By Jack Hough
I wasn't in the market for a subcompact sedan -- buildwise, I'm more of a roomy-seat full-size. But I was bummed to learn that Nissan Motor in December canceled America's last sub-$20,000 new vehicle, called the Versa. On highways, it got 40 miles per gallon. Edmunds, the car reviewer, called it a smart choice for its price, interior room, and standard tech. The bare-bones S trim came with a touch screen, remote keyless entry, and pedestrian detection, with automatic braking. There was even a feature that makes it difficult to text while driving, called a manual transmission.
Buyers have long been ditching sedans for sport-utility vehicles, with their higher seating and choice of all-wheel drive, while manufacturers are moving away from low-margin vehicles to focus on posh models for buyers who can afford them. Last year, the average new-vehicle price topped $50,000 for the first time. With insurance and maintenance costs way up too, new-vehicle shopping is starting to look like a pursuit of the privileged. Buyers making over $150,000 a year recently made up 42% of sales, up from 29% six years ago. BofA Securities reports that many buyers making less than $75,000 have dropped out of the new-vehicle market altogether.
Investors don't seem to mind that the industry is selling around 16 million new vehicles a year, down from the 17 million it moved before the Covid-19 pandemic. "Effectively, you traded away a million units of annual volume in the U.S. for prices that are $12,000, $13,000 higher," says Barclays automotive analyst Dan Levy. Last year, General Motors stock gained 53%, not counting dividends, and Ford Motor, 33%, versus 16% for the S&P 500 index.
President Donald Trump pushed Congress to end tax credits for electric vehicles early, allowing car makers to shrink programs that had dragged down profits. And the president has proposed relaxing fuel economy standards. At the start of this year, beefy pickups and SUVs were back in favor on Wall Street.
Now, of course, investors are having a rethink. The war in Iran has sent the price of crude oil sharply higher, and with it, gasoline. Look at trading for a key commodity with a heinous name: RBOB, short for reformulated gasoline blendstock for oxygenate blending. It's basically gasoline before ethanol is mixed in, and price movements for its near-term futures contracts can give a sense of where pump prices might be headed. RBOB was recently up 48% since the day before strikes in Iran began.
Levy at Barclays says investors treat cars as a "sell-first, ask-later sector." This year, Ford stock is down 11%, not counting dividends, and GM, 9%, versus a 3% decline for the S&P 500. I guess it's time for the asking later: Might the industry's recent re-embrace of internal combustion leave it poorly positioned now that gas prices are rising? And longer term, should investors worry about new-car affordability?
BofA Securities this past week held a Global Automotive Summit featuring chats with 35 industry executives and experts, and its conclusions were mostly upbeat. Manufacturers say demand has been resilient, and their supply chains don't appear strained. "We think that it would take four to six months of higher oil prices before it started to impact the industry," BofA's analysts concluded. That impact might come in the form of lower sales and a shift in preference toward hybrid or electric vehicles.
On affordability, BofA notes that older, wealthier buyers are helping to hold up demand. The average new-vehicle buyer is now around 50, up from 43 in 2000. That's a problem only if vehicle ownership turns out to be like cable television subscriptions, where a departure by the young was an early warning sign. On an only loosely related note, Alphabet's Waymo operates robo-taxis in 10 markets, with plans for 22 more. People who don't live near one of these early adopter cities might not realize how common the sight of driverless cars has become. In San Francisco, Waymo has taken a one-quarter share of the ride-share market, passing Lyft. Waymo's prices are 15% to 20% higher than those of Lyft and Uber Technologies, but are expected to become more competitive as the service scales.
Levy at Barclays is bullish on GM for its strong free cash flow, pegged by Wall Street at $9.9 billion this year, or 15% of the company's stock market value, rising to $12.8 billion next year, or 19%. "The bread and butter...for GM is still very much U.S. trucks," he says. "I don't think that's changing anytime soon. That's still a cash cow." He is neutral on Ford, which needs more cost-cutting, and Tesla, speaking of which...
Tesla has been pulling off an astonishing feat, and it's certainly not related to car sales. The company still has a stock market value of around $1.5 trillion, good for eighth-largest in the S&P 500. It makes most of its money selling cars, and trends there aren't great, but it has convinced investors that this is unimportant. "Do deliveries even matter? For the stock price?" wrote UBS analyst Joseph Spak this past week, while forecasting an 18% decline in them, quarter over quarter. "Probably not, at least not like it used to."
Tesla is squarely focused on businesses that have yet to truly launch: robo-taxis and humanoid robots. Sentiment around these has been driving the stock. The problem now for Tesla, according to Spak, who recommends selling, is that investors are starting to say that updates on these ventures have turned slower and more muted than expected. Perhaps worse, with Waymo scaling and Nvidia looking to provide robo-taxi brains for car partners, "there is growing sentiment that Tesla may not sustainably differentiate on robo-taxis," writes Spak.
Tesla stock is down 15% this year. I'm not sure how you address falling behind in a business you haven't yet entered. Maybe the humanoids will have ideas.
Write to Jack Hough at jack.hough@barrons.com. Follow him on X and subscribe to his Barron's Streetwise podcast.
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March 20, 2026 10:06 ET (14:06 GMT)
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