The car market’s strong first-quarter performance surprised many auto industry analysts who expected demand and production to remain suppressed 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. On 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 Q1 results and the implications for the future.
Chesbrough confirms that the industry’s monthly and quarterly performance was largely unexpected, noting that overall sales grew 8% year-over-year. While many analysts expected high prices and interest rate hikes to keep customers at home, the recovery of new car inventory opened the floodgates for pent-up demand. “I think one of the things we’re learning is that inventory really was a big issue holding back this market…” Chesbrough remarks.
Apart from inventory, two other factors contributed to the car market’s first-quarter success; product quality and buyer affluence. Automakers have introduced exceptional but costly lineups, reducing budget-friendly options. Chesbrough notes that customers were simply able and willing to pay higher prices for upgraded vehicles. While sub-prime buyers are abandoning the new-vehicle market in favor of preowned, high-income earners are quickly warming up to the premium market.
Out of all brands, Chesbrough believes that General Motors and Tesla had some of the strongest numbers of the first quarter. Both automakers focused their efforts on growing inventory and improving supply chains. Meanwhile, Toyota, typically a top performer, saw sales drop by roughly 9%. “When you look at their inventory situation, it’s still incredibly tight out there,” explains Chesbrough, noting that this problem also extends to Subaru and Honda.
However, while the industry is in an excellent position to tackle the remainder of the year, future quarters may be slower in terms of sales. “Our expectation is that we’re going to see the market slow a bit in the later part of this year, as the higher interest rates start to slow the broader economy,” Chesbrough remarks. This, he warns, is likely to push manufacturers towards discounts. While incentive spend was slashed in response to the COVID pandemic, the cooling of pent-up demand is likely to push car makers to cut prices instead, a trend already visible in the first quarter with brands like Tesla.
