Auto supply chains are globally complex, and disruptions to the supply chain have resulted in significant hardships within the automotive sector. Many auto dealers and repair shops have felt the substantial effects of the vehicle parts shortage and lack of new inventory. With nearly every automaker forced to adjust its production schedule in major ways, some vehicles popular with middle-class Americans, in particular, continue to see low supply, with many compact, subcompact, and midsize cards, as well as minivans having inventory below 40 days supply. However, despite continued adverse economic circumstances, inventories are beginning to recover. As car demand increases in 2023, you can count on the automotive marketing specialists at Safeguard for traffic-driving solutions that bring customers to your showroom.
Will car demand rise in the new year?
Consumer demand for new cars continues to be high as automakers have been forced to cut production for the past two years due to ongoing supply chain issues and semiconductor shortages. Rising inventory levels should help meet continued consumer demand in 2023. New vehicle sales in the U.S. are projected to be around 14.8 million units in 2023, representing an increase of about 7%.
Ongoing Global Microchip Shortages Contributed to Low Auto Inventory
New vehicle sales slowed in 2021 as disruptions in the microchip supply and general supply chain issues caused automakers to close plants for weeks. According to analysts at AutoForecast Solutions, automakers faced a production shortfall of 10.5 million vehicles in 2021. These microchip shortages resulted in lingering inventory woes which continued to plague auto dealers throughout 2022 and led then another production shortfall of 4.5 million vehicles in 2022.
Inventory shortfalls also resulted in lower retail sales of new vehicles, with 2022 recent vehicle sales forecast to decrease 8% from 2021 and be the lowest since 2011. Despite that, the total U.S. supply of available unsold new vehicles stood at 1.64 million units at the end of November, the highest since May 2021. In addition, recent auto sales in the fourth quarter of 2022 will be up 8.6% compared to the fourth quarter of 2021.
While many factors contributed to the global chip shortage, strong demand and tight supply quickly led to automakers competing for the few chips available. While inventory is increasing, global microchip shortages may continue to impact auto inventory as analysts are already predicting that around 3 million fewer vehicles will be built in 2023.
To alleviate U.S. reliance on overseas chip manufacturers and supply chains, the CHIPS and Science Act of 2022 was passed in August 2022. In part, the bill aims to help fund efforts to build chip plants in the U.S. and support semiconductor chip research and development.
Car Demand: Electric Vehicles Remain a Growing Market
Despite the microchip shortage, the Electric Vehicle (EV) market continues to grow. According to Kelley Blue Book, in the third quarter of 2022, EV sales outpaced all other segments of the auto industry, with American buying more than 200,000 EVs in that quarter alone.
A contributing factor to the increase in electric vehicle adoption may be the availability of EVs. Many automakers are prioritizing chips for their more expensive vehicles, including EVs, SUVs, and trucks. Additionally, the chips that EVs require are more complex and profitable, making chip companies more eager to produce them.
Car manufacturers also entice car buyers with a new and diverse lineup of electric vehicles. Some major car manufacturers have set bold deadlines for their electric vehicle production, from SUVs to supercars. Other factors contributing to increased EV adoption likely include a more widely available charging infrastructure, lower battery costs, and stricter emission regulations.
Additional Opportunities for Auto Dealers Based on Car Demand in 2023
Despite rising interest rates and general economic uncertainty, demand for new vehicles has remained. Looking ahead to 2023, the data and consulting firm S&P Global Mobility is projecting new vehicle sales in the U.S. to increase by about 7% in 2023 to approximately 14.8 million units. Car dealers can stay competitive by embracing online car shopping and focusing on delivering a customer-centered experience.
With dealers facing prolonged inventory shortages, it’s important to remember that every interaction between a customer and your dealership is an opportunity to provide excellent customer service. Car buyers want an experience that alleviates as many pain points as possible.
Online car-buying allows consumers to shop for and buy a car at the most convenient time. Online auto buying is often more transparent, and many customers enjoy the no-sales-pressure environment of purchasing a vehicle online. Unsurprisingly, buyers reported the highest levels of satisfaction when the overall car-shopping experience took less time and was more efficient.
While the way people shop for cars is continuing to change, the automotive marketing experts at Safeguard can help with innovative strategies to spark interest and drive sales. From digital marketing to daily business essentials, we specialize in engaging and effective solutions that bring customers to your showroom or shop.
Key Takeaways
- While many factors contributed to the global chip shortage, it ultimately led to a production shortfall of 10.5 million vehicles in 2021 and another 4.5 million cars in 2022.
- Inventory shortfalls also resulted in lower retail sales of new vehicles, with 2022 recent vehicle sales forecast to decrease 8% from 2021 and be the lowest since 2011.
- New vehicle sales in the U.S. are projected to be around 14.8 million units in 2023, representing an increase of about 7%.
- In the third quarter of 2022, EV sales outpaced all other segments of the auto industry.
- The automotive marketing experts at Safeguard can help with innovative strategies to spark interest and drive sales.