What can auto retailers expect from the market in 2023?

2023 is right around the corner, and on today’s edition of Inside Automotive, Jonathan Smoke, Chief Economist at Cox Automotive, looks back on this year’s auto retail trends today and what they might indicate about the future.

Smoke says that “a potential recession is the issue going into the new year.” Which is a nightmare scenario for economists and forecasters. In terms of profit, he continues, “we started this year with a supply problem,” and that is the most manageable problem to have. But as the year goes on, there’s a shift into an economic problem. Because interest rates are approaching a 20-year high, it is harming consumer access to credit and driving up company costs. Leading to an affordability issue in the used-car market. As we transition to stronger inventory, every new car sale is the result of one less used car being sold. 

Smoke notes, the last time “we saw pent-up demand was at a time with lower rates and prices.” Now, there is an increase in cash flow within households. 80% of household income has grown to the franchise dealers and the new car market. According to Smoke, the income groups dealers are currently focusing on are “the homes that make more than 90,000 a year.” Since many households are primarily making cash purchases, it ultimately reduces the likelihood of the economy collapsing.

On the other hand, December marks 17 consecutive months of buyers purchasing new vehicles above average MSRP. But, Smoke predicts moving into 2023, it will become 18 as a recession is on the horizon. In this light, dealers must prepare for manufacturers to pull back on pushing production and there will be fewer incentives for consumers. 

Smoke predicts that in 2023, there will be a similar but higher likelihood of a recession unfolding, which will worry the economy and require dealers to be more vigilant when it comes to the used-car market. “Ultimately, there will be a severe supply shortage, but by the middle of ’23, there will be opportunities for the used-car market to open up and support dealers” 

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