Rising prices, narrowing profit margins, tariff uncertainty, the changing electric vehicle market and a growing role for artificial intelligence are all triggering an accelerated rate of mergers and acquisitions in the auto sector, according to report released Tuesday by financial consultant corporation PwC.
“In 2026, speed, scale, and technology will define automotive M&A to combat nagging margin pressures, with valuations increasingly driven by AI insights and supplier consolidation becoming imperative,” the report stated.
Evidence of the trend came in the third quarter of this year as megadeals in the industry drove 150% of M&A deal value growth from $9.3 billion in Q2 to $23.4 billion, even as the number of deals remained flat between quarters, the report showed.
The lion’s share of those transactions came within the auto dealer body—as smaller dealerships faced with selling vehicles that cost more, but result in narrowing margins, along with other challenges are giving up the fight as solo combatants, taking refuge as part of larger groups.
“You see like Penske Group, Hudson Automotive, Sewell Automotive, US Auto Trust— there’s a lot of like, dealers behind the dealers, or groups behind the dealers that were pushing for those transactions,” observed Michael Fiore, who heads up the industrial product sector for M&A at PwC, in an interview. “I think that they saw, listen, ‘25 has been tough. There’s a lot of people who don’t want to kind of go through the year end financials and then have a worse business to offer to sellers. So I think it was probably dealerships that were, or groups that were always there, may have been looking at transaction for a while as in terms of a liquidity event, and it was the time to capitalize.”
Automakers and suppliers are facing some of the same challenges as dealers including whipsaw changes in import tariff levels and targets and what PwC terms the “EV reset” following the demise of the federal tax credit at the end of September.
The differences are how each sector is dealing with these situations.
For automakers, the slowdown in pure EV sales once the tax breaks disappeared and the Trump administration’s desire to pull back from previous high fuel economy mandates, means a sobering reconsideration of powertrain mix, including reversion to investing in internal combustion engine, or ICE and hybrid vehicles, according to the report.
“What does ‘26 look like? You start to see things are more venture investments, more like opportunistic things that they’re kind of like picking into like, incubate a business, or incubate something EV related, or a battery technology,” said Fiore.
For suppliers, they “ face ongoing tariff and geopolitical risks, while inflation in labor, energy, and raw materials continues to disrupt margins, cash flow, and operations,” the PwC report stated.
“I expect that within the supplier realm, you’ll see them trade assets, spin or divest assets in order to capitalize on the valuations that are there, or to just kind of simplify their portfolio based upon feedback they get from analysts that look at the market,” added Fiore.
While automakers, suppliers and dealers all tackle conditions before them, private equity is eyeing the industry through the lens of consumers preferring tradition over new technologies, especially EVs, and betting money on it.
“They’re getting into both the supplier base as well as the aftermarket and the care sectors of vehicles, because they see ICE as being a long term thing that you and me and others are going to get our car serviced somewhere,” said Fiore.
Contributing to the volume and value of deals within the automotive industry is the growing influence of AI as companies use the powerful technology to help evaluate conditions, prospective targets and partners, according to the report.
Fiore notes AI is especially useful in accessing large data sets and making keener determinations as to where the most fertile markets for a particular vehicle or vehicle type may lie.
“So they’re actually getting strategic advice that will impact maybe M&A or growth decisions that they have to make, and they’re using AI to help them through that, versus, you know, months and months of a long, drawn out process with maybe a firm or their internal strategy,” Fiore noted.
Looking ahead to 2026, the PwC report predicts over the next six months, “dealmakers will navigate increased government intervention, technological change and greater reliance on AI-driven sector insights (engineering matters, customer experience, valuation tools, etc.). Overall deal value could rise as consolidation and strategic repositioning continue.”
What does all this mean for consumers already facing historic high vehicle transaction prices averaging $50,000 along with rising prices for groceries and other commodities?
Fiore’s outlook is muted but hopeful that all these deals in the auto industry might eventually result in a better deals in the marketplace, surmising “Consumers are going to be facing price challenges going forward, and you know, hopefully that maybe there’s some consolidations or things that happen in the future that kind of benefit them. But for right now, yeah, there’s, they’re in a tough spot.”
TTAC Creator Ed Garsten hosts ” Tales from the Beat,” a podcast about the automotive and media worlds. A veteran reporter and public relations operative, Garsten worked for CNN, The Associated Press, The Detroit News, Chrysler’s PR department and Franco Public Relations. He is currently a senior contributor for Forbes.
The TTAC Creators Series tells stories and amplifies creators from all corners of the car world, including culture, dealerships, collections, modified builds and more.
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