Top 10 Trends in U.S. Auto Distribution for 2026
This is our first annual Top 10 Trends in U.S. Auto Distribution where we review what has happened in 2025 to identify ongoing and anticipated trends in U.S. Auto Distribution for the coming year with an eye toward identifying the expected legal challenges and opportunities facing franchised auto dealers.
2025 has been a challenging year for dealers from a legal perspective with continued ramp up and adoption of EVs, new market entrants threatening the existing distribution model, shifting regulatory goal posts when it comes to EV adoption and infrastructure and new laws impacting how dealers advertise and sell cars beginning to crop up in the wake of the death of the proposed rulemaking on the FTC’s Cars Rule last January after a successful challenge by the National Auto Dealers Association and the Texas Automobile Dealers Association. Finally, U.S. tariff policy under the Trump Administration continues to threaten some brands and factory attempts to deal with tariffs put a bigger squeeze on dealer profits as incentive programs are modified to pass the expense of the tariffs to the dealer body.
Informing yourself about these issues and being proactive either to recognize their application to your business or to take advantage of an opportunity when available can keep your dealership ahead of the curve in these tumultuous times.
Disclaimer. Nothing contained herein constitutes, nor shall it be construed as, legal advice, nor shall it create an attorney-client relationship. Rather, it constitutes the lay opinion of the authors based on their experience and research. Independent research should be done before relying on any of the information contained herein for any purpose.
Artificial Intelligence (AI) and Generative AI in Dealership Operations
Artificial intelligence is being used on tasks previously thought to require human judgment, such as responding to customer inquiries or identifying patterns in data. In dealerships, these tools are increasingly used to respond to customer leads, summarize phone calls, schedule service appointments, and assist with pricing and inventory decisions. The practical issue for dealers is no longer whether AI will be used, but whether it is being properly controlled. Unmanaged use creates serious risks to customer data, operational integrity, and regulatory compliance. Dealers who passively accept AI-driven tools from vendors risk being caught unaware of how decisions are made, how data is handled, and where liability will land when something goes wrong.
Digital Retailing, Online Sales, and Data-Driven Marketing
Many if not most customers now expect to begin and even complete large portions of the vehicle purchase process online, including selecting vehicles, estimating payments, and submitting credit applications. There remains a gap between using online tools and integration with in-store processes. While adoption has increased, dealers need to take a hard look at whether their online tools actually integrate with showroom operations, as gaps between the two directly affect customer experience, deal completion, and legal compliance. The growing use of online marketing makes this alignment even more critical because inconsistencies between what customers see online and what happens in-store can negatively impact credibility, expose operational weaknesses, and lead to serious liability.
Manufacturer Pressure Toward Direct Sales Models
Vehicle manufacturers continue to explore selling vehicles directly to consumers rather than through traditional franchised dealers. These “direct sales” or “agency” models are often positioned as limited or experimental but are used to test greater factory control over pricing, branding, customer relationships, and data. While widespread replacement of the franchise system appears unlikely in the near term, these initiatives place pressure on dealer margins and autonomy and can set precedents (such as factory-controlled reservation systems) that later factories try to impose on the traditional franchise framework. Dealers should expect continued efforts by manufacturers to reshape the dealer’s role, even where the franchise system remains intact.
Cybersecurity and Protection of Customer Information
Dealerships are on track to collect massive volumes and types of customer information, including sensitive personal and financial information. Artificial intelligence tools will only magnify this trend. This expanding data footprint makes dealerships more attractive targets for cyber incidents and more vulnerable to compliance failures, particularly where data flows through multiple vendor systems. At the same time, regulators and state lawmakers are signaling heightened scrutiny, with evolving expectations around written security programs, vendor oversight, and the lawful use of data and artificial intelligence. As these pressures converge, cybersecurity is becoming a growing business and legal issue that will demand sustained attention from dealer management in the coming year.
Valuations, Mergers and Acquisitions, and Buy-Sell Activity
The market for buying and selling dealerships remains active, with continued interest from both regional and national dealer groups, but 2026 will see buyers becoming more demanding in asking sellers to prove their worth. Valuations are still influenced by brand strength, market demographics, real estate ownership, and operating performance, yet buyers are increasingly focused on data-driven proof of sustainable earnings, compliance, and predictable future performance. For traditional single-point, family-owned dealerships, the window to achieve top-tier valuations will narrow if they cannot support pricing with thorough documentation and due diligence materials, as reliance on franchise reputation alone is often no longer sufficient.
Electrification and Changing Incentives for Alternative Power Vehicles
In 2025, the EV landscape entered a new post-incentive era , the impact of which we will see even more acutely in 2026. Federal tax credits are scheduled to narrow even further and in many cases sunset completely. As incentives fall away, the slower demand will put pressure on dealer inventory, pricing, and sales performance. In the coming year, dealers should place greater emphasis on demand forecasting, inventory discipline, and clear customer messaging as hybrids regain relative strength.
Succession Planning and Manufacturer Approval of Ownership Changes
Succession planning is coming more to the fore as manufacturers take a more active role in reviewing dealer ownership and control. Rather than waiting for a proposed transfer, many manufacturers are now using annual dealer agreement renewals and addenda to request more detailed information about ownership structures, trusts, limited liability company operating agreements, and potential future changes. While this increased scrutiny can create friction and tighter timelines, dealers continue to have important rights under state franchise protection laws and should be cautious about providing information or agreeing to changes that go beyond what is required. As this trend accelerates into 2026, dealers would be well-served to review these requests carefully and consult experienced counsel before accepting demands for heightened oversight by or information sharing with the factory.
Supply Chain Disruptions, Tariffs, and Local Sourcing
Supply chain issues extend beyond past shortages and now include exposure to tariffs, shifting production locations, and regional sourcing decisions by manufacturers. Tariffs will invariably increase vehicle costs and disrupt dealer pricing strategies. Compounding the existing uncertainty, the U.S. Supreme Court is poised to issue a ruling on the scope of executive tariff authority. When its decision is issued sometime in 2026, expect either an entrenchment of current tariff policy or abrupt tariff reversals. These factors will impact vehicle availability, model mix, and consumer demand. Dealers must manage customer expectations and adapt quickly as pricing and incentives change in response to these pressures.
Software-Based Vehicles and Remote Updates
Software-defined vehicles are increasingly shifting value received by reason of a vehicle sale from the point of the actual sale to some period after the sale when software activations and subscriptions are purchased, allowing manufacturers to monetize features that were traditionally sold through dealers. Some states, including California, have acted to limit certain subscription practices where hardware is already installed, reflecting concern over manufacturers using software to eliminate dealer margin. Heading into 2026, expanded use of over-the-air updates and remote feature activation is renewing pressure on dealer participation, compensation, and the definition of what constitutes sales and service activities long held to be reserved to the dealer under the franchise laws. At the same time, longstanding right-to-repair and vehicle data access laws in states such as Massachusetts and Maine are colliding with software-driven vehicles, setting up further legal and economic challenges over control of diagnostics, data, and the customer relationship.
Advanced Driver Assistance and Automated Driving Technologies
Advanced driver-assistance and automated driving features are moving into a more consequential phase as manufacturers take increasingly different approaches to autonomy, often tied directly to pricing and brand positioning. Some manufacturers are pushing more aggressive autonomy claims and monetizing advanced features, while others have taken a more cautious approach, creating competitive pressure that dealers feel depending on brand alignment. Heading into 2026, regulators are signaling closer scrutiny of how these systems are marketed, deployed, and monitored, particularly as higher-profile incidents drive calls for clearer guardrails. This sets up 2026 as a period of recalibration, where more aggressive autonomy strategies may be reined in, and clearer regulatory standards could give more cautious manufacturers greater confidence to expand features. Dealers should expect increased attention to disclosures, customer education, and potential changes in how autonomy is sold, priced, and regulated across brands.
As 2026 begins, U.S. auto dealers face major disruption and opportunity. Success will depend on embracing innovation, ensuring compliance, and making informed decisions. Those who act swiftly and strategically will lead the industry’s next era of growth.