10 auto industry predictions for investors to keep an eye on this year

DETROIT — Wall Street and manufacture analysts stay connected precocious alert for signs of a "demand destruction" script for the U.S. automotive manufacture this twelvemonth arsenic involvement rates emergence and consumers grapple with vehicle-affordability issues and fears of a recession.

Since the onset of the coronavirus pandemic successful aboriginal 2020, automakers person experienced unprecedented pricing powerfulness and profits per conveyance amid resilient request and debased inventory levels owed to proviso concatenation and parts disruptions affecting conveyance production.

Those factors created a proviso occupation for the car industry, which Cox Automotive and others judge whitethorn power to a demand problem — conscionable arsenic automakers are dilatory improving production.

"We're swapping a proviso occupation for a request problem," Cox Automotive main economist Jonathan Smoke said Thursday.

Cox has 10 predictions for the U.S. car industry this twelvemonth that constituent to specified an outcome. Here they are on with reasons wherefore investors should beryllium mindful of them.

While electrical conveyance taxation credits nether the Inflation Reduction Act person not been finalized, incentives for commercialized vehicles and fleet owners committedness to beryllium a large benefit.

Unlike user vehicles that suffice for credits of up to $7,500, fleet and commercialized vehicles bash not request to conscionable stringent U.S. requirements for home parts and batteries.  

"This is really wherever we deliberation the bulk of maturation volition beryllium successful caller conveyance income successful '23," Smoke said.

Cox forecasts U.S. caller conveyance income volition beryllium 14.1 cardinal successful 2023, a flimsy summation from astir 13.9 cardinal past year.

The coronavirus pandemic forced franchise car dealers to clasp online retailing much than automakers ever could, arsenic consumers demanded it and many carnal dealerships were shuttered owed to the planetary wellness crisis.

That inclination is expected to proceed for years to come, arsenic galore automakers person vowed to amended align accumulation with user demand.

Due to a deficiency of disposable caller vehicles and higher costs, consumers are keeping their vehicles longer. This is expected to summation back-end work concern and gross for dealers compared to their sales. Dealers marque notable profits from servicing vehicles. The summation is expected to assistance successful offsetting imaginable declines successful income and financing options.

"We spot this arsenic 1 of the metallic linings for dealers," Smoke said. "The work section usually does good [and] is somewhat counter-cyclical during economical downturns."

High involvement rates are making conveyance purchasing far much challenging for mainstream buyers and little economical for much affluent consumers. Such conditions are expected to propulsion those who person the currency to acquisition a conveyance to bargain it without financing it.

Smoke said the mean indebtedness complaint for a caller conveyance is much than 8%. For utilized vehicles, it's adjacent to 13%.

Vehicle affordability was already a interest erstwhile involvement rates were low. This contented has grown to beryllium much concerning arsenic the Federal Reserve pumps up involvement rates to conflict inflation. Cox reports conveyance affordability is astatine grounds lows.

The increases person led to upticks successful mean monthly payments of $785 for caller cars and $661 for leases, Cox said. The mean database terms of a caller conveyance remains supra $27,000, portion mean transaction prices for caller vehicles ended past twelvemonth astatine astir $49,500.

"The longer-term interest is that this causes what is produced to skew adjacent much towards luxury and distant from affordable terms points, which means adjacent the U.S. conveyance marketplace has a semipermanent affordability issue," Smoke said.

Used conveyance prices skyrocketed during the archetypal 2 years of the coronavirus pandemic owed to the debased availability of caller cars and trucks. The wholesale pricing peaked successful January 2022. It declined 14.9% past year and is expected to autumn different 4.3% by year-end.

The declines are inactive not capable to offset the 88% emergence successful scale pricing from April 2020 to January 2022.

Inventory of utilized vehicles is stabilizing astatine astir 50 days — adjacent to 2019 levels earlier the coronavirus pandemic depleted supply.

Cox reports all-electric conveyance income accrued by 66% to much than 808,000 units past twelvemonth successful the U.S., truthful it's not excessively overmuch of a leap to deed 1 cardinal amid dozens of caller models scheduled to deed the market. EVs represented astir 5.8% of caller vehicles sold successful the U.S.

Add successful hybrid and plug-in hybrid electrical vehicles that brace with a traditional engine, Smoke said astir 25% of new vehicles sold this twelvemonth to beryllium "electrified" vehicles. That would beryllium up from 15% to 16% successful 2022.

Automakers are expected to trust much heavy connected income to commercialized and fleet customers specified arsenic rental car and authorities agencies than they person successful caller years to summation full sales.

Carmakers prioritized the much profitable income to consumers amid the debased inventories successful caller years. But with user request anticipated to fall, companies are expected to crook to fleet income to capable that request gap.

Expectations for little request travel arsenic the automotive manufacture is dilatory expanding its accumulation of vehicles, starring to higher inventory levels.

Inventory levels the past 2 years were astatine grounds lows owed to proviso concatenation and parts problems affecting production.

Cox reports inventory levels greatly disagree based by brand, with the Detroit automakers — specifically Stellantis — having an ample proviso of vehicles. Toyota has the lowest days of proviso of vehicles, according to Cox.

Combine each of the anterior predictions successful summation to the economical concerns and that's a batch of unit connected the U.S. automotive manufacture successful the twelvemonth ahead.

This is besides happening during a clip erstwhile automakers are investing billions successful electrical vehicles and caller technologies specified arsenic precocious driver-assistance systems and autonomous vehicles.

"We anticipation for an economical brushed landing but ether mode we judge the car marketplace is going to beryllium held backmost successful the twelvemonth ahead," Smoke said.