U.S. Auto Industry Predicted to Experience Worst Sales Year in Over 10 Years

It is anticipated that the U.S. auto industry will experience a decrease in total sales for 2022, a year that posed difficulties for both car companies and customers due to supply-chain issues that left dealerships with limited stock to offer.

This Wednesday, General Motors Co., Toyota Motor Corp., and other auto manufacturers are set to announce their annual sales figures, amidst worries of a potential economic downturn that could reduce the demand for vehicles and affect profits in the coming year. Ford Motor Co. will report their 2022 sales on Thursday.

Industry-wide, U.S. auto sales are predicted to total 13.7 million vehicles in 2022, which is the lowest number in over 10 years and an 8% decrease from the year before, as reported by J.D. Power and LMC Automotive. It is anticipated that sales will stay significantly lower than pre-pandemic levels of around 17 million.

At the beginning of the year, the automotive sector was optimistic that low interest rates and an end to parts shortages would lead to an increase in sales. However, the lack of computer chips and Russia's invasion of Ukraine, a major supplier of auto parts, caused a shortage of vehicles and reversed the expected trend.

The shortage of semiconductors caused a surge in demand for new vehicles, resulting in cars and trucks being sold almost immediately after they arrived at the dealership. This lack of availability caused buyers to pay a premium for the vehicles they were able to get, leading to an average price of $46,382 in December, as reported by J.D. Power.

Last year, the auto industry was able to maintain its profits due to record high prices, even though sales volume decreased and consumer spending dropped.

Although some supply issues have been alleviated, auto executives are now facing other challenges, such as increasing interest rates and escalating material costs. Stock levels are recovering, which is forcing car companies to avoid the kinds of discounts that can hurt their profits, which have been traditionally used to counter a decrease in demand.

Analysts have warned that it is too soon to determine if the increasing prices are causing buyers to back away. In December, large parts of the northern U.S. experienced heavy snowfall, making it difficult to observe the effects of the higher prices, according to a note from JPMorgan analysts to their clients.

Nevertheless, there are indications that the demand for cars, even from the most popular manufacturers, may be decreasing.

Tesla Inc. revealed on Monday that their growth expectations were not met in 2020, due to the Covid-19 pandemic causing shutdowns at their Shanghai factory and alterations in the production and delivery of their vehicles.

Experts have suggested that the shorter wait times for Tesla cars may be an indication of a decrease in demand. Tesla recently provided a rare discount on some of its vehicles if customers agreed to take delivery before the end of 2022.

J.D. Power reported that electric-vehicle sales made up 3% of the U.S. retail market in 2021 and almost 6% in 2022.

Business leaders have been pouring billions of dollars into new designs and production facilities, expecting that sales will grow significantly in the upcoming decade.

The cost of the raw materials used to make lithium-ion batteries increased in 2022, leading to a rise in electric vehicle prices. Some industry leaders cautioned that a lack of batteries could be on the horizon.

General Motors has revised its goal for electric vehicle sales in 2023 due to a slower-than-anticipated rise in battery production.

The semiconductor shortage has been alleviated for some industries, such as smartphones and personal computers, but it continues to be a problem for the automotive sector. This is due to the fact that car companies usually use low-cost, generic silicon for their vehicles. Toyota has reduced its production outlook for the current fiscal year due to the lack of chips.

The decreasing worth of pre-owned cars is a discouraging factor for those who are looking to purchase a new vehicle and use their current car as a trade-in to reduce the cost.

Retailers are concerned that the lack of cars available for purchase will lead to a decrease in sales this year, as buyers who were unable to purchase a car due to shortages will now be unable to afford them, according to a survey conducted by Cox Automotive.

According to Edmunds, new-car sales are projected to reach 14.8 million in 2023, a slight increase from the previous year but still lower than before the pandemic. They also noted that rising rates, inflation, and economic instability could make vehicles unaffordable for many consumers.