NADA Chief Economist Patrick Manzi shares auto industry outlook for 2023

Retail automotive has adapted well to the changing market conditions of 2022. As we close out the year, we want to take a look back at the market and the transformations that occurred. Today on Inside Automotive, we’re pleased to welcome the Chief Economist for the National Automobile Dealers Association (NADA), Patrick Manzi, to give us his perspective and forward-looking recommendations.

Today’s market looks very different than it did at the start of the year. At the beginning of 2022, inventories were incredibly tight, and interest rates were low. Since then, inventories have improved somewhat, and interest rates have risen dramatically.

3.75 – 4% is the target range on the Fed funds rates, explains Manzi. Auto lending rates rose above their pre-pandemic levels within the past few months and will only go higher. Although he believes that 75-basis points hikes are likely over, a tight labor market could keep wage growth up and fan the flames of inflation.

In terms of new-light vehicle sales, Manzi expects 2022 to net out at 3.6 million SAAR. OEMs have been stuck at 1.1 million new units in monthly production since May, which is unlikely to change dramatically in the future. For dealer profitability, 2022 stayed on par with 2021 levels, and MSRPs combined with low incentives will help residual values in the future.

Despite a downturn in the wholesale market, retail prices have been more sticky, coming down a little bit, but not as much as wholesale, which is good news for inflation metrics. However, Manzi expects year-over-year prices will decline in 2023.

Manzi agrees with many of his industry peers that there is still pent-up consumer demand in the market that will carry over into 2023.

“I think the majority of the pent-up demand at this point is probably going to be from fleet buyers, but there is certainly still some pent-up retail demand, especially among those consumers who are hungry for a lower-priced vehicle. OEMs have been building higher trims—more expensive vehicles because they have to protect their own margins, given they can only build so many vehicles,” says Manzi.

He adds, “So, the mix has really favored those higher priced vehicles that’s been a big driver of the growth in transaction prices. So, I think if they can start to build some more affordable models, there will be a lot of takers for them.”