Entire Auto Industry Taking A Steep Turn For The Worse?

Growing fears of a recession have the auto industry concerned that it will cause the entire sector to experience a steep drop in demand.

By Ryan Clancy | Updated

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Two weeks into 2023, and the auto industry is on high alert. Industry experts fear a steep drop in demand is expected this year due to increasing interest rates, the cost of living crisis, and a looming recession.

Since the COVID-19 pandemic, automakers around the world have experienced major supply issues. These issues caused massive delays and fewer cars for sale compared to several years before the pandemic. This parts supply issue caused a supply problem for customers, as there weren’t enough cars being made for the demand.

Just as the auto industry is starting to recover, experts fear that this supply problem will turn into a demand problem.

There are many indicators that show a downturn in the auto industry is coming. Due to higher costs and more bills, consumers are keeping their cars for longer instead of opting to buy a new one. Dealerships will see a decrease in car sales overall but may see an increase in service operations.

Along with people retaining their cars, when they buy new vehicles, they buy them online. Online sales of cars are vastly increasing, which means that dealerships could be missing out on more lucrative commissions.

Automotive manufacturing is just starting to recover from all the supply issues. It seems like dealerships will be left with excess inventory due to people being unable to afford to change their cars as inflation tightens its grip.

Vehicle affordability is one of the biggest concerns of the auto industry at the moment, as car prices and interest rates continue to rise. Interest rates are at record highs, as the average monthly payment for a car is now over $700 for new cars and over $600 for leases. New cars to buy are, on average, $49,000.

The long-term result of this is that automakers will move away from affordable vehicles and more towards people who can afford to buy new — the rich. This thinking could cause an affordability issue that could drag on for years to come.

Automakers will rely heavily on commercial vehicle sales to businesses and rental car services to claim back some profits. When car supply was low, dealerships prioritized consumer sales, but now that they could be dwindling, they are turning to fleet sales to bridge the gap.

With interest rates constantly increasing over 2022 and into this year, getting finance for a car is more challenging and expensive for the average American. This year, many more cars will be bought with cash rather than financing, as it is more economical in the long run.

Along with all the other factors, the main one that may cripple the auto industry is the economy’s continuing downturn. The slow-moving economy is the primary factor causing all the other issues people are contending with.

It is set to stay the same this year, as there are more talks of a recession happening. The auto industry will have reduced sales globally if a recession does happen. But hopefully, the economy will start to recover, and people can begin living without so much hardship.