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What's Ahead for Carmakers in 2023?

Growth Chart14 years ago, IBM researchers asked 125 auto executives their predictions for the vehicle industry by 2020. Their report predicted that every vehicle sold in 2020 would be an EV/hybrid. That prediction was way off the mark, when in fact only 3% of new vehicles sold in 2020 were in that category.

What was even stranger about the 2020 prediction was the market in 2008 was already running at 2.4% of sales for EV/Hybrid vehicles. So, 12 years to move from 2.4% to 3% is hardly rapid growth.

I guess what it really says is that we are not that great about making predictions, especially with regard to how fast or slow markets or technologies grow. However, we have read about some shorter-term predictions for 2023 so have a look and see what you think is ahead for this year.

Inflation ChartHere we are in 2023 with increasing interest rates, high inflation, increasing cost of living pressures, left over auto supply chain problems, high fuel costs and recessionary fears, among the major challenges for the global automotive industry and consumers.

These issues aren’t expected to be resolved quickly. There’s growing concern from the financial markets that the supply shortages could quickly turn into what they call, a demand destruction for the new carmakers, just as vehicle production is finally getting back to normal levels.

The pandemic disrupted manufacturing and supply chains around the world, forcing all automakers to cut production. The resulting shortage of new vehicles, trucks, cars and SUVs meant that automakers and dealers were able to sell at much higher prices for the vehicles they were able to deliver. New vehicle supply is finally improving but the industry is swapping a supply problem with a customer demand problem and that doesn’t translate well for revenues and profits in the year ahead according to a number of predictions for 2023.

New Vehicle ShowroomU.S. industry analysts expect 2023 vehicle sales to total about 13.7 million in the U.S. This compares to 15.1 million in 2021 and 14.6 million in 2020.

The lower volume of 2023 sales predicted, factors in that many lower-income car buyers and those who borrow to purchase would typically leave the new vehicle segment during a recession and may have already done so because of low inventories and record-high vehicle prices.

Ongoing supply chain challenges, high fuel costs and strong recessionary fears will result in a cautious build-back by the auto car makers.

Most consumers will therefore delay a high value purchase until the market shows some sort of recovery relating to prices and their own job security. Inventory, pricing and incentive activity will be key barometers to gauge the potential lack of consumer demand.

Put another way, will higher interest rates, growing recession fears and too much inventory force automakers to lower prices and give up profits to encourage potential buyers into their showrooms? That would be good news for some consumers who have been facing record-high prices during 2022 on most new vehicles. But if so, it’ll come at a cost to automakers and possibly their shareholders.

The question you have to ask is would you be in the market to purchase a high value new vehicle in 2023?

February 2023


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