Auto sales forecasts for this year’s Memorial Day is fast becoming a popular topic of discussion, as historically, Memorial Day (May 30th) has been one of the best times to sell cars and find a fantastic deal. Auto sales professionals are now looking at the market to prepare for one of the biggest car sales weekend of the year. They are looking carefully to see what they can expect in terms of good deals offered by carmakers, as well as consumer sentiments, as this affects their sales performance and their income.
Six major automakers, during United Nations Climate Change Conference, have recently agreed to provisionally end manufacturing of gas and diesel cars by 2040. Within 3 days of this agreement, they modified their statement and suggested this would only be true for leading markets, and will not apply to markets in the developing countries.
Upon the revised statement, 30 countries made a pledge to phase out sales of those vehicles (gas and diesel cars) by 2035 in what is described as “leading markets”.
Ford, General Motors, Mercedes-Benz, Jaguar Land Rover, Chinese automaker BYD, and Volvo were the six auto makers that made the pledge, and suggested they are restructuring their manufacturing from 2022 to 2027, during which time they will focus on manufacturing and sales of both traditional electric vehicles and/or hydrogen fuel-cell vehicles.
This does make sense, as sales of electric vehicles have skyrocketed, not just here in U.S. but also globally, during the first quarter of 2022, ending in March 31st.
Among the 30 counties that made the pledge, Norway, Sweden, the Netherlands, and the United Kingdom are already seeing a huge increase in sales of electric vehicles during Q1 2022. Even in U.S., sales of electric vehicles have increased quite dramatically.
Tesla’s sales of electric cars maintained its momentum from last year even as automakers continue to struggle with parts shortages.
Tesla reported a steep increase in sales in Q1 2022. It appears that it has overcome supply chain problems and moved closer to production levels on par with the like of BMW and Mercedes-Benz.
Tesla said it delivered 310,000 vehicles from January through March, in Q1 2022.
This is up from 185,000 cars during the same period in 2021, nearly 70% increase. However other major carmakers like General Motors and Toyota, reported big sales declines during Q1, as a result of shortages of key components.
Volvo sales of electric cars in U.S. almost doubled in Q1 2022, while overall it saw a reduction. Volvo reported 22,757 car sales in the US during the first quarter of 2022, which is 16.5% less than a year ago. In March, sales decreased by 5.0% to 9,428. In contrast, Volvo electric car sales increased quickly reaching 6,018 in Q1 2022 (up 93% year-over-year), including 2,430 in March (up 92%). Volvo intends to achieve a 100% share of electric vehicle sales by 2030, and discontinue all piston car manufacturing.
In U.S., some analysts believe that the market for electric cars is becoming more crowded as established carmakers are manufacturing newer models and offer more battery-powered electric vehicles that address the demand increase expected with buyers, like the Ford Mustang Mach E or Volkswagen ID.4.
The FCA (Fiat Chrysler Automobiles) reported U.S. total sales declined by 14%, while retail sales were down by 13%, during Q1 2022. Still, FCA had sales of 405,221 vehicles in the first quarter, outperforming the industry.
- U.S. total sales decline 14%; retail sales down 13%
- Jeep® brand retail sales even versus the previous first quarter
- Jeep Grand Cherokee notches its best-ever Q1 total and retail sales, with total sales up 36% and retail sales up 44%
- Total U.S. sales for the Jeep Compass rise 22%, and retail sales increase 23% versus the previous first quarter
- Ram brand records its best Q1 retail sales year ever for the ProMaster van, up 27% versus the previous first quarter
- Total commercial shipments in Q1 rise 13% versus same quarter last year
The global chip shortage, now dragging into its second year, has shaken the electronics industry to its core, crippling the world’s ability to build everything from cars to consumer goods.
As a result, consumers are experiencing raising prices.
Add to this, China’s subsidies decreasing by 30% in early 2022 and stopping altogether by end of 2022, or beginning of 2023.
The implications of reduction of these subsidies are still not quite apparent, but it is expected that the cost of many parts will go up dramatically (if sourced through China) and the supply chain will see problems for most of 2022.
Chip makers themselves are hit directly by sourcing problems, adding to the problems in the semiconductor industry as it attempts to solve the chip shortages.
Applied Materials, the world’s largest maker of the high-end machinery used to manufacture chips, said in January that it has been unable to get its hands on some of the chips used in its products due to problems in its supply chain.
Auto manufacturing is hugely affected by these shortages.
Despite this vicious cycle, U.S. based automakers and supply chain experts are confident that the semiconductor shortage will ease later in the year.
A few semiconductor market leaders disagree with automakers and they suggest that the industry constraints will not be resolved for some time. Global Foundries, the largest U.S.-based contract chip maker, has recently said that wafer capacity is completely sold out through 2023 even as it plans to boost its production capacity by 50% in the same period.
Despite near-term uncertainty, there are many reasons to be optimistic about long-term car sales and consumer demand in U.S.
2022 U.S. Vehicle Sales Forecast
Automakers, generally, expect a more favorable operating environment should materialize in the second half as the production issues and the supply chain stabilizes, although still at lower than pre-pandemic levels.
They see more reasons to be optimistic long term on U.S. demand and although the chip shortage, inflation, and the pandemic bring much uncertainty, most automakers strongly believe there is massive demand still to be exploited. The fleet remains old, electric vehicles bring an exciting change to consumers as well as superior driving performance versus combustion vehicles, credit access remains healthy, and there is no evidence of a subprime auto lending bubble, as was the case in 2008 with home mortgages.
There are no logical or reasonable market indicators that point to another crash or constant starts/stops of the economy caused by COVID-19. Gas prices remain below their June 2008 high in real dollar terms. And the U.S. Energy Information Administration, latest report at the end of March suggests that prices are likely to stay elevated in the short run as a result of Russia’s invasion of Ukraine, but fuel economy on light trucks is notably better than in 2008 and hence forecasts are mostly optimistic.
Additionally, used-vehicle pricing is very high, which could be a positive for new-vehicle demand in 2022, but it eventually will come down later this year as new-vehicle inventory rises.
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