10 auto industry predictions for 2023


A customer looks at a vehicle at a BMW dealership in Mountain View, California, on Dec. 14, 2022.

David Paul Morris | Bloomberg | Getty Images

DETROIT — Wall Street and industry analysts remain on high alert for signs of a “demand destruction” scenario for the U.S. automotive industry this year as interest rates rise and consumers grapple with vehicle-affordability issues and fears of a recession.

Since the onset of the coronavirus pandemic in early 2020, automakers have experienced unprecedented pricing power and profits per vehicle amid resilient demand and low inventory levels due to supply chain and parts disruptions affecting vehicle production.

Those factors created a supply problem for the auto industry, which Cox Automotive and others believe may switch to a demand problem — just as automakers are slowly improving production.

“We’re swapping a supply problem for a demand problem,” Cox Automotive chief economist Jonathan Smoke said Thursday.

Cox has 10 predictions for the U.S. auto industry this year that point to such an outcome. Here they are along with reasons why investors should be mindful of them.

10. Federal incentives will encourage more fleet buyers to consider electrified solutions

While electric vehicle tax credits under the Inflation Reduction Act have not been finalized, incentives for commercial vehicles and fleet owners promise to be a major benefit.

Unlike consumer vehicles that qualify for credits of up to $7,500, fleet and commercial vehicles do not need to meet stringent U.S. requirements for domestic parts and batteries.  

“This is actually where we think the majority of growth will be in new vehicle sales in ’23,” Smoke said.

Cox forecasts U.S. new vehicle sales will be 14.1 million in 2023, a slight increase from nearly 13.9 million last year.

9. Half of vehicle buyers will engage with digital retailing tools

8. Dealership-service operations volume and revenue climb

Due to a lack of available new vehicles and higher costs, consumers are keeping their vehicles longer. This is expected to increase back-end service business and revenue for dealers compared to their sales. Dealers make notable profits from servicing vehicles. The increase is expected to assist in offsetting potential declines in sales and financing options.

“We see this as one of the silver linings for dealers,” Smoke said. “The service department usually does well [and] is somewhat counter-cyclical during economic downturns.”

7. All-cash deals will increase to levels not seen in decades

6. Vehicle affordability will be the greatest challenge facing buyers

5. Used-vehicle values will see above normal depreciation for a second straight year

4. Sales of electric vehicles in the U.S. will surpass 1 million units for the first time

Cox reports all-electric vehicle sales increased by 66% to more than 808,000 units last year in the U.S., so it’s not too much of a leap to hit 1 million amid dozens of new models scheduled to hit the market. EVs represented about 5.8% of new vehicles sold in the U.S.

Add in hybrid and plug-in hybrid electric vehicles that pair with a traditional engine, Smoke said about 25% of new vehicles sold this year to be “electrified” vehicles. That would be up from 15% to 16% in 2022.

3. Total retail vehicle sales will fall in 2023, as new vehicle sales grow, used sales decline

Automakers are expected to rely more heavily on sales to commercial and fleet customers such as rental car and government agencies than they have in recent years to increase total sales.

Carmakers prioritized the more profitable sales to consumers amid the low inventories in recent years. But with consumer demand anticipated to fall, companies are expected to turn to fleet sales to fill that demand gap.

2. New vehicle inventory levels will continue to increase

1. A slow-growing economy will place pressure on the automotive market

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