New Jeeps on display at a New York City car dealership on Oct. 5, 2021.

Spencer Platt | Getty Images

DETROIT — Automakers are hopeful last year’s new vehicle sales — the worst in more than a decade — will mark a bottom for the market, at least in the near term.

Industry estimates range from 13.7 million to 13.9 million new vehicles being sold last year in the U.S., a roughly 8% to 9% decline compared with 2021 and the lowest level since 2011 when sales were recovering from the Great Recession.

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Sales varied widely by automaker, as parts and supply chain problems affected companies at different times, but most — with General Motors’ 2.5% gain as a notable exception — were down compared with 2021. Ford Motor, Hyundai and Kia all reported low single-digit declines. Toyota Motor was down 9.6%, while Stellantis, Nissan and Honda Motor posted double-digit falls of 13%, 25% and 29.4%, respectively.

But auto industry executives remain cautiously optimistic that sales will rebound in 2023, regardless of recessionary fears, rising interest rates and other economic concerns. A typical year prior to the pandemic saw more than 17 million in sales.

Toyota and GM said they expect U.S. auto sales to increase to about 15 million vehicles this year. That would be a roughly 9% increase over 2022. S&P Global Mobility and Edmunds expect 2023 new U.S. vehicle sales to be 14.8 million, while Cox Automotive’s preliminary forecast is 14.1 million.

“We’re cautiously optimistic about the future. In 2023, there will be an uptick not quite as high as we would love it to be but going the right direction,” Jack Hollis, executive vice president of Toyota Motor North America, said during a briefing Wednesday. “Demand is still higher than our supply.”

The reason for the optimism is two-fold: Sales have been at or near recessionary levels due to parts and supply chain issues, plus demand has piled up from consumers and businesses after years of tight vehicle inventories during the pandemic.

Automakers have reported record or near-record results in recent years amid the tight supply of new vehicles and resilient consumer demand. They have banked on sustained pent-up demand as inventory levels normalize, hoping to avoid heavy discounts or incentives to move vehicles.

The deep discounts typical of the industry help to maintain production and increase sales, however several auto executives have vowed they will not return to such tactics at the cost of profits.

Automakers can offset underwhelming retail sales with fleet sales to governments and companies such as rental car agencies. Those bulk sales have taken a back seat to retail customers in recent years and are traditionally less profitable than those to consumers but assist in moving product.

“The fleet demand is very high, no doubt,” Hollis said, adding he believes there will be a “moderation” across the industry regarding incentives.

Charlie Chesbrough, Cox’s senior economist and senior director of industry insights, said he doesn’t believe vehicle sales will post any notable increase in 2023 — unless automakers let up on pricing to make them more affordable.

Automakers have largely passed rising commodity costs to build vehicles onto consumers, making the vehicles more expensive. That, combined with skyrocketing interest rates, higher gas prices and broad inflation, has dampened new vehicle demand.

“This is one of those rare times where we really have no idea which direction the market could go. It could easily go up or down from where we’re at right now,” Chesbrough told CNBC. “The pace over the last couple of months has been definitely pointing to a weakening market.”

Vehicle inventories improved toward the end of the year — a sign record-high vehicle prices may finally ease. And higher volumes bring the potential for a “demand destruction” scenario, where supplies begin to outpace demand.

Many on Wall Street also fear that the most profitable days for automakers may be behind them amid higher interest rates, falling used vehicle prices and a normalization of sales mix away from fully loaded models.

Chesbrough said there’s “certainly downside risk to the market” in the event of a full-blown recession. But he said the impact wouldn’t be as prevalent as it has been in the past because many lower-income and subprime borrowers, who would typically leave the new vehicle segment during a recession, have already done so because of low inventories and record-high prices.

Last year’s sales total remains an estimate because not all automakers publicly release results. Motor Intelligence reports sales were nearly 13.9 million units last year, Cox Automotive estimates sales at 13.8 million and Edmunds and Wards Intelligence estimate 13.7 million.

Post source: cnbc

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