An outlook for the automotive industry in 2023

DATE: WEDS 4TH JANUARY 2023 | AUTHOR: MIKE EDWARDS

The Economic Outlook – it’s improving.

Despite the Bank of England forecasting the longest, but not deepest, recession for over 100 years, there is room for cautious optimism.

As I write this outlook, the Office for National Statistics (ONS) has announced that inflation for November fell back to 10.7%; still high, but hopefully the start of a continuing downward trend.

Next off the economic line is the Bank of England Monetary Committee, which has announced a 0.5% base rate increase, creating an overall base rate of 3.5%. Looking into 2023, forecasters have generally lowered their expectations, in light of falling inflation, with the base rate expected to peak next year between 4 and 5.5%.

New Car Sales 2023

Here again, we see room for positivity. The SMMT predicts an increase of 15.4% for new registrations; this is very encouraging. EVs will lead growth, which, between the hybrid and full battery options, will account for almost 40% of all new car activity. It is a staggering switch from ICE models, but with generous tax incentives for business users and the reality that EVs are starting to dominate production, it is inevitable.

Concern over range anxiety has been replaced increasingly by charger access anxiety. Still, here Zap-Map’s latest instalment of its EV charging statistics showed that 1,507 new public chargers were added in November, bringing the UK’s total to 36,752. An increase of around 33% for EV chargers since November 2021.

The Used Car Market

The used car market quietened in Q4. Whether this is a return to seasonal norms or the impact of the economic landscape is hard to tell, but I suspect it is a combination of the two factors.

What is interesting is that within the ONS’ inflation report, they identified a fall in used car prices as a contributing factor to the drop. After rising by 31% in the 12 months to March, used car values fell by 5.8% in the year to November.

While there has been an overall fall in used car values, it is essential to point to stronger demand in older, cheaper cars, with higher value cars, notably EVs seeing higher levels of depreciation. 2023 will be fascinating as we look to see where the normalisation of used EV values sits.

Used cars are often seen as an intelligent choice when the economy is challenging. In 2023, I expect used car volumes to be at or around the same as we have seen this year. However, the shortage of new 3-year cars, created by the decline in new registrations over recent years and consumer demand, could well see a focus on slightly older used cars, especially those that are Euro 6 qualifying, as buyers have an eye on emerging clear air zones.

Two Significant Market Changes

The Emerging Agency Models

This month, Mercedes Benz will be the first volume manufacturer to move to an agency model. It heralds the start of what I expect to be a significant development.

At a high level, OEMs embracing an agency model, and there are a growing number, will liaise with customers digitally, control new vehicle prices and seek to leverage their relationship with the customer. The new agency dealer networks will provide test drives and aftersales.

With aftersales activity set to fall in light of the lighter servicing needs for EVs and the loss of new car profits, it will be interesting to see if retailers can balance their books through their agency role commissions and savings in new car stock funding. As has already been happening, I’m sure that existing ‘franchised’ dealers will need to be more active in the used market and look to other profit centres, notably finance and added value services.

According to the FLA, used car finance penetration has grown to 45%, so an opportunity for many. However, there is another significant change to consider – Consumer Duty.

Consumer Duty – Live from July 31st 2023

“The FCA’s Consumer Duty will lead to a major shift in financial services FCA” – July 2022

AutoProtect Group is a leading voice and player in the forthcoming Consumer Duty development. Our insurance-backed added value products, our DealTrak finance operation and our compliance service, iComply, have all got ‘skin in the game’, and we have been working towards the changes and helping dealers in their journeys.

There is not space in this outlook to cover the Consumer Duty in detail. However, my call to action to all dealers is; if you have yet to commit significant time and resources to understand the changes, it will require plenty of time to understand and build your capabilities.

As a flavour of what all firms must deliver here are the four outcomes that the FCA expects:

  • Consumer understanding – consumers are equipped to make good decisions. Information is made available at the right time and is understandable.
  • Price and value – products and services should be sold at a price that reflects their value. There should be no excessively high fees.
  • Product and services – the firm’s products and services should be fit for purpose. The terms match the target consumer needs, and products and services work as expected.
  • Consumer support – customer service should be responsive and helpful. It should be as easy to complain about, switch, or cancel products or services as to buy them.

These words are easy to write but translating them into operating standards will be far more involved. If you are looking for support in this critical compliance area, don’t hesitate to contact my colleagues in iComply by email.

Finally

To all our customers, thank you for your support in 2022; for everyone across our industry, my best wishes for the year ahead.