Sales of new vehicles were hemmed in again during December, setting the stage for what could be a bumpy ride in 2022. The auto industry is still haunted by COVID-19, causing shortages of key materials critical to the growing market for electric vehicles.
That’s the joint forecast issued by J.D. Power and LMC Automotive. The companies estimate December 2021 U.S. retail auto sales will decline 17.4% to 1.105 million units compared with December 2020 when adjusted for the number of selling days. Without the adjustment, sales decreased 20.4% year-over-year.
Lean inventories are depressing sales
“Bottom line, tight inventory continues to hold the industry in check,” according to a statement from Cox Automotive. “Sales in December are forecast to be down more than 30% year-over-year, and auto sales in 2021 will finish below 15 million for the second straight year.”
A similar joint estimate by J.D. Power and LMC Automotive forecasts seasonally-adjusted new-vehicle sales of 13 million units for 2021, down 3.5 million units from 2020.
Inventory is rising, but so are prices
But December did bring some good news along with the bad.
“Retail inventory is showing some improvement, tracking at just more than one million units for the first time since July and transaction prices and retailer profits are at record highs,” said Thomas King, president of the data and analytics division at J.D. Power, in a statement.
But new vehicles aren’t sitting on dealer lots for very long, according to King.
“This December, a record of nearly 57% of vehicles will be sold within 10 days of arriving at a dealership, while the average number of days a new vehicle sits on a dealer lot before being sold is on pace to fall to 17 days, a record low and down from 49 days a year ago.”
King says that while inventory is improving, it’s still well below levels to where consumer demand can be met. This is leading to an expected record high average transaction price of $45,743, the first time ever above $45,000 and 20% higher than December 2020.
OEMs react by reducing incentives
Exacerbating higher prices is reduced manufacturer vehicles incentives, which are expected to fall to an average of $1,598 per vehicle in December 2021, down from $2,291 from a year ago. This is due to the lack of vehicles on the ground. With fewer to sell, there’s less of a need for incentives to move the metal.
Nevertheless, overall supply will remain lean next year as the semiconductor supply chain remains challenged, according to analysts with IHS Markit.
Virus continues to haunt sales outlook
Looking ahead, IHS Markit predicts new light vehicle sales of nearly 82.4 million globally in 2022, up 3.7%, with sales continuing to recover across most regions, according to IHS. That’s assuming the ongoing availability of effective vaccines and the lack of major impacts from the Omicron variant.
Nevertheless, depressed vehicle output is expected to impact depleted inventories for some time, delaying fulfillment of existing orders.
“The path of the pandemic remains an important driver of the 2022 auto demand cycle, especially the ‘race’ between vaccine and variants. Concerns remain as winter arrives for Northern Hemisphere nations, and the emergence of the Omicron variant represents a worrying development,” said Colin Couchman, executive director, global light vehicle forecasting, IHS Markit.
What’s expected in 2022
Looking at 2022, IHS analysts estimate U.S. sales volumes are expected to reach nearly 15.5 million units, up an estimated 2.6% from their projected 2021 level of approximately 15.1 million units.
“For 2022, the pace of sales is expected to quicken in the second half of the year. Given current inventory conditions, it’s difficult to project significant demand recovery in the first half of 2022. But we expect to exit 2022 with a pace of sales more recognizable to pre-COVID levels, setting the stage for better volume outlooks into 2023 and 2024,” according to Chris Hopson, manager, North American light vehicle sales forecast, IHS Markit.
