have actually declined slightly in the past year.
That suggests foreign makers have avoided pushing the cost of tariffs onto American customers in an effort to maintain market share against U.S. manufacturers such as Ford $(F)$ and General Motors $(GM)$.
Even wealthy car buyers are doing what they can to save a buck.
Although sales of electric vehicles have plunged since the tax credit expired, demand for gas-electric hybrids has surged.
The percentage of all new cars sold that are hybrids climbed to 17.4% in May from less than 14% before the U.S. conflict with Iran erupted and gas prices soared.
Just a few years ago, hybrids represented a much smaller 6% of all car sales.
Fully electric and plug-in hybrid sales accounted for less than 8% of all car sales in June, down from a peak of just over 12% right before the tax break was killed off.
Oxford Economics doubts that car sales can keep going strong.
Gas prices are still much higher than they were in the spring. The effects of large tax refunds are fading. And wealthy households by themselves cannot sustain the current pace of car sales, the thinking goes. Until recently, Middle America has always played a lead role here.
What's more, foreign carmakers probably can't keep swallowing the cost of tariffs.
"We suspect automakers will gradually try to pass on costs to customers," Grace Zwemmer, U.S. economist at Oxford, said in a research note.
Oxford estimates car sales will taper off soon and fall short of the 16 million mark in 2026, compared with 16.2 million new vehicles sold in 2025.
-Jeffry Bartash
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