The auto market’s strong performance in the first quarter surprised many auto industry analysts who expected demand and production to remain subdued well into the year. However, dealers still have many questions about what this means for their businesses and whether the positive trends are here to stay. In this episode of Inside Automotive, CBT News anchor Jim Fitzpatrick sits down with Charlie Chesbrough, Senior Economist and Senior Director of Industry Insights at Cox Automotive, to discuss the first quarter results and implications for the future
Chesbrough confirms that the industry’s monthly and quarterly performance was largely unexpected, noting that global sales grew by 8% year-on-year. While many analysts expected high prices and interest rate hikes to keep customers at home, the recovery in new car inventory opened the floodgates for pent-up demand. “I think one of the things we’re learning is that inventory was really a big issue holding this market back,” Chesbrough says.
Aside from inventories, two other factors contributed to the success of the auto market during the first quarter; product quality and buyer wealth. Automakers have introduced exceptional but expensive lineups, narrowing the budget options. Chesbrough points out that customers were simply able and willing to pay higher prices for improved vehicles. While subprime buyers are leaving the new vehicle market in favor of used ones, high earners are quickly warming up to the premium market.
Of all the brands, Chesbrough believes General Motors and Tesla had some of the strongest numbers in the first quarter. Both automakers focused their efforts on increasing inventory and improving supply chains. Meanwhile, Toyota, which is usually the best performer, saw sales fall by about 9%. “When you look at their inventory situation, it’s still incredibly tight,” Chesbrough explains, noting that this problem also extends to Subaru and Honda.
However, while the industry is in an excellent position to face the rest of the year, future quarters may be slower in terms of sales. “Our expectation is that we’re going to see the market slow down a bit later this year as higher interest rates start to slow down the broader economy,” Chesbrough notes. That, he warns, is likely to push manufacturers toward discounts. Although incentive spending was reduced in response to the COVID pandemic, cooling pent-up demand is likely to push automakers to cut prices, a trend already visible in the first quarter with brands such as Tesla.
