Auto execs have been expressing confidence for months that there will be eager buyers for any vehicles they can build. A deteriorating economic picture puts this theory to the test.
The US auto industry is expected to report flat new car sales for the third quarter, despite earlier predictions that this year’s weak pace of sales would accelerate in the second half, analysts are forecasting. Most automakers are scheduled to report their third-quarter sales results on Monday.
Stock shortages remain the big problem, auto executives and dealers say, as shortages of computer chips and other supply chain deficiencies continue to impact vehicle production and slow sales.
Still, there are signs the demand backlog that has built up over the past 18 months may be worsening as consumers feel the pinch of higher interest rates, analysts say.
“It seems likely that much of the pent-up demand will quickly disappear due to limited supply as high interest rates erode vehicle buyers’ willingness and ability to buy,” said Charlie Chesbrough, senior economist at research firm Cox Automotive.
Supply chain problems, parts shortages and inflation make it more expensive for automakers like Ford to produce vehicles. Will this trend continue and does it mean that cars will become more expensive? George Downs of the WSJ explained. Figure: George Downs
The company last week lowered its U.S. sales forecast for 2022 to 13.7 million new vehicles, down 9% from a year earlier. In the five years leading up to the pandemic-stricken 2020, the industry sold more than 17 million vehicles annually.
So far, however, auto companies and dealers say most new vehicles that ship from the factory are quickly bought by buyers.
“There’s still really strong consumer demand and tremendous replacement demand,” said Duncan Aldred, General Motors Co. GM’s head of Buick and GMC brands, during an interview at last month’s Detroit Auto Show. “I think that’s likely to overcome a lot of the economic headwinds.”
Auto companies and dealers say most new vehicles that ship from the factory are quickly bought by buyers.
Photo: Brandon Bell/Getty Images
Automakers and dealers continue to post strong gains as tight inventories keep prices at or near record highs. The average price paid by U.S. auto buyers in the third quarter was $45,971, up 10% year over year and the highest on record, according to market research firm JD Power.
But there are signs that rising interest rates are starting to weigh on car buyers, which could put pressure on prices. The average interest rate paid to buy a new car hit 5.7% in September, up from about 4% a year earlier, JD Power said.
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Over the past week, shares in CarMax Inc. KMX fell 1.32% after the used car dealer cautioned that high prices coupled with high overall inflation and rising interest rates have slowed demand. The company’s earnings fell 50% last quarter and sales settled at 2% growth, both worse than analysts had expected.
“This indicates some deterioration in unit prices and profitability over the coming quarters as rising interest rates and economic conditions impact demand,” said Thomas King, president of the Data and Analytics Division at JD Power.
Write to Mike Colias at [email protected]
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