Cars and trucks are trickling off assembly lines a little faster as automakers find workarounds to solve the semiconductor shortage, but dealer lots are likely to continue to suffer from empty nest syndrome for several more months according to a number of industry reports.

Throw in the likelihood that auto load interest rates will rise and it adds up to no relief for shoppers looking for ample choices, or most any new vehicle, at affordable prices. Indeed, if a driver’s ride is still serviceable, it may make sense to sit out 2022 and wait for inventories to rebound and prices to retreat back from out of reach for many to merely expensive.

Frustrating for automakers and dealers is the reality there are simply not enough cars and trucks available to meet very strong demand. In 2021 new vehicle sales were just under 15 million units. That’s about 2 million less than 2019 ahead of the onset of the Covid-19 pandemic.

It’s not for lack of interest by consumers.

“Demand is still strong in the marketplace and we could be seeing sales in the 17 million unit range (for 2022). So most likely if vehicle production picks up we’ll see recovery in sales before recovery in inventory,” said Kevin Roberts, Director of Industry Insights and Analytics for car shopping and research site CarGurus.com CARG in an interview.

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According to the National Auto Dealers Association inventory levels at the end of December 2021 totaled 1.12 million units, up 7.4% compared to the end November 2021, but down 59.1% compared the end of December 2020’s total of 2.75 million units

An analysis by Cox Automotive framed the inventory shortfall in terms of days supply on dealer lots or in transit—60 days at the start of 2021 shrinking to fewer than 40 by New Year’s Eve.

However, as automakers attempt to find new sources of semiconductor chips and otherwise figure out how to overcome an overall supply chain slowdown production is slowly increasing. But returning to traditional levels will be a tenuous trip according to Charlie Chesbrough, senior economist at Cox Automotive.

“If supply to dealer is slow to recover and grows at only a 1% to 2% rate each month through the year…then the market is headed toward a worse year than 2021,” Chesbrough said during an online media briefing. “if supply rebuilds more quickly, monthly gains 3% or 4% through the year…we will have a much better year.”

Kevin Roberts at CarGurus predicts a slow, but steady improvement, offering “It’s going to get more impacted in Q1, it’ll get better in Q2, get better in Q3. A lot of the the projections I’ve seen, Q4 we should be back to full vehicle production.”

That may happen but no one is predicting a return this year to a sales volume of 17 million vehicles. Roberts is looking at 15-16 million while Cox chief economist Jonathan Smoke is settling on 16 million even. NADA chief economist Patrick Manzi is looking at a 15.4 million market.

For consumers who have already found the brass ring attached to a brand new car or truck elusive, they shouldn’t expect it to become any easier to grab this year.

“As long as inventory remains tight I don’t think we’ll see incentive pricing really move as much,” said Roberts.

Indeed, it would appear the playing field is tipped in favor of one side of the sales equation.

“With the economy doing well, unemployment and interest rates low and available inventory tight the market right now belongs to sellers,” declared Chesbrough. “As a result vehicle shoppers looking for good deals will be challenged. Tight inventories have allowed manufacturers to pull back on discounting.”

Well, good for the automakers. Historically high transaction prices breaking the $47,000 barrier due to sales of high-sticker pickup trucks and SUVs have actually resulted in increased profits despite lower overall sales.

According to Chesbrough, total revenue for automakers was higher in 2021 than 2020 by nearly $70 billion and more surprisingly higher than 2019 by nearly $2 billion. That’s with nearly 2 million fewer vehicles sold.

The used vehicle lot had traditionally been plan B for consumers who found the price of a new car or truck out of range but prices spiked during the pandemic when the dearth of trade-ins led to low inventories.

There’s evidence 2022 will see some relief for those shoppers according to Roberts who noted “as new vehicle production picks up used sales will probably stay where they are, but prices will start to drop at that point. Historically used vehicle demand is strong in Q1 and then start to have a seasonal decline in Q2,” which, he said, generally results in lower prices.

In the end, shoppers may win the war despite a move by some automakers swinging to an order, then build model, which limits the number of vehicles languishing on dealer lots and avoids the need to lay on rich incentives to move the metal.

“Automotive is a very competitive industry and it is equally likely that the desire for sales growth and more market share is just too strong,” said Chesbrough. “Like a moth to the flame it will lead some OEMs (automakers) to increase supply and increase discounting which may force everyone else to follow suit. Old habits are hard to break.”

Source: Forbes

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