This is article is part of a series of monthly articles produced by Harbour Results for PMA’s MetalForming Business Edge e-newsletter. Click here to view the full collection of articles.

Automotive Forecast: A Little Cloudy with Clearer Skies Ahead

With more than 34% of PMA members operating in the automotive industry, we wanted to take a closer look at the current and future state of the industry. During 2022, most OEMs saw strong profits and an increase in profit per vehicle. This was due to reduced inventory and fleet sales, and increased retail sales prices. However, the last three years have created many new challenges and opportunities for manufacturers. And, we expect several issues to continue into 2023, including a slight recession, the chip shortage, growing cost of doing business and inflation. Despite all these challenges, we still see opportunity on the horizon for the automotive industry – to learn why keep reading.

Key Automotive Metrics

Let’s take a look at some data. This is data that shops operating in the automotive industry should be using to help build their future business plans.

• Vehicle Demand: It’s not meeting expectations. According to Harbour IQ Partner, AutoForecastSolutions (AFS), 2022 was expected to be at 15.8 million units – after seven reductions, the forecast now sits at 13.7 million units. This is due to supply chain issues, higher interest rates, inflation, dramatic drop in demand and low fleet sales. AFS predicts a slight improvement in 2023 at 14.4 million units.

• Vehicle Pricing and Incentives: Since COVID there’s been a big bump in price due to huge demand. With low inventory, consumers bought what was available – higher trim levels – not necessarily what they wanted. And before COVID, OEMs lived on incentives to drive high sales levels, but now, demand is outpacing supply so much that incentives have dropped from nearly 11% to 2% on average. We don’t expect pricing or incentives to adjust significantly in 2023, however, it is notable that inventories have grown in Q4 2022 as well as fleet sales.

• Used Car Market: When new car inventory dropped in 2020 and people had stimulus money to spend, they turned to used cars, draining inventory. And while people buy new cars more now, the used car market and used car values remain higher than average, but we are seeing some softening in pricing in Q4 2022.

• Auto Loans: The amount people are financing for new cars has gone up 29%, and the average payment has increased 23%. This is a direct reflection of new vehicles with higher content and increased prices. It’s similar in the used car market – the amount financed is up 45% and monthly payments are up 35% since 2018.

• Auto Loan Delinquency: With all the higher loans and a recession looming, loan delinquency is an indicator of future sales. According to Cox Automotive September 2022 data, loan defaults grew 19.6%, up 22% from last year. And 1.72% of loans were severely delinquent – the highest since after the Great Recession. All of these are trending in the wrong direction and must be watched as we move into 2023.

• Leasing Demand: This is important because OEMs have relied on leases for year, averaging 30% of sales. In 2022, only 15% of vehicle sales were leases and average prices have gone up almost $100 month.

• Vehicle Inventories: Everyone thought inventory would grow fast in 2022, but it only grew a small amount, from 35 days to 42, still well below pre-COVID amounts. For some models, semiconductors and other supply chain issues are still an impact, but we expect this to continue to grow into 2023, but likely not to pre-COVID levels.

• Industry Profitability:

  • OEMs: Overall profit per vehicle for most OEMs is up dramatically from 2021 because they are selling every vehicle without incentives and the highest trim level at much higher prices. We expect this to continue for 2023 as automakers focus on making vehicles that are most profitable.

  • Tier 1s: With 2022 demand down 2 million units from the start of the 2022, increased cost of doing business and high labor costs, Tier 1 supplier profits are way down and 2023 will continue to be challenging.

• EV Growth: OEMs have invested billions, with more planned, on their EV strategies. And they’ll continue to put large investments in low-volume BEVs in last half of this decade.

So, Where to From Here

The next 18 months will be challenging for metal formers, so it is even more important for your business to be resilient so you can better manage the ongoing complexities. First, evaluate your current portfolio and how you can protect it and grow. Get the data and insight you need to make informed decision about the future and be proactive.

 However, it is important to note that the future is bright for automotive. In 2024 and beyond there will be many new vehicle and all new ICE trucks. This coupled with new BEV products entering the market will allow for lots to quote in the coming years we just have to get through 2023.