In 2023, will the demand for car purchases decrease?

Semiconductor supply shortages are easing, which could help automakers ramp up production in 2023. However, with central banks adjusting interest rates to curb inflation, consumer demand is expected to ease.

Last year, sales of new cars and trucks fell to their lowest levels in a decade because manufacturers couldn’t supply enough. This year, sales may still be low, but for a completely different reason: weak demand.

Car sales in 2023 are expected to be lower than in the past due to a drop in demand for cars. Photo: Brandon Bell/Getty Images

In the US, for example, the Fed’s interest rate hikes have made it harder for consumers to afford cars as prices have risen to record highs. Even if automakers have enough supply, analysts predict that some Americans will delay buying cars.

“For more than a decade, low interest rates have helped people buy the car they want,” said Jessica Caldwell, executive director of market research firm Edmunds. “Now, with higher interest rates, the auto market is not looking as friendly.”

Edmunds estimates that automakers will sell just 14.8 million vehicles in the U.S. this year, well below the “familiar” sales of the past decade. Before the pandemic, sales were consistently above 17 million new vehicles a year.

“It appears that rising interest rates are limiting demand in the auto retail market,” said Charles Chesbrough, senior economist at Cox Automotive. “With prices and lending rates rising, the pool of potential new-vehicle buyers is shrinking.”

The Fed's move to raise interest rates last year was one of the main factors causing the demand for cars to decline. Photo: Xinhua

Toyota, the world’s largest automaker by vehicle sales, said on January 4 that its U.S. sales would fall about 10% to 2.1 million vehicles in 2022. But that was a sign that supplies of chips and other components had improved by the end of the year. Toyota’s fourth-quarter 2022 sales were up 13% from a year earlier.

General Motors (GM) is one of the few automakers to buck the industry trend. It reported a 2.5% increase in U.S. sales last year to 2.3 million vehicles, surpassing Toyota. It is aiming to phase out internal combustion engine vehicles by 2035.

Another company that did relatively well was Hyundai, with full-year 2022 revenue down just 2% and fourth-quarter deliveries up 29%.

In the electric vehicle sector, sales of EV companies are growing strongly.

Tesla reported a 40% increase in global revenue for 2022 on Jan. 2, but deliveries in the final three months of the year fell short of expectations due to a variety of factors. The company’s shares fell 65% last year and were down another 12% on Jan. 3.

Ford Motor is also set to report its 2022 sales numbers this week.

Automakers have been struggling for the past three years. The pandemic forced them to shut down factories for two months in 2020. Then, starting in early 2021, they had to limit production due to a shortage of chips.

Many automakers are also struggling to get enough batteries for electric vehicles. Many customers have had to wait months to buy certain models, like Ford's F-150 Lightning pickup truck and GM's Hummer pickup truck.

According to market research firm Edmunds, the average US consumer paid $47,681 for a new vehicle in November 2022, up from $45,872 in the same month in 2021. The average monthly payment on auto loans rose in the fourth quarter of 2022 to $717.