A smaller and more competitive auto market is inevitable as demographic and behavioral shifts converge to create a "perfect storm," according to industry analysts.
The details: Forecasters predict U.S. auto sales could decline by more than 2 million vehicles by 2040, driven by falling birth rates, changing consumer behavior, and a growing number of transportation alternatives, according to CNBC.
The auto industry has historically relied on annual population growth of about 1%, but that trend is slowing, with U.S. fertility rate now at about 1.6 births per woman in 2025, well below the replacement rate of 2.1.
Restrictive U.S. immigration policies, which are expected to persist for the next 15 years, could cut historical net migration rates in half, returning them to levels last seen in 2019.
What they’re saying: “We already know how many people have been born and how many people will be of vehicle-driving age at age 16 in 16 years from now. And so we can say with quite a bit of certainty that when we get to 2040, we’re going to see we’re going to see some decline in the U.S.,” said Mark Gottfredson, a partner at Bain & Company, per CNBC. “That decline is even worse in places like Europe and in places like most of the countries in Asia.”
Why it matters: The forecast signals that dealers may increasingly compete for a smaller pool of buyers, with success likely depending less on market expansion and more on capturing market share.
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Between the lines: The impact of shifting demographic and behavioral trends on auto sales will be compounded by affordability challenges, especially among younger consumers, making the market increasingly competitive, analysts say.
The share of new-vehicle registrations among consumers ages 18 to 34 fell from 12% in the first quarter of 2021 to below 10% by mid-2025, according to S&P Global Mobility, per CNBC.
Consumers 55 and older now account for nearly half of all new-vehicle registrations and have held the largest share for eight consecutive quarters.
Younger consumers are also increasingly turning to alternatives such as ride-hailing, with 44% of ride-hailing users aged 18 to 29 citing commuting to work or school as their primary use case, according to TGM Research.
What they’re saying: “The competition in the U.S. is going to be ferocious,” Gottfredson said. “There’s too many automakers and too many brands competing for the consumers. The market is going to have to consolidate.”
Bottom line: If the market contracts as forecast, dealers will need to lean harder into customer retention, targeted marketing and operational efficiency, while ensuring their sales and F&I teams are better equipped to address the affordability concerns and buying preferences of younger consumers.
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