Jan 6, 2023 - Economy

Fewer autos and bigger profits for carmakers

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Sometimes you can make more by making less.

Driving the news: Car makers sold just shy of 14 million new vehicles in 2022, according to new data out Wednesday. That's well below the nearly 18 million annual sales rate in the years before the pandemic.

The intrigue: Intuitively, it may seem that falling sales would be bad for business. But that's not always the case as Axios has reported.

  • In fact, the pandemic seems to have pushed the U.S. auto business away from its previous habit of overproducing cars and then discounting them to move them off the lot, to a new business model stressing lower production, higher prices and fatter profit margins.

Case in point: Through the third quarter, profits in the category of domestic manufacturers that includes automakers were at their highest level since 2016 ($32 billion), according to data from the Bureau of Economic Analysis.

The bottom line: Consumers now have fewer choices at higher prices.

  • Consumer Price Index data from November shows they were paying about 20% more for new vehicles than in late 2019 before the pandemic hit.
  • The average new vehicle sold for just under $49,000 in November, according to Kelley Blue Book.
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