Auto Makers Had Solid Third Quarter, but Investors Remain Skeptical

Heading into third-quarter earnings reports, auto executives fielded questions about whether an uncertain economic picture was putting the brakes on demand for new cars.

After a series of relatively upbeat results, the answer seems to be no. Or at least not yet.

The macroeconomic picture is one that historically has chilled car sales and hurt profits across the industry. Higher loan rates will price some consumers out of the market and already are prompting more customers to choose less-pricey models, Ford executives said. High inflation and a slowing economy also are ominous headwinds for the car business.

Car executives this week said they are mindful of the tougher environment for consumers. But many said they are confident there is a backlog of car buyers willing to pay high prices as new vehicles remain in relatively short supply.


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“There is a lot of pent-up demand,” GM Chief Financial Officer

Paul Jacobson

said Tuesday. “There are people that are clamoring to get into our vehicles.”

Auto makers have enjoyed one of their most profitable two-year stretches ever. During that period, there was little reason to worry about consumer demand for new vehicles because of limited availability.

Shortages of computer chips and other components drained dealership lots of new vehicles and created a seller’s market. During the pandemic, prices for new vehicles soared 32%, hitting an average $45,743 at the end of last year, according to J.D. Power, a data analytics firm focused on the auto industry.

But investors are betting that the run of strong profits is at risk. Shares of GM, Ford,

Volkswagen AG



TSLA 1.52%

and those of other major auto makers were down more than 30% for the year through Friday, compared with an 18% decline for the S&P 500.

Analysts point to several factors that could erode demand and threaten the high prices that have been key to the industry’s profit boom. The availability of new vehicles is slowly improving, which could eventually bring down selling prices, and used-car prices have softened, analysts say.

“We see new pricing pressures emerging soon, which pressures new vehicle margins,” Wells Fargo analyst

Colin M. Langan

said in a research note this month.

Leaner inventories in new-car lots are expected to help the industry if consumer demand sours.


Justin Sullivan/Getty Images

Ryan Gremore, president of a dealership group in Illinois, said he has considered boosting incentives, but customer demand is steady enough that such a move isn’t yet necessary.

“It’s been so long since I’ve had these cars,” Mr. Gremore said.

Higher interest rates also are expected to keep some buyers away.

Greg Rentschler, vice president of a dealership in Slatington, Pa., that sells Chevrolet, Jeep and other brands, said some customers are balking at 6% interest rates.

“They’ll say, ‘That’s ridiculous. I’ll just put some tires on my car and wait until spring,’” to see if rates come down, he said.

Ford executives said they have seen subtle signs of softening consumer demand. Executives noted that buyers are becoming less tolerant of markups above the sticker price, and consumers are stretching their payment plans over longer periods. They also said fewer F-150 pickup truck buyers are opting for the highest-price model.

“We’re starting to see a few signs that the environment is impacting the consumer,” Ford finance chief

John Lawler

said Wednesday.

Car buyers’ willingness to pay higher prices has helped auto makers to offset elevated raw-material costs and other inflationary pain. Prices for many commodities have eased from their highs this past spring, but many remain elevated.

Car companies also are being pressed by parts suppliers to share some of the windfall they have reaped during two years of heady prices.

Overall, Ford expects to incur an extra $9 billion in costs in 2022 compared with last year from higher raw-material costs, logistics expenses and the need to boost payments to suppliers to compensate them for their own higher costs, executives said.

On Friday, VW said it would postpone until spring completing an annual update to its long-term investment strategy, citing economic uncertainty.

President Joe Biden was shown a Chevrolet Silverado electric pickup truck by GM CEO Mary Barra at the Detroit Auto Show in September.



Auto makers are navigating these pressures while also steering billions of dollars into the development of electric vehicles, investments that aren’t expected to pay off for years as they scale up their EV factories.

Despite the mounting challenges, several market dynamics position the car industry to better manage a downturn than in past economic cycles, analysts say.

The sparsely populated new-car lots that dealers have complained about for two years should help the industry if consumer demand sours. During past recessions, car companies and dealers resorted to deep discounts and other financial incentives to clear out inventory.

Dealerships had less than half the number of vehicles on their lots last month—about a 32-day supply—than they did in September 2008, according to Wards Intelligence.

The level of consumer incentives offered on new vehicles is a fraction of that offered ahead of the financial crisis. That trend indicates there are many potential customers who have been sitting on the sidelines and could be enticed by lower prices, said Tyson Jominy, J.D. Power’s vice president of data and analytics.

“There is almost no comparison to today’s market environment,” he said.

Write to Mike Colias at and Nora Eckert at

Buying and Selling Cars During the Pandemic

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