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Automakers have a lot more chips now, but buyers may be in short supply

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Vehicles for sale at an AutoNation dealership.

Rising prices and interest rates have pushed buyers into the used vehicle market or out of the automotive market entirely. Mario Tama/Getty Images

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The auto industry is coming off a difficult year. In 2022, the semiconductor chip shortage squeezed the supply of new cars and drove up prices, shrinking the pool of potential buyers. Last year’s new vehicle sales in the U.S. are expected to fall 8% below 2021 numbers, according to Cox Automotive — hitting the lowest levels in about a decade.

Now, those supply chain issues are smoothing out and the industry is starting 2023 with healthier inventories. But automakers are swapping the supply problem for new troubles on the demand side.

Around this time last year, automakers couldn’t get their hands on enough chips, said Garrett Nelson, an analyst with CFRA Research. 

“It really goes back to the early stage of the pandemic,” he said, when new computers, smartphones and gaming equipment were in high demand. “A lot of chip supply was diverted to the consumer electronics industry and away from the auto industry.”

In 2022, new car inventory was low. Since then, Nelson said consumer demand has taken another drastic turn, moving away from those gadgets and freeing up chips for vehicle production. 

Inventories are catching up just as would-be buyers of those new vehicles are getting cold feet. 

“The idea that there’s a recession on the horizon is keeping people from spending large amounts of money, and large amounts of money means new cars,” said Sam Fiorani with AutoForecast Solutions.

Inflation and higher interest rates are pushing people into the used car market, which has finally cooled off, or it’s pushed them out of the vehicle market altogether. Those left shopping for new cars will have a different experience from 2022, when dealers had the upper hand and buyers couldn’t afford to be picky. 

“Into ‘23, the shift may slide more toward the consumer and less toward the dealer,” Fiorani said.

One lasting legacy of the industry’s supply chain crisis? The end of dealerships packed with cars, per Michelle Krebs with Cox Automotive. 

“What’s come out of this is that automakers and their dealers have learned there’s a more efficient way to do business than building up a lot of inventory, having to discount those vehicles to move them,” she said.

Plus, dealers can command higher prices by keeping supply more in line with demand, Krebs added.

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