Top executives at Toyota‘s North American operations anticipate new-vehicle average transaction prices will break the $50,000 barrier and continue to rise, that demand will outstrip supply again this year even as the supply chain recovers and that there now may be as many as 6 million potential new-vehicle buyers sidelined by inventory and pricing.
Speaking to reporters Monday to give a periodic update on the Japanese automaker’s business, Jack Hollis, head of sales for Toyota Motor North America, said 2023 would likely see Toyota and Lexus pick up another 100,000 sales above the 2.1 million it sold in the U.S. last year but also could see a slight drop in its market share.
“We’re going to see that it’s a year of really two halves — whether it’s Toyota or Lexus,” Hollis said. “This first quarter, we knew it would be slower for us. The second quarter will still be a little slow — not quite as slow as the first quarter — but the first half will be behind last year, and the second half will be ahead of last year.”
Hollis said he expected the automaker would finish the year just as it began, with about 30,000 vehicles in inventory sitting on dealer lots with continuing strong consumer demand, meaning “we will sell every vehicle that we can make.”
Hollis said he believes that the nation is probably already in a recession, but it is an unusual one that doesn’t fit standard economic models. Average transaction prices across the industry “will continue to grow” above $50,000, he said.
Used-vehicle demand — buttressed by would-be new-vehicle shoppers priced out of the market — will continue to keep residual values high. He said, “The only thing holding us back [as an industry] is the totality of the supply chain and the fragility of it, because we’re not back to normal anywhere globally.”
Hollis said that, unfettered from supply constraints, the industry could be selling 16.7 million to 17 million vehicles in the U.S. this year. “Instead, we’ll sell around 15 [million], so that means there’s another 2 million vehicles added to pent-up demand,” which now sits at about 6 million.
Bob Young, vice president of purchasing supplier development, said inflationary pressures hitting the industry have largely been driven by rapidly rising raw materials costs but that Toyota is “starting to see some retreating in the markets.”
“The inflationary pressures really are driving all of us to work more aggressively and collaboratively on cost reduction,” Young said, adding that any easing in commodity prices likely wouldn’t flow to end users until 2024.
That leaves automakers trying to determine how much of those rising prices it can pass onto consumers, Hollis said, and if they can’t be passed on, then it has to be absorbed by the automaker or the supplier. “We’re eating it in our own profitability.”