U.S. auto sales likely rose in December and will rebound in the new year as a recovery in vehicle production will more than offset the effects of inflation and rising interest rates.

Two years of semiconductor shortages and supply problems have kept vehicle production low and inventories lean. With factories picking up pace again, consumers will buy more vehicles this year even if automakers have to help them manage rising interest rates by cutting today’s lofty prices.

“We are still seeing strong demand for our vehicles, but we’re mindful because the steady rise of average transaction prices is starting to come back a little,” General Motors Co. Chief Executive Officer Mary Barra said at an Automotive Press Association event in December.

The net effect is that the U.S. auto industry is expected to grow by more than 1 million vehicles in 2023 to about 15 million units. That’s below recent years when automakers enjoyed sales of 16 to 17 million vehicles but signals that the industry can weather this year’s expected economic stress.

“We’re planning for an industry around 15 million,” Barra said, “but having contingency planning plus or minus off of that.”

Retail sales of new cars in December likely rose 4% from a year ago to 1.27 million as inventories continued to improve, according to researcher Cox Automotive. Still, that’s short of the typical 1.5 million units seen in December, when carmakers push year-end sales campaigns to hit annual targets.

Total sales for 2022 were likely below 14 million units, the lowest since 2011, when the U.S. was climbing out of the depths of the Great Recession.

Pent-up demand

Inflation and interest rates are squeezing some shoppers out of the new-car market and pushing up auto-loan defaults. Meanwhile used-car prices, which determine the trade-in values that many consumers use as currency when buying a new car, are falling.

That won’t deter many new-car buyers, said Jack Hollis, Toyota Motor Corp.’s executive vice president of sales for North America. He said vehicle shortages of the past two years have kept between 4 million and 7 million consumers from buying and many could be back in showrooms this year.

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