High borrowing rates, issues with the supply chain, and concerns about a recession were some of the main obstacles facing the global automobile sector in 2022.
It’s unlikely that such problems will be fixed right away. On Wall Street, there is growing concern that the supply constraints this year might swiftly develop into a “demand destruction” scenario just as auto manufacturing is finally starting to pick up.
Given inflation, interest rates, and energy costs, there is “active demand destruction in the industry,” according to Bernstein analyst Daniel Roeska, although so far, this has only affected the backlog
Roeske noted that markets will want to grasp where, when, and how much pain manufacturers will face when vehicle manufacturing ramps back up early next year.

Vehicle sales may yet increase.

In contrast to conventional downturns or previous lulls in demand, most analysts anticipate an increase in worldwide and U.S. auto sales in 2023. This is mainly because, since the Covid-19 outbreak began in early 2020, auto sales in the United States and other countries were already at or close to recessionary levels.
The pandemic affected global supply networks and manufacturing, forcing automakers to drastically reduce production. Due to the consequent lack of new cars, trucks, and SUVs, automakers and dealers demanded – and received – much higher prices for the vehicles they could provide.

According to Jonathan Smoke, chief economist at Cox Automotive, “new car supply is finally stabilizing, but the industry is substituting a supply problem with a demand crisis and that doesn’t speak good for revenues and profitability in the year ahead.”
Charlie Chesbrough, senior economist and senior director of industry insights at Cox Automotive, called the company’s prediction of 14.1 million new vehicle sales in the United States in 2023 as “tepidly optimistic.”

According to analysts, this year’s U.S. auto sales will come to around 13.7 million. Sales in the United States totaled 15.1 million in 2021 and 14.6 million in 2020.

In 2023, S&P Global Mobility projects that sales of new cars would rise by 5.6% to almost 83.6 million units globally. The analytics and consulting company forecasts that sales in the US will increase by 7% in 2023, to approximately 14.8 million units.
Chesbrough said that due to low inventories and record-high prices, many lower-income and subprime borrowers who would ordinarily exit the new vehicle category during a recession had already done so.

But big gains might be in jeopardy.

These sales growths are probably going to come at the expense of the unheard-of pricing power and profits automakers have made on new cars in recent years.
“Ongoing supply chain issues and recessionary worries will cause the market to recover cautiously. Consumers in the US are bracing themselves, and a return to pre-pandemic levels of vehicle demand seems unlikely. According to a statement from Chris Hopson, manager of North American light vehicle sales prediction at S&P Global Mobility, “Inventory and incentive activity will be critical barometers to measure possible demand destruction.”

In other words, would rising interest rates, escalating concerns about a recession, and an excess of inventory drive manufacturers to reduce prices and forgo profits in order to attract customers to showrooms?

For consumers, who have been dealing with historically high pricing for new cars this year, it would be excellent news. However, if that’s the case, manufacturers will pay a price, as well as perhaps their stockholders.