Automakers Could Be Forced To Cut Prices — And Profits

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Consumers might see car prices finally come down in 2023 after record-high prices in 2022, but only if automakers are willing to clear inventory by cutting into profits, CNBC reported Tuesday.

With elevated interest rates making car loans more expensive, demand for cars is unlikely to return to pre-pandemic levels unless automakers can provide customers with sufficient incentives, Chris Hopson, principal analyst at S&P Global Mobility, said in a press release. As production ramps back up and inventories grow, car makers may be forced to cut prices — even at the cost of profits and at the expense of shareholders — just to drive demand, CNBC reported.

Automakers will likely face a rocky start to the new year, but increased production is expected to contribute to a boost in sales, even as a recession looms, according to S&P Global Mobility. Although recessions typically hurt auto sales, supply chain struggles as a result of the COVID-19 pandemic had already throttled sales to levels typically only seen during recessions, sending inventory levels plummeting and jacking up sales prices, CNBC reported.

“The advancing production levels, along with reports of sustained retail order books, recovering stock of vehicles, and a fleet sector that remains starved for product, should provide some impetus to auto demand levels even as an economic recession looms,” Hopson said in a public statement. “We project calendar-year 2023 sales volume of 14.8 million units in the U.S., a 7% increase from the estimated 2022 tally. But even as the industry hopes to leave 2022 in the review [sic] mirror, uncertainty awaits entering the New Year.”

Cox Automotive, a software development and digital marketing firm for auto dealers, forecasts the sale of just 14.1 million new units in 2023, but senior economist Charlie Chesbrough noted that this estimate is “tepidly optimistic,” according to CNBC. Chesbrough notes that borrowers with low credit scores and lower-income customers have already been forced out of the market by soaring prices.

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