U.S. auto sales likely rose in December and will rebound in the new year as a recovery in vehicle production will more than offset the effects of inflation and rising interest rates.
Two years of semiconductor shortages and supply problems have kept vehicle production low and inventories lean. With factories picking up pace again, consumers will buy more vehicles this year even if automakers have to help them manage rising interest rates by cutting today’s lofty prices.
Steve Fecht, General Motors via TNS
General Motors Chairman and CEO Mary Barra talks with Crain Communications President and COO KC Crain Jan. 16, 2019, at the Automotive News World Congress.
“We are still seeing strong demand for our vehicles, but we’re mindful because the steady rise of average transaction prices is starting to come back a little,” General Motors Co. Chief Executive Officer Mary Barra said at an Automotive Press Association event in December.
The net effect is that the U.S. auto industry is expected to grow by more than 1 million vehicles in 2023 to about 15 million units. That’s below recent years when automakers enjoyed sales of 16 to 17 million vehicles but signals that the industry can weather this year’s expected economic stress.
“We’re planning for an industry around 15 million,” Barra said, “but having contingency planning plus or minus off of that.”
Retail sales of new cars in December likely rose 4{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} from a year ago to 1.27 million as inventories continued to improve, according to researcher Cox Automotive. Still, that’s short of the typical 1.5 million units seen in December, when carmakers push year-end sales campaigns to hit annual targets.
Total sales for 2022 were likely below 14 million units, the lowest since 2011, when the U.S. was climbing out of the depths of the Great Recession.
Inflation and interest rates are squeezing some shoppers out of the new-car market and pushing up auto-loan defaults. Meanwhile, used-car prices, which determine the trade-in values that many consumers use as currency when buying a new car, are falling.
That won’t deter many new-car buyers, said Jack Hollis, Toyota Motor Corp.’s executive vice president of sales for North America. He said vehicle shortages of the past two years have kept between 4 million and 7 million consumers from buying and many could be back in showrooms this year.
“It’s clear that demand is still outstripping supply,” Hollis said in an interview last month. “Prices keep rising. We will have another year with a supply-constrained sales number.”
Hollis is betting the industry will reach 15 million vehicles this year and could sell as many as 17 million if it weren’t for supply-chain issues.
Carmakers likely sold new cars at an annual pace of 13.2 million in December, up 6{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} from a year earlier, according to the average forecast of seven market researchers. Most automakers will report their latest quarterly and annual U.S. new car sales on Jan. 4.
GM, Hyundai Motor Co. and Toyota likely saw big sales gains in December, while deliveries at Ford Motor Co., Stellantis NV, Honda Motor Co. and Nissan Motor Co. dropped versus a year ago, according to RBC Capital Markets analyst Joseph Spak.
While two years of tight inventory may create a floor for demand in 2023, carmakers’ days of minting money on a small volume of vehicles at inflated prices may be waning.
Keith Srakocic, Associated Press
A shortage of computer chips and other parts hobbled the U.S. auto industry in 2022, slowing factories and contributing to an expected 8{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} decline in sales from the previous year. And although supplies are improving and prices are coming down a little, auto factories aren’t likely to get back to full production until next year.
Tesla Inc. this week reported record deliveries but missed analysts’ estimates for the fourth quarter and came up short of its own targeted growth rate of 50{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} despite dropping prices.
Scott Kunes, chief operating officer of Kunes Country Auto Group, which sells brands from all three Detroit automakers and a host of imports at 43 dealerships across the Midwest, said December was weaker than usual because manufacturers were tight-fisted with incentives.
“Everybody was used to the new normal, pandemic normal where incentives weren’t there because demand was so high and supply was so short,” Kunes said by phone. “We see this abrupt slowdown in demand — I didn’t think it would happen quickly, but the Fed raised rates as much as they have and consumer confidence is pretty down right now.”
The industry’s shift toward building high-margin trucks and SUVs has shrunk the pool of buyers who can afford a new car, he said. Prices are dropping on high-end vehicles, while demand for entry-level cars in the used market is still hot.
Researcher Evercore ISI expects to see “pricing levers pulled for the first time in two years” in 2023, with sticker prices coming down $1,500 to $2,000 per car, according to a Dec. 23 research note. Dealers will first have to halt their mark-ups before automakers’ profit margins will be affected, the analysts wrote.
One bright spot this year will be fleet sales, thanks to the Inflation Reduction Act. President Joe Biden’s sweeping climate bill grants a $7,500 tax break for electric work trucks, rental cars and delivery vans.
The CEOs of Ford, GM and Rivian Automotive Inc. have all crowed about their expectation for robust commercial vehicle sales as businesses and local governments seek to take advantage of the EV subsidy.
That will mark a reversal of the past two years, when chip scarcity forced automakers to curb their fleet sales to prioritize more profitable retail customers.
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Canva
The auto industry’s COVID-19 pandemic woes—chief among them supply chain delays that shut down factories and left showrooms looking stripped—were a boon to used car dealerships. Low inventory meant a rise in the price of cars, both new and used. Meanwhile, would-be customers with a car to trade in were getting top dollar.
CoPilot analyzed data from the U.S. Bureau of Labor Statistics to see how many car dealers per capita there were in 2021, and how the number of establishments and number of people employed changed since 2020.
At the start of the pandemic, people largely avoided mass transit—so much so ridership decreased by 79{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} between September 2019 and September 2020. Many people were afraid of COVID-19 transmission on public transportation, and many public transit options ran on limited schedules, leaving them with scant options aside from driving.
As the pandemic intensified, automakers and chip buyers cut off purchases amid anxieties around a global recession. A shortage of semiconductors for new cars came next as demand for automobiles rose, sending sales of used cars soaring across the country. Some experts predict similar supply chain problems to continue in 2022.
Amid the height of the pandemic, the price of used cars rose faster than those of new cars. The average cost of all new vehicles, among them cars and SUVs, was more than $47,000 at the end of 2021, representing an increase of more than 25{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} in two years. Compare that to the average cost of used cars, whose prices were up to $28,000 or a more than 42{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} spike in 2021.
Nationwide, there are 26,528 used car dealers. That works out to about eight used car dealers per 10,000 residents, an increase of 2.35{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} since 2020. Used car dealers employed 173,860 people, a 10.6{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} increase over 2020.
Find out which states led the way in used cars dealers.
Canva
The auto industry’s COVID-19 pandemic woes—chief among them supply chain delays that shut down factories and left showrooms looking stripped—were a boon to used car dealerships. Low inventory meant a rise in the price of cars, both new and used. Meanwhile, would-be customers with a car to trade in were getting top dollar.
CoPilot analyzed data from the U.S. Bureau of Labor Statistics to see how many car dealers per capita there were in 2021, and how the number of establishments and number of people employed changed since 2020.
At the start of the pandemic, people largely avoided mass transit—so much so ridership decreased by 79{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} between September 2019 and September 2020. Many people were afraid of COVID-19 transmission on public transportation, and many public transit options ran on limited schedules, leaving them with scant options aside from driving.
As the pandemic intensified, automakers and chip buyers cut off purchases amid anxieties around a global recession. A shortage of semiconductors for new cars came next as demand for automobiles rose, sending sales of used cars soaring across the country. Some experts predict similar supply chain problems to continue in 2022.
Amid the height of the pandemic, the price of used cars rose faster than those of new cars. The average cost of all new vehicles, among them cars and SUVs, was more than $47,000 at the end of 2021, representing an increase of more than 25{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} in two years. Compare that to the average cost of used cars, whose prices were up to $28,000 or a more than 42{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} spike in 2021.
Nationwide, there are 26,528 used car dealers. That works out to about eight used car dealers per 10,000 residents, an increase of 2.35{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} since 2020. Used car dealers employed 173,860 people, a 10.6{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} increase over 2020.
Find out which states led the way in used cars dealers.
