Economic headwinds combined with lingering supply chain constraints have resulted in a sales dip of 16.1 percent in new car and truck sales in California through the first three quarters of this year compared to the same period in 2021.
The California New Car Dealers Association estimates by the end of the year, sales will be off 9.7 percent compared to last year, lowering its projections to 1.68 million registrations for all of 2022. That’s within shouting distance of the 1.64 million registrations recorded in 2020 when COVID-19 lockdowns sideswiped the auto industry in California and across the nation.
Pre-pandemic, the Golden State’s new vehicle market was roaring, posting more than 2 million cars and trucks sold each year from 2015 through 2019.
“I think what’s happening is largely reflective of all the macroeconomic things that are going on,” said Brian Maas, president of the California New Car Dealers Association.
California is actually doing a bit worse than the nation as a whole. Registrations in the U.S. are down 13.3 percent through the first three quarters.
Year-to-date, through September 2022 1. Tesla Model Y 61,544 2. Tesla Model 3 56,851 3. Toyota RAV4 44,738 4. Toyota Camry 40,358 5. Toyota Corolla 32,216 6. Chevy Silverado 29,543 7. Ford F-Series 29,055 8. Toyota Tacoma 28,342 9. Honda Accord 23,933 10. Honda Civic 23,723 Source: California New Car Dealers Association, Experian
Inflation is eating into the disposable incomes of consumers and higher interest rates have made it more expensive to finance the purchase of a new car. The once-common sight of car dealers offering zero-percent loans has disappeared; now rates hover between 3 to 7 percent, or higher.
Another factor? The average price of a new car in September hit an all-time high of $45,000.
“If you finance a car and you’re looking at $45,000 and a 6 percent interest rate, you are talking about a good $7,000 to $9,000 in interest, depending on down payment and other factors,” said Ivan Drury, senior manager of auto insights at Edmunds.com. “So it’s not a little bit of money.”
Meanwhile, carmakers are struggling with a global shortage of semiconductor microchips that has dragged on for 18 months, leaving dealers’ lots nearly empty. The silicon chips essential for laptops, game consoles and TVs also go into the brake sensors, power steering, navigation and entertainment systems in modern-day vehicles.
China and other Asian countries that produce microchips have been hindered by persistent COVID-19 outbreaks and the Chinese government’s zero-COVID policy has tightened supplies.
There are signs the shortage may be easing but Maas said carmakers have told California dealers that supplies won’t get back to “a more or less normal production environment” until the latter half of 2023 or early 2024.
“You combine all that, it’s not surprising that sales are dropping,” Maas said. “I think what’s frankly amazing is that they’re not dropping further. And it just shows how robust the demand is for new vehicles in California.”
On the plus side, demand for electric vehicles and hybrids continues to accelerate.
Tesla not only had the top-selling vehicle in California through the first three quarters of this year, it also boasted the second-best. The Model Y, Tesla’s entry in the SUV market, reported 61,544 deliveries and the Tesla Model 3 racked up 56,851 registrations, outpacing the Toyota RAV4 that finished in third place with 44,738 units sold.
“That’s more than remarkable; I don’t even know what to call that,” Drury said. “That would be unearthly to other states.”
As gas prices hit record highs this year, electric vehicles, hybrids and hybrid plug-ins combined to make up 29.9 percent of the market share of new vehicles sold in California through September.
Gov. Gavin Newsom instituted an executive order to prohibit the sale of new gasoline-powered vehicles in California by 2035. The California Air Resources Board earlier this year instituted target dates starting in 2026 that ramp up with increasing percentages until the 100 percent goal is reached.
After looking at the third quarter numbers, Drury thinks the target will be reached.
“We’ve got so many people (in California) buying up electrified drivetrains, it’s such a J curve in growth,” he said. “I think if things continue the way they do, if infrastructure is built up properly for people who live in multi-family housing situations, condos, apartments, in terms of the charging network, if it’s there, it will happen — maybe ahead of schedule.”
Used car sales fell 13.1 percent statewide, compared to the first three quarters of last year. That may be due in large part to used cars costing more. Since there are so few new cars in dealer showrooms, many customers resorted to buying used cars with low mileage, which has driven up prices.
And with fears of a recession in the offing, customers may be inclined to hold onto the cars and trucks they’re already driving until the economy improves.
“There’s a lot of people who just won’t purchase at these prices, but they’re waiting,” Drury said. “The demand is there. If (dealers) can get the cars, they’ll sell them.”
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