Auto sales could hit below pandemic 2020 levels amid low inventory challenges

Low inventory levels led Cox Automotive analysts to again revise their full-year U.S. 2022 new-vehicle sales forecast downward.

At a discussion Tuesday with media, analysts projected 14.4 million sales this year, below the 14.6 million sold in pandemic year 2020.

Cox initially forecast 16 million sales for the year before dropping that estimate to 15.3 million, followed by the latest revision.

June sales are expected to finish near 1.2 million, down 7.5% from last year’s 1.3 million sales, Cox forecasts. Most automakers will report June and second-quarter sales on Friday.

Tight inventory continues to constrain sales, with supply issues still lowering output while demand remains steady. As a result, since June 2021, monthly sales have been averaging 1.1 million units a month.

“It is simply impossible given the latest production forecast to get to 15 million by the end of the year,” Cox Chief Economist Jonathan Smoke said during the roundtable discussion.

Despite lower sales, automakers are making more per sale in the low-supply, high-demand market where incentives aren’t needed to achieve sales. Demand is expected to stay put for the most part, but declining consumer confidence and the Federal Reserve’s move to increase the benchmark interest rate to curb inflation could dissuade some people from buying in 2022.

“There’s still a greater demand than what we have available,” Cox Senior Economist Charlie Chesbrough said.

“We still see this market as constrained. Clearly, the higher interest rates and the changing economy … probably moves some folks out of the line that wanted to get a vehicle,” he said. “But, again, it’s still just we don’t have enough product for the people who do want to … buy this year.”

Moving forward, it’s unclear how quickly automakers will want to rebuild inventories to get back to “normal” levels since they are doing well in this environment.

“We’re seeing more and more evidence that this tight-supply market, these high prices, these strong margins that the OEMs are getting and strong dealer sentiment from all of this that they are still making good money suggests that the industry really isn’t in a massive hurry to get things back to the way they were,” he said.

Chesbrough did say “sales aren’t high enough now to keep revenues at a stable level, so they are suffering a little bit more than they were last year.”

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