By Gary S. Vasilash
There is pent-up demand. People are driving more. But. . .there are not enough vehicles out there to fulfill demand. There is that chip shortage accounting for the vast majority of vehicles not being on lots (an impact on the order of 85-90% of missing vehicles). According to Jeff Schuster, president of Global Forecasting, LMC Automotive, inventories will improve. Which will help that situation. Somewhat.
Because there is that other big issue that those who are in the market for a new vehicle: cost. (Latest average transaction price according to KBB: $46,404).
Schuster suggests that if prices stay elevated—and for the foreseeable future there doesn’t seem to be any driver for why prices would decrease—there are going to be plenty of people who are sitting on the sidelines, not going out and buying new vehicles.
So on the one hand, while OEMs and dealers are making profits by producing and selling high-ticket vehicles rather than more conventional family haulers (i.e., if there is a limited number of chips, then they get installed in the more-profitable vehicles); on the other hand there are people who can’t afford to buy something that has a price tag more analogous to luxury vehicles, so they are likely to figure out the ways and means to get transportation at a more affordable rate.
But here’s something to consider: What if an OEM decides that there could be an opportunity to sell entry-level vehicles, vehicles that have slim margins, but vehicles that could sell in large numbers? Schuster says this is not entirely outside the realm of possibility.
And what if said OEM happens to be one that isn’t particularly familiar to U.S. buyers: as in a Chinese company coming in with low-end vehicles? Schuster says that this is a possibility—yes, even despite the currently existing 27.5% tariff that is tagged onto vehicles imported to the U.S. from China. Apparently there is a lot of capacity to build vehicles in China, and so there could be an interest in keeping those plants running.
EVs? There will be more of them. (Which, Schuster notes, is something that isn’t going to reduce the price paid by consumers as they tend to be more expensive than comparable ICE-powered vehicles.)
Tesla? Yes, it will continue to grow. Schuster says that while it is ahead of other global automakers in terms of tech—a cycle or two ahead of others—LMC analysts anticipate that it will begin to lose some of its dominance in the EV space because of the other OEMs entering it.
Jeff Schuster has a whole lot more of interest to say about the state of the auto market today and in the near future on this edition of “Autoline After Hours.” He talks with “Autoline’s” John McElroy, Reuters’ Global Automotive Correspondent and me.
And you can see it here.