Auto sales expected to slow after strong 2023
After enjoying a strong rebound in sales in 2023, the auto industry appears headed for slower growth this year as consumers struggle with elevated interest rates and high prices for new cars and light trucks.
Edmunds, a market researcher, expects the industry to sell 15.7 million vehicles this year. That would amount to a modest increase from the 15.5 million sold last year, when sales jumped 12%.
“There’s definitely pent-up demand out there, because people have been holding off purchases for a while,” said Jessica Caldwell, head of insights at Edmunds. “But given the credit situation, we don’t think the industry will see a ton of growth this year.”
Since the pandemic began, automakers have struggled with shortages of critical parts that have prevented them from producing as many vehicles as consumers wanted to buy. In 2023, the shortages, especially for computer chips, finally eased, allowing production to return to more normal levels.
But over the past year, the Federal Reserve has raised interest rates significantly, which has pushed up costs considerably for car buyers.
For years, many people took advantage of interest-free loans to buy vehicles, even as prices climbed. But such deals, offered by automakers to move inventory, have nearly disappeared in the wake of the Fed’s rate hikes. In the fourth quarter of 2023, new-vehicle sales with interestfree financing accounted for just 2.3% of all sales, according to Edmunds.
Monthly payments are at near-record highs. In the fourth quarter, the average monthly payment on new cars was $739, up from $717 in the same period a year ago.
Several automakers were hoping that a rapid rise in sales of new electric vehicles would drive the industry to gains into 2024 and 2025, but those cars and trucks haven’t taken off quite as quickly as many analysts and executives had hoped.
In 2023, sales of battery-powered models in the United States topped 1 million vehicles for the first time, and Cox Automotive, another research firm, expects sales to reach 1.5 million this year. But General Motors, Ford Motor, Volkswagen and other manufacturers had been expecting an even faster ramp-up.
But consumers have balked at the high prices of many of the newest electric models. Many drivers are also reluctant to make the switch to battery power, because they are not sure they will be able to find enough places to refuel quickly. That has forced automakers to reset their plans.
GM had once forecast it would sell 400,000 electric vehicles by the middle of 2024 but now has given up that target. And it has delayed the production of some electric models.
Ford had been aiming to have enough factory capacity by the end of 2024 to make 600,000 batterypowered vehicles a year, but it recently lowered production plans for its electric F-150 Lightning and its electric SUV, the Mustang Mach-e.
On Wednesday, GM said its sales of new vehicles in the United States jumped 14% last year. The company sold 2.6 million cars and light trucks in 2023, up from 2.3 million in 2022, when the chip shortage limited production.
GM sold about 76,000 electric vehicles, up from 39,000 in 2022. But most were Chevrolet Bolts, a model that the company recently stopped making. Only about 13,000 were vehicles based on newer battery technology that GM had been hoping would make its electric vehicles affordable to many more car buyers.
Sales for GM in the fourth quarter were relatively weak. They climbed just 0.3% from the same period a year earlier and were down 7% compared with the third quarter of 2023. The company said the sales of several important models were limited by a strike at some of its plants by the United Auto Workers union.