Supply Chain, Chips, and Inflation: The Story Behind Low Sales

Following up on our sales post from earlier, we look to The New York Times, which has listed several possible reasons for why the numbers are dire.

The reasons are predictable, but that doesn't mean they aren't true.

As Mr. Guy noted in his roundup, the industry is expected to see under 14 million units moved in 2022. That's not considered to be a healthy number. So why is the number so low? Inflation, supply-chain problems, and a lack of computer chips, say analysts.

“It seems likely that rising interest rates are now constraining demand in the retail auto market,” Charles Chesbrough, senior economist at market researcher Cox Automotive, said in a statement to The Times. “With record-high prices and elevated loan rates, the pool of potential new-vehicle buyers is shrinking.”

Toyota did see a sales bump of 13 percent year over year in the fourth quarter, so perhaps the chip shortage is easing.

Then again, the rise in interest rates as the Fed tries to halt inflation could keep buyers at bay since the cost of borrowing is up. Speaking of up, the average transaction price, as reported to the Times by Edmund's, is now up to an all-time high of $47,681.

“Rising interest rates are increasingly top of mind for consumers in all aspects of life, including auto loans,” Ivan Drury, director of insights at Edmunds, told the Times. “Even rates that are near or slightly below average can rack up thousands more in interest paid compared to years past.”

None of this should be new to anyone who read Guy's post earlier, or who has been following the industry on these digital pages over the past three years, but I still found it interesting to have it laid out so clearly. To paraphrase our favorite Oldsmobile enthusiast, the industry does indeed face plenty of headwinds. But perhaps the chip shortage will end and the supply chain will smooth out. Now, if only that pesky inflation would go away...

[Image: Marek Musil/Shutterstock]

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