As the auto business moves toward the second half of 2022, new studies warn the industry faces a range of challenges from the continuing rise of gas prices to fickle consumers sentiment and a stalling global economy.
J.P. Morgan now predicts the price of a gallon of gasoline could average $6.20 per gallon across the nation during the summer as the price of gasoline surges another 37% before Labor Day, according to a new report by the bank’s commodities analyst Natasha Kaneva.
The pace of domestic light vehicle assemblies, however, ramped up markedly March–April, and dealer lots are expected to start filling back up, while the sales pace trends to 16 million later this year, noted a new report from economists at the University of Michigan.
Meanwhile, light vehicle sales are rising slowly, with the January–April annualized sales pace rising to an average of 14.2 million units from 12.8 million last autumn, the report said. In the U.S., the pace of light vehicle sales could improve to 15.9 million units during the second half of 2022, with the whole year totaling 15.1 million units.
Weak consumer sentiment could slow sales
However, sales growth begins to slow in late 2023 and continues into early 2024, as easing supply constraints are counteracted by slowing economic and job growth, rising interest rates and high prices, U-M noted, adding a “historic disconnect between the University of Michigan’s Index of Consumer Sentiment and actual consumer behavior” persists.
“The index declined by nearly 30% since May 2021, despite strong consumption and employment growth,” the report said. The low sentiment readings in the consumer survey suggest a risk of prompt consumer retrenchment should the overall economy sour.
The volatile economic environment makes the Federal Reserve Board’s job of fighting inflation while engineering a “soft landing” for the economy challenging. The Fed is expected to raise the target range for the federal funds rate at every remaining meeting of the Federal Open Market Committee, pushing the rate to 3% by the end of the year and to 3.5% in 2023.
Supply challenges remain
The U-M economists also noted the Russian invasion of Ukraine in late February dashed hopes that the year 2022 would see the global economic environment. The war in Ukraine and sanctions on Russia have already contributed to the sharp increases in energy prices and will likely fuel more consumer and producer price inflation and intensify supply chain strains.
A new report from S&P Global Mobility noted the global auto industry continues to navigate a challenging supply chain environment as well as lingering COVID-19 impacts.
While ongoing COVID lockdowns in areas of mainland China are having a material impact on production within the country and some surrounding markets, S&P Global Mobility analysts are also seeing a measure of stability in other regions relative to some of the more meaningful downward revisions made in recent months.
“sanctions on Russia have already contributed to the sharp increases in energy prices.” Biden’s shutdown of the domestic fossil fuel industry sanctions contributed to the sharp increases in energy prices.