Walt Kowalski (Clint Eastwood) is a cantankerous, retired Polish American assembly line worker and Korean War veteran, who has recently been widowed after 50 years of marriage, causing him to be a lapsed Catholic. His Highland Park, Michigan neighborhood in the Detroit area, formerly populated by working class white families, is now dominated by poor Asian immigrants, and gang violence is commonplace. Adding to his isolation and detachment are his feelings towards his married sons and their families.
He rejects a suggestion from one of his sons to move to a retirement community (sensing that they want his home and possessions), and lives alone with his elderly dog. A longtime cigarette smoker, Walt suffers from coughing fits, occasionally coughing up blood, but conceals this from his family. Roman Catholic priest Father Janovich (Christopher Carley) tries to comfort him, but Walt disdains the young, inexperienced man. Eventually, Walt opens up to the priest, revealing that he is still haunted by memories of the war.
The Hmong Vang Lor family reside next door to Walt. Initially, he wants nothing to do with his new neighbors, particularly after he catches Thao (Bee Vang) attempting to steal his 1972 Ford Gran Torino as a coerced initiation into a Hmong gang run by Thao's cousin, Fong, whose nickname is "Spider". The gang is infuriated by Thao's failure and they attack him, but Walt confronts them with an M1 Garand rifle and chases them off, earning the respect of the Hmong community.
As penance, Thao's mother makes him work for Walt, who has him do odd jobs around the neighborhood, and the two form a grudging mutual respect. Thao's sister Sue (Ahney Her) introduces Walt to Hmong culture and helps him bond with the Hmong community, who soon become more like family to Walt than his actual family and he, in turn, becomes a better man to them than their own father was. Walt helps Thao get a job and gives him dating advice. Walt eventually visits a doctor regarding his coughing fits, where it is implied that he doesn't have very long to live.
Spider's gang continues to pressure Thao, assaulting him on his way home from work. After he sees Thao's injuries, Walt visits the gang's house, where he attacks a gang member as a warning. In retaliation, the gang performs a drive-by shooting on the Vang Lor home, injuring Thao. They also kidnap and rape Thao's sister Sue. There are no other witnesses, while the community members, including the victims, refuse to assist the police to incriminate the assaulters.
The next day, Thao seeks Walt's help to exact revenge, whereas Walt tells him to return later in the afternoon. In the meantime, Walt makes personal preparations: he buys a suit, gets a haircut, and makes a confession to Father Janovich, who had pressured him to make it at the behest of his late wife. When Thao returns, Walt takes him to the basement, gives him his Silver Star medal, and tells him of his haunting memory of having killed a surrendering enemy soldier. He then locks Thao in his basement, until the revenge is over, to make sure the boy will never be haunted by killing someone, with his life ahead of him.
That night Walt goes to the gang members' house, where they draw their weapons on him. He loudly berates them and enumerates their crimes, drawing the attention of the neighbors. Putting a cigarette in his mouth, he asks for a light, then puts his hand in his jacket and provocatively pulls it out as if he were holding a gun, causing the gang members to shoot and kill him. As he falls to the ground, his hand opens to reveal the Zippo cigarette lighter with the 1st Cavalry insignia that he had used throughout the film, revealing that he was unarmed. Sue, following Walt's directions earlier, frees Thao, and they drive to the scene in Walt's Gran Torino. One of the police officers tells them that all gang members have been placed under arrest for the murder, a crime which the family and the entire community come forward to witness this time.
Walt's funeral Mass is celebrated by Father Janovich and attended by his family and many of the Hmong community, many of whom are wearing traditional attire; their presence visibly puzzles Walt's family. Later, his last will and testament is read. To the surprise of his family, Walt leaves them nothing: his house goes to the church and his cherished Gran Torino goes to Thao, with the condition that he won't modify the vehicle. As the film ends, Thao is seen driving the car along Jefferson Avenue with Walt's dog.

Question: Why does Walt want nothing to do with his next door neighbors?
Answer: One of them attempted to steal his Gran Tarino as part of a gang initiation.
Alternative answer: Because he is from a different culture and generation.