Forecasting the Auto Industry in 2022

Auto Industry

Like other industries that suffered during the 2020 pandemic and resulting economic downturn, the automotive market is slowly recovering. Though not everything is going to be back to pre-Covid stats in 2022, things are actually starting to turn around. Here are some trends that experts feel will occur in the coming year and beyond:

1. Production and Manufacturing

It is believed that automobile factories in North America will produce 2 million more vehicles in 2022 than they have in the current year. Unfortunately, that number is still well below the projected demand, but it is a vast improvement. Many of these cars will be produced by makers of electric vehicles, too, so that is good news for the environment.

The current microchip shortage is largely to blame as automakers have lost a planned production of over 6.8 million units around the world. They are forecasting a loss of another 2.6 million in the fourth quarter of 2021, and, unfortunately, they expect the trend to continue into the new year.

2. Inventory Management

Because of these production issues, inventory has been scarce, and that, of course, has driven up price. Some consumers have even purchased desired vehicles in other states, and had them shipped to them. Picture living in California, buying a vehicle in Atlanta, and having the dealer in Georgia provide car shipping to you.

Fortunately, new vehicle inventories are predicted to improve in 2022, though only slightly. The inventory crunch will ease as a day’s supply will average closer to 44, but still won’t return to the average 50-60 days until closer to early 2023.

There will be serious pressure put on manufacturers to keep numbers up, however, because of dwindling microchip supplies. There will, of course, continue to be major issues across several industries due to supply constraints of all kinds, so it is no surprise that the automotive sector is expected to suffer, as well, and it is not likely to ease up any time soon.

As a matter of fact, the next year and the first half of 2023 is forecast to be extraordinarily tough on car and truck dealerships. Many in the know believe that the empty car lots, and skyrocketing prices that come with demand without adequate supply, are driving potential customers out of the market.

3. Sales and Lending

While supply is underwhelming, the demand, as stated above, has been boosting vehicle pricing. As such, the expectation for 2022 is a rise in sales to 15.7 million from this year’s projected 15 million even.

Inflation is also driving both costs and prices much higher than previously anticipated. Though, it must be said that the inflation the country is currently experiencing is not expected to exceed historical limits in similar circumstances.

The Federal Reserve is starting to signal that it is ready to start boosting interest rates, and the quantitative easing policy is going to end soon. There are at least three expected increases set to occur in 2022.

As such, borrowers are seeking out noncaptive lenders with more competitive terms that are also more likely to offer incentives. While technically the APR paid may be higher, each monthly payment will be lower, and that attracts buyers.

That said, light vehicle sales are estimated to return to pre-pandemic levels in 2024, and 2025 sales projections are set to rival the records set back in 2016.

LMC Automotive, which has been forecasting automotive trends since the 1980s, says it is likely Toyota will retain its year-long sales lead over GM going into the fourth quarter of 2021, however, they expect a tie between the two companies in market leadership in the coming year. They also predict that GM will regain frontrunner status in 2023.

LMC also believes that light truck sales will keep growing, while sedan sales will continue to wane. They state that there is still a market for compact cars, but it is not as dominant as it once was.

In conclusion, the automotive industry can be grateful that production, inventory, and sales are finally back on an upswing. However, it will be quite a while before everything returns completely back to what is considered normal. That said, the signs and forecasts for the approaching year are encouraging and offer some much-needed hope for the future of the overall sector.