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US Automotive Market Share Wars Will Resume in 2023

Recovering inventories are increasing dealer stock,
while interest rate hikes and economic headwinds will dampen demand
– forcing OEMs and dealers to make deals once again. The question
is: Who will blink first?

By Mark Rechtin, Executive Editor, S&P Global

After nearly two years of inflated new- and used-car prices –
with car dealers asking consumers to pay thousands of dollars over
MSRP – the US industry is primed for a reset to previous
competitive norms.

A combination of industry factors and macroeconomic conditions
could trigger a potentially bloody battle for market share this
year, according to an analysis by S&P Global Mobility.
Automakers and dealers that have grown accustomed to huge profits
on vehicles sold as soon as they leave the factory will see a
return to traditional conditions of accumulating showroom
inventories and the need for incentives to move the metal.

This could mean a big win for consumers still in the market for
a new or used vehicle, and who are not intimidated by sharply
increased lending rates or other economic headwinds. Already there
are signs of increased new-car inventories and declining used-car
prices – though not yet to pre-COVID levels.

“Things will heat up this year when the first tranche of
COVID-sold vehicles starts returning to market,” predicts Dave
Mondragon, vice president of product development for S&P Global
Mobility. “These vehicles are all underwater. They were sold at
record-high prices with no discounts, and there will be little to
no equity to roll into a new vehicle.”

It’s not so much the volume of vehicles coming back –
new-vehicle sales cratered in 2020 when production lines slowed due
to supply chain snarls. But the practice by many dealerships of
using vehicle shortages to sell at inflated prices means nearly
every vehicle coming back has massive negative equity – with the
customer owing thousands of dollars more than the vehicle is worth
at trade-in. “That’s when discounting starts up again,” Mondragon

Inventory Rebounding

With supply chain snarls easing, an S&P Global Mobility
analysis of inventory data shows a 91% increase in advertised
new-vehicle dealer stock at the end of December 2022 compared to
February, a sharp 43% uptick compared to August 2022, and a 21%
jump compared to October.

“Though we’re not back to historical norms, inventory pressures
are starting to ease,” said Matt Trommer, S&P Global Mobility
associate director of innovation product management for in-market

“The only real difference was domestic and European brands
seeing improved inventories earlier in 2022, and Asian brands
ramping up to a greater extent in the second half of ’22 after
actually going down in the February-to-August period,” Trommer
said. “In a few cases, we’re seeing inventories coming up quite a
bit. Jeep, GMC and Mazda are now showing a broad availability of
vehicles. Other brands such as Honda, Kia and Subaru, however, are
showing more limited availability.”

“We’re in the formative stages of inventory rebuilding following
six months of year-over-year increases that ended 35 months of
year-over-declines in July 2022,” said Joe Langley, associate
director of research and analysis for S&P Global Mobility’s
North American Light Vehicle Forecasting & Analysis team.
“Stellantis is the closest to having normalized inventory. They are
going to have to ask themselves, ‘What do we do next?'”

In December, Ford, Chevrolet, Ram, and Jeep had about
300,000 units of leftover 2022 models
advertised as available
for sale. Those four brands accounted for 71% of 2022 advertised
inventory listed by mainstream brand dealers – and 66% of all
dealer-advertised inventory when including luxury marques. Among
luxury brands, Mercedes-Benz and Lincoln still showed the most
remaining 2022 vehicles in dealer advertised inventory, according
to the S&P Global Mobility analysis.

That said, not every brand will be in the same circumstances.
After the initial semiconductor crunch, GM, Ford, and Stellantis
better managed their supply chains and are closer to being back to
traditional production levels; the Japanese brands are still
struggling with supply-chain issues. While less impacted, Hyundai
and Kia are also dealing with structural issues of not having
enough factory capacity to meet growing demand.

“We’re seeing the US3 being the closest to normalized inventory
and they will have to start asking themselves hard questions
relating to production planning, product mix and pricing along with
incentives activity,” Langley said. “The surprise of 2023 will be
vehicle availability. It will still be well below industry norms,
but inventory for the spring selling season will be up 50-70% from
2022 levels.”

Another element that could factor into increased consumer power
in the new-car arena: A softening in inflated used-car values.

When COVID shut down new-car manufacturing, demand (and prices)
for used cars soared starting in early 2021. Data from CARFAX, part
of S&P Global Mobility, shows that – pre-COVID – average weekly
dealer listing prices for used cars had held steady, slightly above
$19,000. The first quarter of 2021 saw a rapid price shock that
resulted in peak pricing of $29,025 in Q1 2022. But last fall,
used-car prices started retreating. By mid-December, CARFAX data
showed a retreat to $27,239. And while prices are nowhere near
pre-COVID levels, there is no evidence that inflated prices will

One potential easing of a price crash: A momentary drop-off in
off-lease cars coming back during the three-year anniversary of the
COVID shutdown, when sales cratered for several months in 2020. A
shortfall in the certified-pre-owned segment might resume demand
pressure on the new-car side and temporarily hold prices

External Forces

There are usually multiple causes of swings in market behavior,
and it appears US light vehicle sales have a perfect storm of
culminating events that will come to a head starting in spring
2023: In addition to rebounding vehicle inventories, a sharp rise
in U.S. lending rates, inflation leading to lower disposable income
among households, and nervy macroeconomic headwinds are worrying US

Already there are storm clouds on the horizon in terms of demand
destruction. The daily new-car selling rate metric remained
remarkably steady in the second half of 2022, even while some
pockets of inventory accumulated. While stubbornly sticky low
levels of inventory dampened year-end clearance incentives, any
backward movement in the daily selling metric to begin 2023 could
be signal of a retrenching auto consumer.

Households are eyeing the uncertain economy as a reason to hold
back on new purchases. If workers do not receive 2023 pay raises
commensurate with 2022’s sudden inflationary spike, and large-scale
layoffs continue, that will prompt conservatism in household
capital expenditures.

“Ongoing supply chain challenges and recessionary fears will
result in a cautious build-back for the market,” said Chris Hopson,
manager of North American light vehicle sales forecasting for
S&P Global Mobility. “US consumers are hunkering down, and
recovery towards pre-pandemic vehicle demand levels feels like a
hard sell. Inventory and incentive activity will be key barometers
to gauge potential demand destruction.”

From a forecasting perspective, S&P Global Mobility recently
downgraded the US demand settings for 2023 due to darkening
economic clouds. The immediate release of pent-up demand of the
past two years that many OEMs anticipated would absorb increasing
production is now wavering, and may be eliminated altogether if
consumers retrench their spending habits. This will prompt downward
pressure on vehicle pricing.

Who Blinks First?

Where will the discounts first appear? Likely in full-size
trucks. GM, Ford and Stellantis need full-size truck volumes and
profits to support investment in their electrified futures. GM is
the only one of the three that has incremental capacity to produce
more full-size pickups – whether they’re ICE or BEV. Ford is
capacity-constrained until Blue Oval City comes online in the
second half of 2025, and Stellantis has their own limitations in
the short-term.

“This essentially puts GM in the driver’s seat if they want to
increase incentives to drive additional volume. If they do this,
Ford and Stellantis will be forced to follow,” Langley said. “There
is still room for these manufacturers to increase incentives on
their pickups and still be ahead on the revenue side if they
experience comparable sales improvements from those higher

After all, pre-COVID incentives on big pickups were running
$6,000 per unit in January 2020, and the Detroit automakers were
still profitable. But recently,
demand for pickups
has waned as more buyers move to SUVs.

Despite full-size pickups’ important contributions to each
brand’s business case and factory output, the share of half-ton
retail sales has been declining for more than two years, according
to S&P Global Mobility data. The segment’s retail share in Q3
2022 was 7.8% – lower than in any other quarter dating back to Q3

Another area of potential incentive skirmish? Likely in a
high-volume segment with plenty of players, such as mainstream
compact SUVs. In addition, a competitive luxury market with
additional pressure from Tesla could see a higher-end brand with
resurgent inventories use the opportunity to grab share. Meanwhile,
Tesla’s recent price cuts across its lineup could prompt a price
war in the BEV space.

At least one luxury automaker has stated it is openly looking at
conquesting its rivals, and is already injecting money into the
market to capture share. They see it as a once-in-a-lifetime
opportunity, and are thinking that investing earlier in incentives
– either cash on the hood, or subsidized lending rates – will
result in the best chance to grab share. Meanwhile, another luxury
brand with already strong days’ supply is cranking up subsidized
lease deals.

The next automaker’s sales chief willing to cede market share
without a fight will be the first one. Performance bonuses, career
trajectories, and factory output requirements hinge on it.
Furthermore, failing to spend to retain market share has downstream
costs: The cost of losing loyal customers, multiplied by the cost
of thousands of conquests needed to replace them, must also be
considered. Also, automakers’ and suppliers’ factories need to run
at high percentages of capacity to be profitable. Lofty talk of
inventory control sounds great, until just-built vehicles start
stacking up in factory-overflow lots.

Remember: Average transaction prices in December were $49,500,
so for every 20,000 vehicles built, OEMs can generate nearly $1
billion in revenue – a tempting carrot for OEMs when revenue goals
are under pressure.

As a result, spring and summer of 2023 could force automakers
into aggressively pursuing customers with incentives while
attempting to maintain the healthy profit margins they have seen
for the past two years.

The upshot will be a chaotic accordion effect in monthly sales
results, as fluctuating inventories run head-on into unsettled
consumer confidence and numerous industry and macroeconomic
conditions. Automakers and dealers will be hard pressed to find a
consistently successful sales strategy that allows them to maintain
or increase share during such uncertain times.

This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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