Inventory crisis dragged U.S. auto sales to a decade low in 2022

Automakers traded market share for profit last year as sales volumes plumbed depths not seen in more than a decade and new-vehicle prices set a record in December.

But the new year could flip that script as inventories climb and inflation bites.

Annual U.S. light-vehicle sales ended at 13.865 million, down 8 percent from 2021, according to the Automotive News Research & Data Center. That's a significant decline from the 17.104 million sales in 2019 before COVID hit and microchip shortages jammed assembly lines.

But assembly lines are now ramping back up and dealer lots are beginning to fill. Inventories topped 1.8 million new vehicles in December for the first time since May, according to data compiled by Cox Automotive and the Automotive News Research & Data Center.

Cox put its latest industrywide inventory estimate at 1,803,717 vehicles, representing a 58-day supply based on the selling rate from the most recent 30-day period. Traditionally, a 60-day supply across the industry was considered normal and ideal.

Production is the lever to getting the industry back on track with sales, said Tyson Jominy, J.D. Power's vice president of data and analytics. "We'll be there shortly," he told Automotive News.

Seemingly defying the laws of supply and demand even as inventories rise, so have transaction prices.

Cox said new-vehicle transaction prices climbed 9.7 percent last year to their highest levels. That came immediately on the heels of a similar increase in 2021, when prices rose 9.13 percent.

J.D. Power said new-vehicle transaction prices topped $47,300 in December. Used-vehicle retail prices are mostly flat — down about 2 percent from a year ago — even as wholesale prices tumbled 14 percent in that period.

U.S. automakers dominated the luxury and domestic segments in 2022, with Tesla outrunning BMW and General Motors overtaking Toyota Motor.

According to Automotive News estimates, Tesla sales soared 44 percent to 491,000 units. Demand for the Model Y crossover, which cracked the bestseller list last year, fueled Tesla's growth. The Texas EV maker ended BMW's three-year streak at the top of the luxury sales chart, besting the German automaker by nearly 159,000 units and commanding 22 percent of the segment.

GM reclaimed the title of top-selling automaker in the U.S. in 2022 by nearly 150,000 units after Toyota held that spot a year earlier. GM reported U.S. deliveries of 2.258 million vehicles, up 2.5 percent, with the Chevrolet Silverado full-size pickup its volume leader. Toyota finished at 2.1 million deliveries, down 9.6 percent.

Mercedes-Benz rallied in the fourth quarter to end the year with an uptick in sales — one of just three major automakers that did. But dealers have less than a 30-day supply of vehicles, Mercedes-Benz USA CEO Dimitris Psillakis said.

"This has improved slightly compared to the end of 2021," he said. "Knowing the demand, we managed to supply our dealers with the right products."

Parts shortages — in particular, microchips — dragged down sales at Ford Motor Co., Stellantis, Nissan Group and American Honda.

Semiconductor supplies are "definitely improving, but not as quickly as we anticipated," Judy Wheeler, Nissan division's U.S. vice president of sales and regional operations, told Automotive News. "We are running into different issues with different suppliers."

American Honda, which has suffered 17 consecutive months of losses, posted the steepest decline last year among major automakers, at 33 percent.

"We begin 2023 with roughly double the on-hand inventory of 2022," said Mamadou Diallo, vice president of auto sales for American Honda. But the automaker has signaled that inventory won't return to normal levels until at least the fall.

Last year saw more market share shift to electric vehicles. After ceding the field to Tesla for the better part of a decade, the legacy players have begun to register in the EV segment.

Late in the year, Ford overtook Hyundai Motor Group for second place in EV sales. Ford more than doubled EV sales to 61,575 vehicles, propelled by robust demand for the F-150 Lightning pickup.

Hyundai ended 2022 selling 58,028 EVs, according to Motor Intelligence.

European luxury brands also made gains in the segment with new products. The arrival of three all-electric models in late 2022 helped lift Mercedes' fourth-quarter deliveries 21 percent.

Volvo Cars' Recharge models — with fully electric or plug-in hybrid powertrains — accounted for 27.4 percent of the automaker's sales last year, with BEVs at 7.2 percent.

But marketplace problems remain, and forecasts for 2023 light-vehicle sales range from a meek 14.1 million to 15 million, with many analysts predicting only small gains because of a potential economic downturn.

Mercedes' Psillakis said his 2023 outlook is "relatively positive in an otherwise gloomy economic environment.

"We have challenges coming from the economic environment, very high interest rates, we have new conditions in the markets with [the Inflation Reduction Act], where we are trying to find our way," he told Automotive News. "But we see strong demand for our products."

Charlie Chesbrough, Cox Automotive's senior economist, said high prices could mute a recovery. Kelley Blue Book estimates show that the average transaction price at year-end was $49,507, driven by strong pickup and luxury vehicle sales.

"We've got COVID-flation in the market," Chesbrough said Wednesday at an annual industry conference hosted by the Federal Reserve Bank of Chicago. "The market has changed from being 'I can't find my vehicle because of supply' to 'I can't afford this vehicle because of cost.'"

Affordability is on Nissan's radar in 2023 as customers struggle with rising vehicle payments. Wheeler said shoppers are now more concerned about what they can afford.

"They may come in wanting a loaded Rogue but having to settle for a base model to stay in their price range," she said.

Transaction price inflation is under scrutiny moving into 2023.

"We think that there's really not going to be enough demand at these high prices and that the manufacturers will have to start discounting," Chesbrough said. "But it's going to be a game of chicken as to who is willing to hold price and not discount and maybe lose some market share and who's going to aggressively go at that."

J.D. Power's Jominy is betting on the latter, predicting a more aggressive pricing environment by the end of 2023.

"You see 'the deal' advertised again," he said. "Even with strong demand, we could see prices fall by as much as 10 percent in 2023, as dealer discounts and automaker incentives return."

Michael Martinez contributed to this report.