Back to top

Image: Bigstock

Are US New Vehicle Sales in 2022 Headed for a Decade Low?

Read MoreHide Full Article

Hit by coronavirus woes, U.S. light vehicle sales in 2020 totaled 14.47 million units, marking the lowest level since 2012. The year 2021 turned out be slightly better, with light vehicle sales up more than 3% to 14.9 million units. Total vehicle sales last year were 15.07 million units in 2021, up 3.4% year over year. If you were hoping that the momentum will continue this year as well, you might be highly mistaken. In fact, going by Cox Automotive’s recent forecast, 2022 sales might just hit a decade low. Cox slashed the full-year vehicle sales outlook to 13.7 million units, around 9% lower than 2021 levels. And this is the third time this year that the company has cut the sales forecast, which was originally pegged at 16 million units.

So, what has led to this downshift in expectations?

The shortage of microchips had choked supplies and the low stockpiles put the automakers on edge. Just when industry watchdogs and auto giants were predicting the chip deficit to gradually start easing out from mid-2022, the geopolitical conflict between Russia and Ukraine triggered the second round of global microchip shortage. That, coupled with fresh rounds of COVID-induced lockdowns in China, aggravated the chip crisis and supply chains. It crushed any hopes of improvement in inventories.

And now the auto space is facing another major problem. Since the auto industry is a highly cyclical one, the demand for vehicles seems to have started to cool off given the uncertain economic condition. Chesbrough — a senior economist at Cox Automotive — said “It seems likely that much of the pent-up demand from limited supply is quickly disappearing as high interest rates eat away at vehicle buyers' willingness and ability to purchase."

The only bright spot for automakers currently is the rising average prices of vehicles amid the supply-demand mismatch. But rising sticker prices may soon prompt consumers to put these discretionary expenses on hold owing to recessionary fears.

With inflation at levels not seen in decades, the Fed has been forced to become more aggressive, cranking up borrowing rates. On Sep 21, the Fed jacked up interest rates by 75 bps for the third time in a row. The rising interest rates will increase the financing costs of vehicles. With borrowing getting expensive and threats of a recession looming large, consumers might be unwilling to pay a heavy premium for cars and demand may gradually soften. 

Macro headwinds such as soaring interest rates, stubborn inflation and looming economic uncertainty have muted the prospects of the auto sector.

Automakers are set to unveil their third-quarter U.S. sales results early next week.

Edmunds forecasts a 0.9% and 2.7% year-over-year and sequential decline, respectively, in vehicle sales in the September-end quarter. S&P Global Mobility analysts expect U.S. light-vehicle sales to be somewhere around 1.1 million units in September, representing a seasonally adjusted annualized rate of 13.4 million units, well below the 15-million-unit sales level the industry considers ideal and the 17-million-unit sales recorded from 2015 to 2019. Cox envisions new vehicle sales in September to increase 8% year over year but dwindle 4% sequentially.

It forecasts total new vehicle sales in the third quarter to reach 3.4 million units, down around 1% from the year-ago period. It also implies a modest decline from 3.5 million units sold in the second quarter of 2022. To put it in perspective, sales in third-quarter 2019 totaled 4.3 million units.

Cox predicts that General Motors (GM - Free Report) , Ford (F - Free Report) and Tesla (TSLA - Free Report) will be the biggest year-over-year gainers in the third quarter in terms of sales volume. On the other hand, sales of Japanese counterparts are expected to decline on a year-over-year basis.

It expects General Motors to retain the crown of the top-selling automaker in the United States. Per Cox forecasts, GM is expected to sell 539,028 vehicles in the third quarter, up 21% year over year but down around 7% sequentially.

It expects Ford to be come at the third spot in terms of sales volumes. Cox predicts sales volumes for Ford in the third quarter to be 473,595 units, up 19.1% year over year and down 1.4% sequentially.

Meanwhile, Tesla is set to hold #1 spot as the hot-selling luxury automaker in the United States.  Per Cox, third-quarter sales for the electric vehicle giant are forecast to jump 38% year over year, driving Tesla's year-to-date sales 63% higher than the corresponding period of 2021.

GM, TSLA and F currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

Ford Motor Company (F) - free report >>

General Motors Company (GM) - free report >>

Tesla, Inc. (TSLA) - free report >>

Published in