Natural Demand & Sales Outlook

In our last post we introduced the concept of Natural Demand. We created a baseline scenario for the rest of the decade by starting with the current 2023 marketplace dynamics and assuming a return to decades long trends over the coming years, with sales steadily gaining through the remainder of the decade to reach 18 million total units in 2030. The data indicate a continued shortage of supply through 2024 with oversupply showing up in 2026 and staying steady in the mid-3M unit range until 2030.

Baseline Scenario

Adjusting Sales to Align with Natural Demand

Now we’ll look at various sales scenarios and understand the resulting supply dynamics impacts might play out when we plug them into the Natural Demand calculation. We’ll start by holding the baseline scenario above, but adjusting the sales outlook to fall within 1M units of Natural Demand through the remainder of the decade. This scenario will essentially hold steady the existing pricing market of 2023. That means all parties priced out of the new vehicle market will continue to be priced out and inventories will stay in the 2M unit range.

This scenario assumes automakers continue to hold back on a return to pre-COVID production and sales levels. Many industry observers claim this is a likely outcome since automakers, as well as other industry stakeholders, have seen the benefits of pulling back on vehicle supply. Assuming that supply chain challenges are a thing of this past, this outlook is only achievable if all industry players collectively contribute to more disciplined production schedules. In the past, automakers have ramped up production in order to amortize fixed operations more quickly and/or attempt to gain market share from rivals. This scenario would keep vehicles in operation within 1 million units of the expected natural demand for the remainder of the decade and would sustain existing pricing and inventory trends through 2030.

Continued Production &/or Macroeconomic Disruptions

Since 2020 the auto industry has encountered a series of speed bumps on the road to sales recovery, from lockdowns to supply chain shortages to affordability. This scenario assumes 2023 sales figures are hit by an extended UAW strike with a slow pace to return to 17M annual sales. Further production woes could come in the form of macroeconomic disruption or continued shortage of microchips or other supply chain issues.

A prolonged shortage relative to Natural Demand, and the resulting pressure on pricing, would likely decrease the scrappage rate for the rest of the decade. This would restore some balance to the figures above. The combined factors of unmet demand and 18M annual sales launching into the 2030s would present an interesting dynamic for the next decade which is already set up to be among the most chaotic in auto industry history given the mandated shift to EVs (by both global governments and stated automaker goals).

Accelerated Production Rebound

In the five years following the Great Recession, vehicle sales increased an average of 1.2M units each year with a massive jump of nearly 1.7M units in 2012. This last scenario shows the impact of a quick return of production in 2024 with automakers keeping their foot on the gas until a new annual sales record is reached in 2027. From that point forward, it is assumed that sales will maintain at a 18M annual rate. While this figure represents a new all time sales peak it is an attainable target and likely if production strategies are ramped up to support various other business objectives (including the proliferation of EVs).

Under this scenario pre-COVID pricing would return in mid-2026. This scenario could align better with the forecasted shift to EVs as ICE vehicle scrappage rates would likely increase and those vehicles would be replaced in the car parc with new electric vehicles.

These scenarios hold all the underlying baseline factors static as we understand the impact of sales alone. In future posts we will hold sales static and flex the other underlying drivers to Natural Demand (scrappage, population) before looking at dynamic scenarios that highlight the interplay of various factors.