Forecast: Watch for Vehicle Demand to Dip  in 2023

Dealers can expect solid sales in 2023, but rising interest rates and car prices will likely lessen demand.

Cox Automotive analysts and other auto insiders are the latest to make that prediction as the new year approaches.

But any potential dip in demand is expected to begin slowly

Experts predict 2022 will end on a relatively high note: December sales are expected to reach 1.27 million units, an increase of 11% compared with November and nearly 4% more than December 2021.

Many automakers have increased inventory levels since late summer, though certain ones continue to struggle.

In a year that began with supply issues, 2022 is ending with “a demand problem,” Cox Automotive says, referring to rising vehicle prices pushing some potential buyers out of the market. 

This time, the soft sales year is mainly attributed to automakers begrudgingly cutting production in the face of parts shortages, particularly the microchips used to run systems throughout modern vehicles.

The inventory shortages put auto retailers in a tricky spot.

On the one hand, dealers must contend with customers who are turned off by limited vehicle selections and prices above list.

On the other hand, it is reported that the majority of dealers are tallying record per-vehicle profits.

The year 2022 will end on a relatively high note: December sales are expected to reach 1.27 million units, an increase of 11% compared with November and nearly 4% more than December 2021.

Cox predicts the auto industry’s 2022 total new-vehicle sales to total 13.9 million units, a decrease of 8% from 2021.

That is the lowest level since 2011, when a major recession gouged into sales that reached only 12.7 million.

The auto industry is complicated and affected by assorted dynamics. For example, as inventory has improved to satisfy demand, the Federal Reserve Bank’s aggressive interest rate increases have driven auto-loan costs to levels not seen in more than 20 years. In its latest action in December, the Federal Reserve announced it would raise interest rates by 0.5 percentage points, shifting the target range to 4.25%-4.5%. Officials expect to keep rates higher through 2023 in an effort to combat inflation. 

That is pushing some affordability-minded shoppers out of the market, says Charles Chesbrough, senior economist at Cox Automotive.

He expects the economy to see weak growth in 2023 “as the Federal Reserve tightens monetary conditions and consumers wrestle with high-interest rates.”

New-vehicle sales are expected to increase modestly in 2023, supported partly by growing fleet volume. “Affordability will continue to be a challenge for vehicle buyers” in 2023, Chesbrough says.