Automakers won’t go back to normal

Tesla Cybertruck replica is seen in Mostar, Bosnia and Herzegovina September 4, 2020. Impatient Bosnian specialist builds a replica of Tesla's Cybertruck ahead of its official release in late 2021. Picture taken September 4, 2020. REUTERS/Dado Ruvic

NEW YORK (Reuters Breakingviews) - For U.S. automakers, 2023 is all about trying to stay in their lane. Covid-19-era supply squeezes sent car prices soaring, adding $7 billion to operating profit at General Motors in 2021 alone. As supplies normalize, they’ll do everything they can to keep production tight. Their problem is that the Federal Reserve and international competitors are backseat driving.

After pandemic stimulus-rich buyers pushed car sales to an annualized rate of 18 million in April 2021, their highest level since before the great financial crisis, supply-chain snafus sent the industry into reverse. Shortages of everything from microchips to Ford Motor’s blue oval badges left manufacturers unable to ship their cars. That left 2021 at around 15 million sales; full-year 2022 sales are likely to come in at 13.7 million, according to Cox Automotive.

The lost volume cost GM’s bottom line almost $5 billion in 2021 – so it jacked up prices on desperate buyers, more than making up for it. Ford, too, ended 2021 with its highest operating profit margin for five years.

The pricing power will inevitably unwind as problems from backed-up shipping to production shutdowns ease. But while supplies may return to normal, the industry might not follow suit. A collapse in used-vehicle prices – the Manheim price indexfell 14% year-over-year in November – leaves buyers with less money from trade-ins. The U.S. central bank is also raising rates, making auto loans more expensive. The double whammy is sure to dent demand.

Automakers’ production may not return either, though. GM boss Mary Barra has said in multiple analyst calls and presentations that her company is scrutinizing how quickly dealers are selling cars. In July, she was more blunt, saying inventory will “never go back to where we were before the pandemic.” Electric-car leader Tesla, which depends more on wavering international markets like China than its Detroit-based rivals, is also tweaking capacity. Bloomberg reported that the company will reduce working hours at its Shanghai factory.

Still, other producers are waiting to pounce when U.S.-based automakers miss a step. Rising Chinese electric champions like BYD, threaten Tesla’s global lead. In the domestic U.S. market, Toyota Motor briefly overtook GM amid 2021’s slowdown. Some automakers may want a controlled exit from the pandemic – but getting everyone to play along is another matter.

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(This is a Breakingviews prediction for 2023. To see more of our predictions, click here.)


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