Scarce new- and used-car inventory in 2022 should give way to slightly better availability in 2023, and while that implies a break in high prices, affordability remains a challenge, especially for customers with subprime credit, according to the latest annual Consumer Credit Forecast, from credit bureau TransUnion.
“The good news is, we forecast that after 2022, a year of declining auto originations, largely hampered by lack of inventory, we expect originations to grow 4.6%,” in 2023, said Satyan Merchant, senior vice president and auto business leader at Chicago-based TransUnion.
That is, TransUnion expects 2023 auto originations of 28.8 million, vs. an estimated 27.5 million for 2022. “Originations” means unit volume of newly originated auto loans and leases, for new and used cars and trucks combined. Originations are down an estimated 6.1% in 2022, vs. 2021, TransUnion said.
And the bad news, for 2023?
“The flip side, I think, is that emerging from the last period of limited inventory — that right as we’re getting out of that, whether it’s earlier in the year, or by end of next year — we’re entering a phase where the consumer is more challenged,” Merchant said in a phone interview.
To provide some context, 2019 auto originations were 27.9 million, before the COVID-19 pandemic, and before a shortage of computer chips used in auto manufacturing.
The chip shortage is slowly becoming somewhat less acute, and new cars and trucks somewhat more available. In turn, more new-vehicle inventory also makes more used cars available, when consumers trade in their used cars.
The ongoing vehicle inventory shortage the last couple of years has driven average transaction prices to record or near-record levels. That has very nearly priced consumers with subprime credit out of the new-vehicle market entirely.
Not only that, many new-car shoppers have been buying late-model used vehicles if the new vehicle they want is out of stock. Demand from customers with good credit has driven up used-car prices, too.
Better availability in 2023 should provide some relief from high prices, but higher interest rates and the potential for a recession could offset the effect of better supply, TransUnion said.
“The affordability challenge continues in the auto space,” Merchant said.