Toyota sees sidelines packed with would-be buyers, but ...

As inventories slowly recover, top Toyota Motor North America executives say there may be about 5 million to 7 million new-vehicle customers waiting on the sidelines for an opportunity to jump back into the market.

But affordability challenges — the result of high sticker prices and demand, a pullback in incentives, rising raw materials costs and interest rates — may continue to keep new-vehicle sales constrained below market levels, at least until inventories grow more.

"That demand is real, that pent-up category," Jack Hollis, Toyota's North American head of sales, told reporters Wednesday after the automaker reported its December and year-end sales. "The question is how much of that pent-up demand is mitigated by inflation, interest rates and recession? Even if it's 50 percent, that's still 2 or 3 million customers who are waiting to buy" despite economic conditions that have pushed transaction prices to new highs.

Hollis said Toyota again is forecasting the U.S. market will generate sales of 15 million vehicles in 2023, about a million vehicles ahead of its estimate for 2022. General Motors and TrueCar also see U.S. industry sales in 2023 coming in around 15 million, though other analysts are less optimistic, with some forecasts as low as 14.1 million.

Toyota's forecast is nearly flat compared with where it was a year ago as constraints continue to hold down production rates across the industry.

"The reality is that interest rate hikes and the [probability of a recession] are real pressures that are going to limit demand," Hollis said. But with the average vehicle on the road now over 12 years old, demand won't go away. "It will just lengthen out. It will take longer to meet that demand."

The Toyota brand finished the year with fewer than 20,000 vehicles on dealer lots, while Lexus had about 5,500, Hollis said. That's better than where it was months ago but still well below normal.

Hollis said Toyota sees incentives — which TrueCar says are down over 71 percent industrywide from a year ago — moderating, which should help affordability at least somewhat. But until the supply chain is more stable, inventories and sales volumes will remain down.

"I don't think any manufacturer is at the level of volume that they want to be at," said Andrew Gilleland, senior vice president of automotive operations at Toyota Motor North America. "It's going to be really interesting to see how quickly many brands can recover. There are still a lot of challenges out there, not just for us, but a lot of brands are continuing to struggle""with microchip supplies.

Gilleland said when industry production levels return closer to their historic norms, at least some of the inflationary pressures that have pushed up transaction prices should ease. However, if consumers can once again find the occasional bargain, that will draw more pent-up demand back into the new-vehicle market.

" There is zero doubt in my mind that we have pent-up demand, and if we had the ability to produce at capacity, we would have a 17 million SAAR," Gilleland said, referring to the seasonally adjusted annual rate. "We feel like there's a lot of demand out there that we need to capture, but it's going to be a matter of getting supply chain squared away and producing to our capacity globally."