Automotive Manufacturing

James Brodie analyzes the automotive manufacturing industry’s market trends and pricing and provides advice for lenders based on the short- and long-term outlook.

Projected Values (12-Month Outlook)

CURRENT TRENDS

  • New vehicle unit sales decreased 10.7% for the year-to-date period ended October 2022 over 2021.[1]
  • However, electric vehicle sales are growing as manufacturers introduce new models.
  • The semiconductor shortage continues to cause production disruptions as automakers struggle with limited global supplies.
  • The used cars and trucks consumer price index remained up 7.2% for the 12 months ended September 2022 over 2021.[2]

MARKET OUTLOOK

As the economy continues to rebound from the COVID-19 pandemic, the automotive manufacturing industry remains challenged with new and used vehicle unit sales down year over year. Pressure from higher prices and rising interest rates are slowing overall unit sales. However, electric vehicle sales are increasing rapidly as new models are introduced and state infrastructure spending paves the way for improved accessibility to charging stations.

Industry Rebound Continues

The pandemic had a significant effect on automotive production and demand in 2020, and light vehicle sales underperformed before the auto industry began to rebound in 2021.

2022 started off strong tracking to a seasonally adjusted annual rate of 15 million units in January but declined to a sluggish 13.2 million units as of August, according to the U.S. Bureau of Economic Analysis.[3]

Despite positive monthly sales trends from August through October, total new vehicle unit sales remained down 10.7% for the year-to-date period ended October over 2021.[4]

U.S. Light Weight Vehicle Sales

Federal Reserve Bank of St. Louis

Semiconductor Shortages Continue

The semiconductor shortage continues to cause production disruptions as automakers struggle with limited global supplies. Companies cancelled orders after forecasting lower demand during the pandemic. When the industry began to rebound in 2021, it sent the semiconductor supply into a downward spiral leading to the persistent shortfall.

Nearly three million units have been cut from global production schedules as of August.[5] Around the same time, the CHIPS and Science Act of 2022 was signed into law with the goal of boosting U.S. semiconductor manufacturing by providing an income tax credit for semiconductor equipment or manufacturing facility investment through 2026.

Experts predict the program will reduce the shortage of semiconductors and help ensure a stable supply going forward; however, the end to the chip shortage remains uncertain with some analysts suggesting supply will not meet demand until 2023.

Used Vehicle Prices Up

Used car and truck prices have continued to climb over the last 12 months. The used cars and trucks consumer price index was still up 7.2% year over year as of September 1, 2022, although down from a high of 41.2 in February.[6] Used car wholesale prices remained 55% above their pre-pandemic levels as of October, per data from Kiplinger.[7]

Higher prices and rising interest rates are taking a toll on sales, and total used-vehicle sales for August were estimated at approximately 3.1 million units, down 11.4% from August 2021, per data from Cox Automotive. As a result, used sales are on pace to finish the year down more than 12% from 2021 year to date as of September.[8]

Electric Vehicle Demand Surging

As auto manufacturers continue to expand electric vehicle (EV) offerings, total sales have increased dramatically in 2022 and are far outpacing the rest of the industry in terms of sales, share growth and consumer interest. A record number of EVs were sold in the third quarter with year-to-date sales, excluding hybrids, up 69.7% through September over the same period in 2021.[9]

Sales of battery electric vehicles (BEVs), which exclusively use energy stored in rechargeable battery packs with no secondary source of propulsion, increased 66.4% year over year in the second quarter, setting an industry record of 196,788 units sold for the period.[10] Hybrid vehicle sales fell by 10.2% for the same period, indicating a rising consumer preference for pure electric vehicles.[11]

Sales are on track to improve further as states increase charging infrastructure and, in partnership with corporations, begin to establish goals for 100% EV new vehicle sales. In late August, the California Air Resources Board approved its Advanced Clean Cars II rule to rapidly increase the zero-emission car, pickup truck and SUV market and deliver cleaner air while reducing climate-warming pollution. As the first state to do so, California’s rule establishes a year-by-year roadmap for automakers to increase sales of zero-emission vehicles. By 2035, 100% of all new cars and trucks sold must have a zero-tailpipe emission or be a plug-in hybrid electric vehicle.

In September, the Biden-Harris Administration announced more than two-thirds of the EV infrastructure deployment plans from all states, Washington D.C. and Puerto Rico have been approved ahead of schedule under the National Electric Vehicle Infrastructure Formula Program, which is established and funded by the Bipartisan Infrastructure Law.

Additionally, there are currently incentives in more than 40 states for commercial EV charger installations,[12] which bodes well for increased accessibility to electric-powered vehicles going forward.

VALUATiON CONSIDERATIONS

Automotive production machinery and equipment values remained steady through the third quarter of 2022. Activity for late model, quality used equipment in the secondary market has increased and large tonnage stamping press values have improved since the fall of 2021.

Auction activities have returned to pre-pandemic levels in the U.S. and Canada with facilities hosting a variety of live, online and webcast auctions. Gordon Brothers expects the secondary market to resume near-normal functions. However, there will be a high level of dealer inventory to work through, and more equipment will likely come to market because of plant closures and consolidations.

[1] USA – Flash report, Automotive sales volume, 2022 – MarkLines Automotive Industry Portal

[2] https://www.bls.gov/news.release/pdf/cpi.pdf

[3] Light Weight Vehicle Sales: Autos and Light Trucks (ALTSALES) | FRED | St. Louis Fed (stlouisfed.org)

[4] USA – Flash report, Automotive sales volume, 2022 – MarkLines Automotive Industry Portal

[5] US car industry leads the world in cuts over chip shortages (The Register)

[6] https://fred.stlouisfed.org/series/CUSR0000SETA02

[7] https://www.kiplinger.com/personal-finance/shopping/as-used-car-prices-fall-financing-costs-rise

[8] Estimated Monthly Used-Vehicle SAAR and Volume – Cox Automotive Inc. (coxautoinc.com)

[9] https://www.coxautoinc.com

[10] EV Sales Hit New Record in Q2 2022 – Cox Automotive Inc. (coxautoinc.com)

[11] EV Sales Hit New Record in Q2 2022 – Cox Automotive Inc. (coxautoinc.com)

[12] https://www.chargelab.co/rebates/united-states

 

 

 

 

 

 

 


Note: THIS PUBLICATION IS PROVIDED FOR INFORMATIONAL MARKETING PURPOSES ONLY. THE MATERIAL CONTAINED HEREIN SHOULD NOT BE REGARDED AS ADVICE, NOR RELIED UPON TO MAKE FINANCIAL, OPERATIONAL OR OTHER DECISIONS; NOR SHOULD IT BE USED AS A SUBSTITUTE FOR AN ASSET APPRAISAL. ACTUAL RECOVERY VALUES MAY VARY FROM TRANSACTION TO TRANSACTION AND THE RECOVERY VALUES REFERENCED HEREIN ARE FOR REPRESENTATIVE TRANSACTIONS WITHOUT REGARD TO SPECIFIC KEY FACTORS. THIS MATERIAL MAY BE REDISTRIBUTED ONLY IN ITS ENTIRETY, INCLUDING NOTICE OF COPYRIGHT. ALL RIGHTS RESERVED. ©2021 GORDON BROTHERS, LLC. RESEARCH SOURCES: U.S. BUREAU OF ECONOMIC ANALYSIS, U.S. BUREAU OF LABOR STATISTICS, CISION PR NEWSWIRE, CONSUMER REPORTS, KPMG

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