119,841 139,335 125,500 132,900 2020 Actual 2021 Actual 2022 Forecast 2023 Forecast Covering Third Quarter 2022 Volume 22, Number 4 San Diego Auto Outlook Comprehensive information on the San Diego County new vehicle market Market Summary Domestics consist of vehicles sold by GM, Ford, Stellantis (excluding Alfa Romeo and FIAT), and Tesla. Data Source: AutoCount data from Experian. YTD '21 YTD '22 % Chg. Mkt. Share Sept. Sept. '21 to '22 YTD '22 TOTAL 110,369 94,409 -14.5% Car 33,928 27,727 -18.3% 29.4% Light Truck 76,441 66,682 -12.8% 70.6% Domestic 30,728 29,668 -3.4% 31.4% European 16,904 14,707 -13.0% 15.6% Japanese 52,177 39,259 -24.8% 41.6% Korean 10,560 10,775 2.0% 11.4% Forecast for County New Retail Light Vehicle Registrations The graph above shows annual new retail light vehicle registrations in 2020 and 2021 and Auto Outlook’s projections for all of 2022 and 2023. Historical Data Source: AutoCount data from Experian. DOWN 13.4% vs. ‘19 UP 16.3% vs. ‘20 DOWN 9.9% vs. ‘21 UP 5.9% vs. ‘22 There is cause for concern regarding the prospects for the San Diego County new vehicle market. Supply chain issues continue to limit inventories, inflation is surging, interest rates are moving higher, economic growth has turned negative, and consumer sentiment is weak. It’s a formidable list. But there are two key positives that will likely prevent deterioration in current sales rates and should provide a boost when supply issues abate and the economic picture brightens. Both are explained below. Positive factor #1 - Pent-up demand continues to grow. Contrary to what some analysts are saying, pent-up demand is NOT “vanishing” due to weakening affordability and economic conditions. In fact it’s just the opposite! Pent-up demand accumulates when new vehicle sales fall below baseline levels, which are a function of core factors, such as driving age population and vehicles in operation. Purchases are postponed and sales move below baseline levels due to economic declines or supply interruptions, exactly what is happening now. Baseline annual sales in the U.S. are roughly 15.5 million units and the average has been well below that level during the past three years and likely in 2023 as well. As shown on page 3, Auto Outlook estimates that 41,624 vehicle purchases have been postponed in the county since the onset of the pandemic, and this figure will continue to grow as sales remain subdued. Bottom line: these vehicle purchases have not vanished, they are being “stored up.” It’s the proverbial gas in the tank for when fundamentals improve. Positive factor #2 - Vehicle prices are poised to move lower when supply chain issues improve. The industry has a card up its sleeve to combat falling consumer affordability. Vehicle prices, which have increased sharply due to supply constraints, CAN move lower. It doesn’t happen often and it defies conventional wisdom, but these are NOT conventional times. The factors that resulted in the price increases during the past two years can be unwound. If demand weakens sufficiently, dealers can curtail the practice of selling vehicles at or above list price. In addition, manufacturers could easily dial up incentives, which have all but disappeared during the past year. And finally, production can be shifted away from higher margin, fully equipped vehicles to less expensive, lower-content models. Lowering prices is a natural weapon to combat falling demand and the industry definitely has this tool in it’s toolbox. FORECAST Supply Chain Issues Linger and Demand Softens; But Reasons for Optimism Outlook for San Diego County New Retail Light Vehicle Market Market is almost certain to improve in the Fourth Quarter of this year due primarily to weak results in 4Q ‘21 when inventory shortages were acute. Predicting the impact of supply chain issues has been difficult, to say the least. Lost production due to the microchip shortage during 2022 was significantly higher than expected at the beginning of the year. As a result, vehicle sales projections have been lowered during the year. Registrations for all of 2022 are now predicted to decline 9.9% from 2021. Demand is likely to soften due to deteriorating economic conditions, but pent-up demand and the ability for vehicle prices to shift lower are positives. Assuming supply chain issues ease during the next 12 months, Auto Outlook believes that the market will increase next year. It would likely take a severe economic downturn for the market to fall, while the chances for an upside surprise are above average. 22 SAN DIEGO DEALER
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