New Car Waiting Time Is One Year... Auto Industry Worried About Production Decline

Next Year's New Car Sales Forecast '↓'
"Interest Rate Hikes May Lower Consumer Purchases" vs "High Backlog May Offset Demand Decline"

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Hyun-seok] Despite increased production volumes, the completed car industry is finding it hard to smile easily. There are concerns that consumers' willingness to purchase may decline as interest rates rise globally.

According to the completed car industry on the 13th, last month, domestic completed car manufacturers produced 327,486 units, a 24.2% increase compared to the same period last year. This is a 6.5% increase compared to the previous month. Production volume increased for two consecutive months compared to the same period last year since September. This is not only in Korea. In the U.S., sales last month reached 1,182,000 units, an 11.2% increase compared to the same month last year.

Since the end of 2020, production has been hindered by the global semiconductor supply shortage, but the recent situation has somewhat improved, leading to increased sales. However, it is expected that the complete recovery of vehicle semiconductor supply will be possible next year.

The problem is that, unlike the increase in vehicle production volume, the overall market size is expected to shrink compared to initial forecasts. LMC Automotive, an automotive market analysis firm, projected global new car sales for this year and next year at 86 million and 94 million units respectively in the fourth quarter of last year. However, in the third quarter, these figures were lowered to 82 million and 85 million units.

This is interpreted as being influenced by concerns over parts supply due to the prolonged Russia-Ukraine war and global economic uncertainties. Particularly worrisome is that as interest rates rise worldwide, consumer spending is beginning to contract, potentially leading to abandoned vehicle purchases. The U.S. recently raised its benchmark interest rate by 0.75 percentage points to 3.75-4.00%. This marks the fourth consecutive 0.75 percentage point increase following meetings in June, July, and September. The European Union (EU) also recently raised interest rates by 0.75 percentage points, bringing the benchmark rate to 2.00%. South Korea raised its rate by 0.50 percentage points, setting the benchmark rate at 3.00%.

Especially as the U.S. continues to raise benchmark interest rates and other countries are expected to follow, concerns arise that consumers' willingness to purchase cars will decline. Auto loan interest rates are also rising sharply. Junseong Kim, a researcher at Meritz Securities, analyzed, "The increase in financing costs for automakers due to interest rate hikes is a factor that raises consumers' installment and lease costs and a basis for demand reduction."

Yongjin Jeong, a researcher at Shinhan Financial Investment, explained, "If interest rate hikes and economic recession occur simultaneously, it is clear that the supply advantage of the automobile industry cannot be sustained," adding, "Some completed car brands are expressing concerns about demand slowdown and profitability deterioration due to rising interest rates."

However, there is also a forecast that interest rate hikes will not necessarily lead to unconditional demand contraction. This is because there is still a large amount of accumulated waiting demand due to prolonged production stagnation caused by parts supply shortages. Hyundai and Kia's global backorder volumes as of the third quarter are 1 million and 1.2 million units, respectively. Hanggu Lee, a research fellow at the Korea Automotive Research Institute, said, "Naturally, if the economy slows down, automobile demand should decrease, but this is offset by backorders," adding, "It is difficult to predict demand contraction."

This content was produced with the assistance of AI translation services.