Cox economist Jonathan Smoke breaks down 10 predictions for the future of the auto industry

Over the past few years, our industry has experienced changes in inventory, high prices, and electric vehicles. Can we anticipate more of the same in the coming year? On today’s episode of Inside Automotive, Jonathan Smoke, Chief Economist at Cox Automotive, discusses Cox Automotive’s 10 predictions for the industry.

Both consumers and the industry has had a challenging year in 2022 due to historically low new-vehicle inventories, high prices, and persistent inflation that chips away at monthly budgets. According to Smoke, “the market’s dynamics with reference to the economy will change in 2023.” 

#1: Pressures of A Slow-Growing Economy

First and foremost, Smoke declares, “we are facing an uncertain year ahead.” We are dealing with slower economic growth that “flirts with inflation.” As the Federal Reserve tightens, monetary conditions and consumers continue to tackle high-interest rates.

#2: Increasing New-Vehicle Inventory Levels

Cox Automotive believes if we avoid a recession, new-vehicle sales will not come without consequences for the use-vehicle market. Dealers’ numbers for delivery and fulfillment are increasing along with inventory levels. As a result, the used-car industry is left behind by rising inflation rates.

#3: Total Retail Sales will fall

When you throw in a 20-year high-interest rate, “it’s relatively flat for the average franchise dealer,” says Smoke. It will continue to be one of the many issues we will encounter in the coming year since we’ve grown accustomed to years of growth over the past decade. Due to this constraint, the auto industry will be unable to expand, and retail sales would fall by almost one million net.

#4: Improvement in Supply

The increase in supplies is one of the ironies of 2023. Deliveries of new vehicles will rise, which is a significant trend. This trend is about fulfillment because many dealers have been fulfilling orders, like pre and back-orders. Customers who have been supporting the used-car industry, however, will return to the new-car market.

#5: A Recession

We currently have a 50/50 chance of experiencing a recession, according to Smokes. The new-vehicle market is affected the most by the likely scenario of “plus or minus one percent of growth for the American economy.” This is more likely to happen when manufacturers scale back on their aggressive expansion of economic uncertainties. When they will need to provide incentives for such vehicles, they won’t be eager to pour more into the market.

#6: Electric Vehicles Will Continue to Grow

For the first time ever, “we will sell one million batteries in the United States this year,” as the battery-vehicle industry continues to outsell the total market in terms of sales. Several marketing and advertising campaigns will be used in the light to encourage EV purchases. The Cox Automotive anticipates additional positive developments in the EV market.

#7: Encouraged Commercial Fleet Purchases. 

Smoke states, “the inflation reduction act will encourage more commercial fleet purchases too.” Dealers have been known for supporting smaller commercial fleets that will benefit from some of the lingering incentives. 

#8: Another Strong Year for the Fixed-Ops Department

Many of the dynamics that motivate people to maintain their cars well will continue to support good revenue and significant growth in the service lanes, two markets that Smoke predicts will perform exceptionally this year.

#9: Leasing Will Increase

Leasing is expected to grow in some segments of the new-vehicle industry, according to Cox Automotive. Sales in the fleet and leasing are predicted to exhibit the biggest increases this year over the previous. Last year’s additional supply chain problems prevented this projection from materializing as they anticipate it will this year. The most economical course of action for manufacturers is to address affordability and invest program funds back in the market.

#10: Electric Vehicles Characteristics

Cox Automotive anticipates that 8% of new vehicles will be entirely battery-powered. 25% of all new cars sold this year, if you count all hybrid models, will be electric in some way. Smoke claims that although the market has a demand, “the supply at these volume levels” was the limiting factor. However, thanks to the debut of 27 new electric vehicle models, it will aid in the supply for the remainder of 2023.

Ultimately, Smoke says, “a characteristic is a declining share in Tesla. They are the leading EV manufacturers at the moment, but Toyota and Ford will increase market demand later this year.