A customer views a vehicle at a BMW dealership in Mountain View, CA on December 14, 2022.
David Paul Morris | Bloomberg | Bloomberg | Getty Images
DETROIT — As interest rates rise and consumers wrestle with auto affordability issues and recession fears, Wall Street and industry analysts are on edge for a ‘demand-destroying’ scenario for the U.S. auto industry this year. We continue to be extremely vigilant.
Since the start of the COVID-19 pandemic in early 2020, supply chain and parts disruptions that have impacted vehicle production have forced automakers to push unprecedented prices amid resilient demand and low inventory levels. We are experiencing decisiveness and profit per vehicle.
These factors have created supply problems for the automotive industry. Cox Automotive and others believe that as automakers gradually improve production, it could turn to a demand problem.
“We’re trading supply issues for demand issues,” Cox Automotive chief economist Jonathan Smoke said Thursday.
Cox makes 10 predictions for the U.S. auto industry this year that show such an outcome. Here they are, along with why investors should pay attention to them.
10. Federal incentives will drive more fleet buyers to consider electrification solutions
Electric vehicle tax credits under the Control Inflation Act have yet to be finalized, but the incentives for commercial vehicle and fleet owners are expected to provide significant benefits.
Unlike consumer vehicles, which qualify for credits of up to $7,500, fleets and commercial vehicles do not have to meet stringent US requirements for domestic components and batteries.
“This is where we’re really going to see most of the new car sales growth in 2023,” Smoke said.
Cox expects new car sales in the US to reach 14.1 million in 2023, up slightly from about 13.9 million last year.
9. Half of car buyers use digital retail tools
Automakers embrace online retail more than ever as coronavirus pandemic drives franchise car dealerships consumers demand it and many physical dealerships shut down due to global health crisis I was forced to
This trend is expected to continue in the coming years as many automakers commit to aligning production with consumer demand.
8. Increase Dealer Service Volume and Revenue
Consumers are using their cars longer due to the lack of new cars available and rising costs. This is expected to increase backend service business and dealer revenue relative to sales. Dealers make a big profit from servicing vehicles. This increase is expected to help offset potential declines in sales and financing options.
“I think that’s one of the silver linings for dealers,” Smoke said. [and] It is somewhat countercyclical during recessions. “
7. All-cash transactions will increase to levels not seen in decades
High interest rates make buying a car much more difficult for mainstream buyers and less economical for wealthier consumers. Such a situation is expected to drive people who have the cash to buy a vehicle to buy it unfinanced.
Smoke said the average new car loan interest rate is over 8%. In the case of used cars, it is close to 13%.
6. Vehicle affordability is the biggest challenge facing buyers
When interest rates were low, vehicle affordability was already a concern. The issue has become more of a concern as the Federal Reserve raises interest rates to fight inflation. Cox reports vehicle affordability is at record lows.
Cox said the increase pushed the average monthly payment for a new car to $785 and lease payments to $661. The average list price for a new car is still over $27,000 for him, and the average transaction price for a new car last year was around $49,500.
“The long-term concern is that this will lead to products being produced that are further skewed towards the luxury end and further away from the affordable price range,” Smoke said. It means that you have a price problem.
5. Second-hand car prices above average for the second year in a row
Used car prices soared during the first two years of the coronavirus pandemic as new cars and trucks became scarce. Wholesale prices will peak in January 2022. Last year he was down 14.9% and is expected to drop another 4.3% by the end of the year.
This decline is still insufficient to offset the 88% rise in index prices from April 2020 to January 2022.
Used car inventories have stabilized at almost 50 days, close to 2019 levels before the coronavirus pandemic drained supply.
4. Electric vehicle sales in the US surpass 1 million units for the first time
Cox reports a 66% increase in all-electric vehicle sales in the U.S. last year to over 808,000 units, so amid dozens of new models slated to hit the market, one million It’s not that big of a leap to reach . EVs make up about 5.8% of new cars sold in the US
Add hybrid and plug-in hybrid electric vehicles paired with conventional engines, Smoke said. The new cars sold this year are “electric” cars. It will increase from 15% to 16% by 2022.
3. By 2023, new car sales will increase and used car sales will decline, resulting in a decrease in overall retail sales volume.
Automakers are expected to rely more heavily on sales to commercial and fleet customers such as rental cars and government agencies than in recent years to increase total sales.
Automakers have prioritized more profitable sales to consumers amid recent inventory shortages. However, as consumer demand is expected to decline, businesses are expected to turn to fleet sales to fill that demand gap.
2. New car inventory continues to rise
Declining demand is expected as the auto industry gradually ramps up vehicle production and inventory levels rise.
Inventory levels over the last two years have been at record lows due to supply chain and parts issues impacting production.
Cox reports that inventory levels vary widely by brand at Detroit automakers. Stella — Have a good supply of vehicles. Toyota According to Cox, the fewest days of vehicle supply are .
1. Low-growth economy puts pressure on auto market
All the previous forecasts, combined with the economic concerns, will put a lot of pressure on the US auto industry over the next year.
This is happening at a time when automakers are investing billions in electric vehicles and new technologies such as advanced driver assistance systems and self-driving cars.
“We’re hoping for a soft landing for the economy, but we believe the car market will be subdued over the next year,” Smoke said.