The Intersection 2-5-23

It used to be that analysts could refer to vehicle sales simply as “demand” — the vehicles were there, how many did people, governments and business choose to buy?

But in the extreme scarcity of this pandemic era, it’s been harder to discern the true level of demand.

Now that the pace of production is getting closer to normal, the view should become clearer. In this week’s issue of Automotive News, we examine some revealing developments.

The seasonally adjusted pace of light-vehicle sales last month was the fastest since the spring of 2021, before the full impact of the chip shortage became evident. But that’s really a function of greater utilization of the industry’s factories.

In fact, it appears that sales to individual consumers — those people who drive the economy — actually slowed in January, perhaps because interest rates are still rising and prices for new and used vehicles are at record highs, as Larry Vellequette reports. But there were more than enough fleet customers — governments, rental-car companies and other businesses — to make up for that decline and make use of that extra output.

In the industry’s shift to electric vehicles, there’s long been more demand than supply, but in pretty small numbers. Whether demand is deep enough to reach beyond early adopters and into the mass market isn’t really clear — perhaps even to the leading companies.

Tesla missed its sales projections even after discounting its prices, so it cut prices again. Then Ford reduced prices for its not-yet-profitable Mustang Mach-E. But analysts tell Laurence Iliff that it’s not a price war yet, as other key players, including General Motors and Volkswagen, insist they will stick with their current pricing strategy.

True EV demand has been hard to measure in part because of large government incentives, which are implemented through a confusing and frequently changing set of rules. At least, the rules are becoming one tiny bit less complicated with a simpler split between the car and truck classification. (Though personally, I’d rather see a flat incentive across the board both for clarity and fairness.)

With supply approaching demand, the general view is that the number of vehicles sold should rise, but profitability per vehicle — and perhaps overall — will come down from recent records for automakers and dealers alike. (You can read about franchised dealers’ outlook in our special section on the NADA Show in Dallas.)

With that backdrop on 2023, Michael Martinez and Lindsay VanHulle report that Ford and GM are both signaling a year of belt-tightening, seeking billions in savings. One key difference: GM says it isn’t contemplating job cuts, while Ford, which lost $2 billion in 2022, isn’t ruling them out.

Not to be cynical, but a prudent approach to spending is usually a savvy position in a year with major union negotiations.

You don’t want to read too much into January results, as it’s typically one of the lowest-volume months of the year. That pattern was established when year-end discounts pulled consumers ahead to close the books strong. Recent Decembers, on the other hand, have offered little to remember.

The signals are not clear, just like in the broader economy, where inflation seems to be easing, but the job market remains red-hot. We’ll keep tracking the tenor of auto demand — as well as the progress and setbacks on supply — in the printed pages and the digital pages of Automotive News.

— Jamie Butters