ATLANTA, Dec. 19, 2022 /PRNewswire/ -- With the start of the New Year just weeks away, the Cox Automotive Industry Insights team offers its expectations for the U.S. automotive market in 2023. By nearly all measures, 2022 was a difficult year for both the industry and the consumer, marked by historically low new-vehicle inventories, high prices, and stubborn inflation chipping away at monthly budgets. A relatively strong jobs market was a tailwind, but all the while, a hawkish Federal Reserve pushed rates higher, essentially riding the brakes as the auto industry struggled to gain momentum.
With the New Year just weeks away, Cox Automotive offers its expectations for the U.S. automotive market in 2023.
"This past year was challenging not only to forecast but for the industry to manage," said Cox Automotive Chief Economist Jonathan Smoke. "As we look forward into 2023, we see one set of challenges being replaced by another. We expect the year ahead to be one of transition, as both the consumer and the industry move past the remnants of a global pandemic and set a new course for mid-decade growth."
Guided by recent research, intelligence capabilities powered by DRiVEQ, the largest breadth of first-party data in the automotive ecosystem, and an unmatched team of analysts and experts, Cox Automotive posits 10 trends that will shape the auto business in 2023.
1: A Slow-Growing Economy Will Place Pressure on the Automotive Market.
While the risk of recession in 2023 remains, Cox Automotive expects the economy to see at least slowing or very weak growth as the Federal Reserve tightens monetary conditions and consumers continue to wrestle with high interest rates. A job-wrecking recession is a worst-case scenario for the auto industry, but hope for an economic soft landing remains. Either way, a sputtering economy will hold back the auto market in the year ahead.
2 New-Vehicle Inventory Levels Will Continue to Increase.
New-vehicle production challenges are beginning to ebb, and inventory levels are measurably improving. While lingering supply chain and labor challenges will remain, and capacity will not return completely to pre-pandemic levels in the foreseeable future, stronger production levels and softer demand will lead to higher days' supply and, ultimately, more vehicle options for shoppers in 2023.
3: Total Retail Vehicle Sales Will Fall in 2023, as New-Vehicle Sales Grow, Used Sales Decline.
With new-vehicle inventory levels improving as demand slows, Cox Automotive forecasts 3% year-over-year new-vehicle sales growth in 2023, with the market hitting 14.1 million units. Increasing fleet sales will help the absolute number. A lack of nearly new supply, declining affordability, and a shrinking pool of buyers will challenge the used-vehicle market. Overall retail sales will decline in 2023, adding competitive pressures to the market, especially in used.
4: Sales of Electric Vehicles in the U.S. Will Surpass 1 Million Units for the First Time.
The market for battery-electric vehicles continues to outpace overall sales and a new milestone is in sight: 1,000,000 EVs sold in America in 2023. The Cox Automotive team expects continued positive news for the electrified vehicle industry, with increased product availability and new incentives from the government to encourage buyers.
5: Used-Vehicle Values Will See Above-Normal Depreciation for a Second-Straight Year.
What the market gives, the market takes: After historic value increases in 2020 and 2021, followed by above-average depreciation for most of 2022, used-vehicle values are likely to see another year of above-normal depreciation, especially in the first half of 2023. Price trends should normalize in the second half of the year as constrained wholesale supply supports used values and used retail prices fall into a normal relationship with new prices.
6: Vehicle Affordability Will Be the Greatest Challenge Facing Vehicle Buyers.
In 2022, record monthly payments were produced by high retail prices and higher auto loan interest rates. This resulted in a drop in income and credit quality that drove lower-income consumers from the market. As automakers cater to the new-vehicle marketplace with more expensive products that are better for high-income consumers, 2023 will see even more of the same. This means that subprime and less-affluent buyers will struggle to find affordable monthly vehicle payments that meet their monthly budgets.
7: All Cash Deals will Increase to Levels Unseen in Decades
The rise in all cash deals will continue, as auto loan interest rates have risen to 20-year highs. In 2023, more wealthy customers will choose to buy cash over finance. This will put downward pressure on dealer F&I profits. This will be more evident in the new-vehicle marketplace and will likely have lingering effects on industry profit pools as well as future buying habits.
8: Dealership Service Operations Volume Climbs and Revenue Climbs
With more people purchasing vehicles due to affordability, 2023 will see strong service lanes dynamics, regardless of whether there is a recession. In 2022, fixed operations experienced strong revenue growth. Strong demand and pricing power led to significant increases in ticket sizes despite service volumes not recovering to 2019. Fixed operations will become a more important profit center in 2023, with retail sales likely to decline or flat.
9: 50% of vehicle buyers will engage with digital retailing tools.
The shift to eCommerce was accelerated by the pandemic and shows no sign of fading. In the year ahead, Cox Automotive forecasts that half of all vehicle buyers will engage with at least one digital tool during the purchase process. Importantly, fully digital vehicle purchases will continue to be only a small percentage of the business, as most buyers will pursue an omnichannel vehicle buying experience.
10: Federal Incentives Will Encourage More Fleet Buyers to Consider Electrified Solutions.
A key element of the Inflation Reduction Act of 2022 was the reshaping of EV tax credits in the U.S. Within the new laws are incentives designed to entice fleet operators to consider electrified vehicles in the coming year. Fleets have historically shown slow adoption of EVs, but recent research indicates 66% of fleet buyers are considering EVs, up from 43% in 2021. New incentives and investments in charging infrastructure will likely amplify the trend.
About Cox Automotive
Cox Automotive Inc. makes buying, selling, owning, and using vehicles easier for everyone. The global company's more than 27,000 team members and family of brands, including Autotrader®, Dealer.com®, Dealertrack®, Kelley Blue Book®, Manheim®, NextGear Capital®, VinSolutions®, vAuto® and Xtime®, are passionate about helping millions of car shoppers, 40,000 auto dealer clients across five continents and many others throughout the automotive industry thrive for generations to come. Cox Automotive is a subsidiary of Cox Enterprises Inc., a privately-owned, Atlanta-based company with annual revenues of nearly $20 billion. URL
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