Vehicle inventories will continue to be challenged in the first half of 2022 but will improve in the second half of the year. Unlike 2021, the second half of 2022 is likely to be stronger than the first.
Source: Cox Automotive
The Cox Automotive Industry Insights team outlined 10 trends on January 13 that they predict will shape the auto industry next year, giving reason for industry optimism.
New car sales are expected to reach 16 million units, up more than 7% from 2021, while used car sales will remain high and above 39 million units. Inventories will continue to be challenged in the first half of 2022 but should improve in the second half. Unlike 2021, the second half of 2022 is likely to be stronger than the first.
However, when it comes to crystal balls and projections, even the Cox Automotive Industry Insights team knows that looking ahead and into the future is never easy.
“As we head into 2022, our team has a number of expectations for the industry,” Cox Automotive Chief Economist Jonathan Smoke said in a press release. “We believe the auto business will have a good year. Yes, there will be unexpected pitfalls, but those who are flexible and agile will manage well in the coming year. ”
The Cox Automotive Industry Insights team will specifically focus on these 10 trends, compiled in a recent news release, that will shape the auto business in 2022.
#1: Car demand will remain strong, especially throughout the first half
While the pandemic is raging for many American consumers, the market still has enough demand to support new and used car sales next year. Recent surveys show that consumers are expecting higher car prices in 2022, but there will be enough buyers in the market to support sales of 16 million new vehicles, according to Cox Automotive forecasts in 2022. Total used car sales are forecast at 39.3 million units, down slightly from 2021 but still a good number.
#2: Used car values will drop again, after spring
Last year, with new car inventories at historic lows, demand for used cars increased significantly, driving up car prices. At auction, used car values set new records in the last four months of 2021, according to the Manheim Used Car Value Index. Next is retail prices, with the list price of used cars averaging over $28,000 in December 2021, a record. Used car prices usually go up in the spring, so the market will go up even more. However, by the second half of 2022, the team forecasts that the price increase will end and the more normal bearish pattern will continue.
#3: Tight car supply will gradually improve
The auto industry’s central story in 2021 is scarce inventory. Supply chain disruptions and production slowdowns due to the COVID outbreak have wreaked havoc on product availability, and never before in memory have new vehicle inventories been lower. In the second half of 2021, inventories are only a third of pre-pandemic levels, falling below one million units. This process will be slow, but the Cox Automotive team believes the new-car inventory problem will gradually improve over the next year: The worst of the ’empty car syndrome’ can happen in the rearview mirror.
#4: Electric vehicle growth will outpace industry growth
While the new car market in general struggled in 2021 and grew only 3.5% compared to 2020, the electric vehicle market is booming. Sales of hybrid, plug-in hybrid and battery electric vehicles skyrocketed, with many new entries and many new interested buyers. Tesla remains the dominant brand in the pure electric vehicle market, but new products from Ford, Hyundai, Kia, Volkswagen and Volvo are driving solid growth. Gas prices will increase in 2022, and 38% of new car buyers are now considering buying an electric vehicle. In 2022, even stronger growth is expected, especially as high-profile EV pickups begin to enter the market. Production of the new Rivian RT1 pickup is underway; The Ford F-150 Lightning is expected to hit the market in the spring.
#5: Car loan interest rates will increase
Low car loan interest rates have helped alleviate the situation of rapidly increasing car prices. Unfortunately, the end is near. Inflation is at its highest level since 1982, and the Federal Reserve is poised to tackle it with expectations of a three-quarter point rate hike in 2022, followed by three points in 2023 and two again in 2024. Overall, the Cox Automotive team expects higher auto loan rates by the end of 2022. From a historical perspective, interest rates will remain low and attractive. However, the increase will mean an end to fiscal 2021 trends that have helped mitigate some of the car price inflation.
#6: Rent will improve in 2022
The retail market’s rental penetration rate rose above 30% in 2019 but was significantly lower due to the pandemic and below 25% in the second half of 2021, the lowest level since 2013. The Cox Automotive group projects rental rates will increase as inventory is rebuilt and consumers look to reduce monthly payments. In a recent Cox Automotive survey, 69% of consumers agreed that the average price will go up as the average consumer can’t own a new car, up from 51% in 2021. Rentals are likely to increase. may offer a solution for some, with lower monthly payments. Rental increases in 2022 will also help the used car market mid-decade.
#7: Service Revenue Opportunity Will Continue To Be Strong For Resellers
According to research firm IHS, the average vehicle on the road is now more than 12 years old, and the number of vehicles (all vehicles registered in a defined geographical area) is at record levels, over 280 million. With new car prices higher than ever, research from Cox Automotive indicates that many consumers will focus on repair rather than replacement. Furthermore, while traditional commutes may be a thing of the past, our research shows that 50% of Americans expect to drive more in 2022 than they did last year – avoiding traffic public, driving instead of flying, going back to mixed work. With additional mileage, service visits are expected to increase as well. Overall, service routes will continue to be an important part of the franchisee’s business equation.
#8: Aggressive consolidation of agents will continue
While dealership profits skyrocket in 2021, so does consolidation. Scarce inventory and rising costs are causing auto dealers to reassess their competitive position and weigh the benefits of being part of a larger operation. Larger dealer groups have better access to capital, technology and human resources, many experts suggest. According to research by Cox Automotive, 59% of dealers expect the trend of consolidation or acquisition to continue into the next year. This story is far from over and will be one to watch in 2022.
#9: Consumer shift to online becomes dominant
While the global COVID pandemic has turned lives upside down, it has, in fact, made the car-buying process better. In recent Car Buyer Journey studies from Cox Automotive, two trends are clear. First, consumers are completing more car purchases online. Second, overall satisfaction with the vehicle purchase and in particular satisfaction with the dealer experience has improved. Crucially, consumers’ preferences for online shopping are not expected to decline this year, with 70% of consumers preferring to shop online over going to a physical store, essentially unchanged. change compared to 2021.
#10: The Direct-to-Consumer model will force dealers to adapt
It started in earnest with Tesla’s direct-to-consumer model, with no franchisees. By 2021, Tesla has delivered more than 300,000 vehicles in the U.S. And now with Lucid, Rivian and others, other EV startups follow Tesla’s lead. According to recent surveys, the traditional agency model in the US is growing strongly and providing high levels of buyer satisfaction as the sales process becomes increasingly digital. Most consumers appreciate access to a franchise network. However, the Cox Automotive team believes the industry – and national franchise law – will continue to evolve in ways that ultimately improve efficiency and consumer satisfaction. That development will include an increase in direct-to-consumer vehicle sales.
Originally posted on Vehicle Remarketing
