According to Cox Automotive Europe, the global automotive sector is set to make a tentative recovery in 2023, despite prolonged disruption to new vehicle supply. The company cites the burgeoning transition to EV, new market entrants, and the agency model's evolution as key factors affecting automotive retail over the next 12 months.
The sector enters 2023 from yet another challenging year in which performance remained below pre-pandemic levels. Despite this, the UK outperformed many of its European neighbours, achieving 1,614,063 vehicle registrations according to official figures from SMMT, within 0.7% of Cox Automotive’s best case scenario forecast for the year. However, the performance of the UK automotive market must also be viewed in context. While other European nations grappled with similar headwinds facing the UK market, only Germany registered a year-on-year recovery for new and used sales, with a 3% increase in the new market YoY and 25.2% compared with 2019.
Supply shortages will continue into 2023, shaping consumer preferences
Despite signs of a recovery for vehicle manufacturing, Cox Automotive believes the sector is entering a new era of significant change amid shortening lead times, where supply is significantly below normal pre-pandemic levels.
There has been a notable shift in how consumers are accessing vehicles, as well as the types of vehicles that are in demand. While passenger cars will always remain a necessity, higher interest rates and affordability represent important obstacles for the market in 2023. As a result, the sector will likely see a continued preference towards affordable used cars as new vehicles become out of reach for many. Likewise, subscription models haven’t quite taken off, and many still favour a two- or three-year Personal Contract Purchase (PCP). So, although the high demand for used cars has somewhat levelled, it’s a market that remains very safe for now.
Acceleration towards EV and Net Zero
Cox Automotive believes automotive brands will continue prioritising EVs despite dampening consumer confidence and rising raw material costs.
While the cost of producing vehicles is increasing, the rise has been particularly acute for battery vehicles due to the scarcity of critical materials such as cobalt, magnesium, platinum, and lithium. Similarly, growing EU financial and global supplier challenges dampen consumer-led demand for new electric vehicles.
Nevertheless, EVs remain a high priority for most leading automotive brands, who are focused on capitalising on the transition to cleaner forms of transport. Against a backdrop of pressing Net Zero carbon reduction targets, the outright ban of new petrol and diesel car sales from 2030 in the UK and 2035 across the EU, and considering the looming threat of fines and sanctions, the pace of change is only going to increase.
Hydrogen vehicle production will likely remain on the fringes for the time being. As such, EV will continue to be a heavy investment market in 2023, although infrastructure still has some catching up to do.
New market entrants and brands will emerge victorious
Consumers are becoming open-minded and less loyal to established brands in the emerging electric vehicle space. In 2023, Cox Automotive believes the sector can expect a period of shifting ownership and brand affiliation where affordability will precede desirability.
As newer brands from China look to gain a foothold in the global market, the sector can expect to see Chinese manufacturers fill market gaps left by established OEMs as they step away from affordable but ultimately unprofitable legacy models. This means, for now, many Chinese manufacturers will be focused on offering ICE and Hybrid models, as well as EVs.
A key year for the agency model
The landscape of the dealership is changing, but if manufacturers get it right, consumers will notice little change. The agency model, commonly known as a direct consumer model, has been a major talking point over recent years. OEMs want to be proactive in creating a positive experience for their consumers by owning their consumer relationships without having the dealer as a third party.
The benefit of the agency model is that it allows organisations to retain brand loyalty, have fuller control over pricing and profitability, and focus on a better showroom experience. This presents an opportunity for more manufacturers to take advantage of ongoing supply challenges and recalibrate how they interact with customers. Mercedes is going live with its agency model in agreement with retailers this year, and Cox Automotive predicts this will be a catalyst for many others to follow suit.
Philip Nothard, Insight and Strategy Director at Cox Automotive, comments: “It has been debated whether our industry has arrived at a Valley of Death regarding manufacturing. It would be correct that overall sales (and therefore production) have dropped off a cliff compared to pre-pandemic levels, but we should not be so pessimistic. Instead, we should look at the opportunities presented to us within the automotive industry and the forced development resulting from COVID-19.
“We are in a situation where it is no longer viable to attempt to maintain the success of the pre-pandemic automotive industry. But, as well as uncertainty, plenty of opportunities come afoot with this. We need to have a glass-half-full mentality. We’re in a valley of opportunity, and 2023 could be a critical year for reaching new horizons.”