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HOUSTON (ICIS)–The US auto industry continues to face headwinds from tight dealer inventories and rising interest rates, but sales could improve in the fourth quarter amid strong employment and persistent consumer demand.
Patrick Manzi, chief economist at the National Automobile Dealers Association (NADA), said that, despite persistent headwinds, he expects new light vehicle sales to improve slightly in the final four months of the year and to finish at 14.2m units for the year.
That total is down from the 14.9m units sold in 2021, and well below the industry high seen in 2016 when 17.48m autos were sold, as the industry has been hit particularly hard by supply chain constraints and a global shortage of semiconductors.
ICIS senior economist Kevin Swift noted that sales of foreign-made autos rose over the month, but the total was offset by decreased sales of domestic vehicles.
AUGUST SALES US August sales of new light vehicles were up 0.7% year on year but fell 1.1% from the previous month as interest rates have risen following successive increases by the US Federal Reserve in its efforts to stem inflation.
Sales of larger, more expensive sports utility vehicles (SUVs), vans and trucks fell by 2%, according to the data.
Manzi said higher prices and rising interest rates have boosted the average monthly payment on a new car to a new record of $716, which is up by $78 from the same month a year ago.
“The average interest rate on a new-vehicle finance contract will likely be 5.51% in August 2022,” Manzi said, adding that this is the highest average interest rate since February 2020 and marks the first time in two and a half years that the average rate has been this high.
MICROCHIPS The global shortage of semiconductors has been the main impediment to the industry and has lingered much longer than industry executives and analysts anticipated.
Semiconductor chips are vital to production of modern vehicles as they control everything from the engine, antilock brakes, power steering, fuel monitoring system and heating and air conditioning.
Automakers have been building the cars and parking them until they receive the chip-based components.
The US government passed the $52bn CHIPS and Science Act of 2022 in July. This week the administration of President Joe Biden explained how the funds would be used.
The majority of the funding, about $28bn, will go to establish domestic production of leading-edge logic and memory chips that require the most sophisticated manufacturing processes available in the form of grants or cooperative agreements, or loan subsidies and guarantees.
Another $10bn will be used to help increase production of current-generation semiconductors and chips.
The government will invest $11bn in a National Semiconductor Technology Center, a National Advanced Packaging Manufacturing Program, up to three new Manufacturing USA Institutes, and in research and development programs
AUTO INDUSTRY AND CHEMICALS The auto sector is important to the petrochemical industry because a typical vehicle contains nearly $3,950 of chemistry (chemical products and chemical processing), Swift said.
Included, for example, are antifreeze and other fluids, catalysts, plastic dashboards and other components, rubber tires and hoses, upholstery fibers, coatings, and adhesives.
Virtually every component of a light vehicle, from the front bumper to the rear taillights features some chemistry.
The latest data indicate that polymer use is about 437 pounds per vehicle.
Polymers used in automobiles include polypropylene (PP), polyurethanes, nylon, acrylonitrile-butadiene-styrene (ABS), styrene acrylonitrile (SAN), polycarbonate (PC) and styrene butadiene rubber (SBR).
Focus article by Adam Yanelli
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