Light vehicle sales projected to grow despite headwinds

As demand soars into 2022, automotive industry analysts remain optimistic for light vehicle sales in the coming year—not so with overall production—saying that if U.S. auto makers can build the vehicles, they can sell the vehicles.

Cox Automotive predicted U.S. light vehicle sales of 16 million for 2022 in a January report, while LMC Automotive estimated about 15.9 million light vehicles will be sold this year. On the lower end, the National Automobile Dealers Association has the early-season count at 15.4 million sold, and IHS Markit recently predicted about 15.5 million in new light vehicle sales for this year.

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Analyst consensus seems to hover around 15.5 million vehicles for the coming year, which would be reminiscent of the 15.6 million in light vehicle sales the U.S. saw in 2013, a few years following the Great Recession.

But given the choked supply chains, microchip shortages and now the Russian attack on Ukraine, the question remains, can 16 million light vehicles be built in 2022?

"Supply chain issues continue to impact new vehicle production," said Jonathan Smoke, chief economist for Cox Automotive. "Microchips are an issue still, and even Russia's horrible attack on the Ukraine will hurt auto production.

"Supply chains are very fragile ... the industry is experiencing that first-hand right now."

Overall, the last year was a difficult one for auto manufacturers, as it was in 2020, considered the bottom of the barrel for auto manufacturing during the pandemic.

Sales were promising last year through May, until inventory bottomed out, much of it due to the semiconductor capacity issues that began in mid-2020.

All of this caused declining production (and as a result, declining sales) in 2020 and 2021, when about 13 million and 15.1 million vehicles were sold, respectively, totals lower than pre-pandemic levels.

"Demand was strong, but auto makers just were not able to produce enough vehicles," Smoke said.

In what Cox Automotive calls "the electrified decade," rapid growth is forecast for the EV market, though the growth rate likely will cool from the pace at which it is increasing now, rising from a 5.4 percent overall new vehicle market share in 2020 to 9.7 percent in 2021.

According to Kelley Blue Book's light vehicle sales for the last year, the industry numbers on which Cox based its January forecasts and predictions, electric vehicles (EVs, hybrids and plug-in hybrids) saw 1.5 million vehicles sold in 2021, but represented less than 10 percent of the overall light vehicle market.

Buyers of pure EVs were out in force at the end of last year, as record sales of 147,799 were recorded for pure battery-electric vehicles in the fourth quarter, a 72-percent leap quarter-over-quarter.

"Battery and production troubles all but eliminated the Chevy Bolt and Bolt EUV sales in the second half of the year," said Michelle Krebs, executive analyst with Cox.

And the hybrid leader, Toyota, struggled with inventory in much of the fourth quarter.

Tesla is still the dominant brand in the pure EV market at about 71 percent of the market share, but new products from Ford, Hyundai, Kia, Volkswagen and Volvo (plug-in hybrids with Volvo) also are doing well, according to market analysts.

And the overall new vehicle sales market share for EVs is expected to increase.

"As we've said before, we are in the EV decade," Smoke said. "Sales of EVs will continue to grow and take a larger share of the market."

In a bit of a surprise for 2021, Toyota jumped over General Motors to take the largest share of the U.S. sales market. Toyota ended with 15.5 percent of the market share for light vehicle sales in 2021 to GM's 14.6 percent, according to Cox.

Toyota also was the leading brand last year, securing 13.5 percent of the overall sales market share to Ford's 12 percent.

"Toyota pulled ahead of GM in 2021, but this had more to do with GM being impacted heavily by the semiconductor shortage, which affected everyone," said Stephanie Brinley, principal analyst with IHS Markit. "GM is in a bit of an interesting situation, as they came into 2020 leaner than they normally are with the UAW strike at the end of 2019. GM might be looking at having a couple of lean years."

Brinley noted that as 2021 wore on, the chip shortage got worse, holding "just about everybody back."

"Different auto makers handled it a bit differently, but GM did fall behind here," she said. "But Toyota executives are on record saying that this ranking is not sustainable—if you look at the overall footprint of GM (in the U.S.), Toyota would not normally be able to produce enough to stay on top."

Rounding out the top manufacturers in sales for 2021 (after Toyota and GM) were Ford, Stellantis, Hyundai and Honda.

Rounding out the top-selling brands (after Toyota and Ford) were Chevrolet, Honda, Nissan and Jeep, according to Kelley Blue Book's fourth-quarter report.

The Ford F-Series remained the best-selling model in 2021 at more than 726,000 vehicles sold, according to Cox Automotive.

"Toyota Motor Co. snatched the sales crown from General Motors for the first time ever, but the bigger story might be the relentless progress of the Hyundai Motor Group," Smoke said. "The South Korean auto maker gained sales and share in 2021, with good results from its Hyundai, Kia and Genesis brands."

In 2020, Hyundai's share of the U.S. market was 8.4 percent, according to Kelley Blue Book. In 2021, its share grew to 9.9 percent, as the company outsold America Honda Motor Co. (Honda/Acura) to claim the overall No. 5 spot.

Another interesting buying trend was realized in 2021 as well, Krebs noted, as it relates to rising automobile prices, a function of rampant inflation in the market.

In December 2021, there were only five new vehicles offered in the market with average suggested retail prices below $20,000, according to Kelley Blue Book. Total sales of that lot? 7,740.

"On the other end of the market, there were 18 (new vehicles) available with retail price tags in excess of $100,000," Krebs said. "Sales of that cost-a-lot lot? 14,655 (new vehicles)."

With all of the headwinds facing auto manufacturing, the semiconductor shortage is one of the stiffest.

The problem will continue to impact OEMs on a case-by-case basis, according to market experts.

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Though there are a number of domestic wafer production facilities either being built or in the works, increased capacity of microchips on U.S. soil is not expected for several years, IHS Markit's Brinley said.

"We do expect it to continue to be a problem moving forward," she said. "And production has a direct effect on sales. We are quite literally in an unprecedented situation in the auto industry right now, perhaps like 1918 was (with the Spanish Flu). Knowing what we know today, and with the things that keep coming at us, supply will continue to be constrained through the first half of this year."

Brinley expects that chip suppliers will get on top of the situation over time—perhaps not as quickly or with the capacity that much of the auto industry desires—and that market analysts "should gain more visibility into OEMs and what they can make."

"We don't see capacity increasing, but we do see the supply line stabilizing," she said. "The (domestic microchip) capacity won't be here until 2024 or 2025. This sort of manufacturing takes a few billion (dollars) and a couple years to get online.

"Nothing is out there that can make this happen more quickly. It is positive that there is activity in this space."

Brinley said OEMs and aftermarkets alike should take care in the types of semiconductors they order, as there are different capacities and elements to different types.

"They have to look at where they want to use it—you don't want a chip that can handle 10 times what you need it to do. That's not efficient," she said. "Not all chips are created equally. ... It's not one broad brush."

While car makers might obtain enough chips to run "business as normal," they may not be able to build ahead.

"If they can get more of the supply that they want, they can run OT for awhile to build inventory," Brinley said. "Once they do that, we will see sales increase, then settle back down again.

"There is an ebb and flow to all of this."

If last year was a tale of two halves, this year is expected to be the same—with the successful half in the second half, the inverse of 2021.

With new vehicle sales expected to be in the range of 15.5 million to 16 million, used vehicles should remain robust at more than 39 million sold in 2022, according to Cox.

On the heels of the inventory crash in the second half of 2021, production will be challenged again in 2022, but should right itself in the second half.

"We believe supply chain issues will likely impact many new vehicle launches as all production is stressed right now," Cox's Smoke said. "We suspect the auto makers with the strongest supply chains will do well this year, as demand is there.

"As many auto makers have noted, 'This year is about production, not about sales.' So, they can sell whatever they can build in 2022. The challenge will be building."

The Russian invasion of Ukraine also could prove to be another unexpected supply chain hurdle for automotive producers, Brinley said.

"This is something that really is still working itself through (with its impact on auto manufacturing)," she said. "We will hear more and know more in the coming weeks, but we do expect it to have an impact for U.S. sales, as it relates to components coming from Russia or the Ukraine that could cause problems.

"We do not have anything precise on production, but any impact likely would be less in the U.S. than abroad."

Brinley also hinted that a situation could arise where inflation causes demand to drop, which would throw a different variable into what auto sales ultimately will end up at in 2022.

Cox analysts believe the tight vehicle supply will improve.

"The process will be slow, but the Cox Automotive team believes new vehicle inventory issues will gradually improve in the year ahead," Smoke said. "The worst of the 'empty-lot syndrome' is likely in the rearview mirror."

Other trends are expected to have a positive impact in the auto manufacturing industry, according to Cox, including the consolidation of car dealerships, which, as a larger group, gives the group greater capital and technology with which to work.

In addition, with the continuing pandemic, the consumer shift to online purchasing is expected to increase, as is the direct-to-consumer sales model, a philosophy with which Tesla has seen success.

"We believe the auto business is in for a healthy year," Krebs said. "Those who remain flexible and agile will manage just fine in the year ahead."