Stability for new and used car market in 2023, but supply remains an uncertain factor
The new and used car market will be dictated by supply, not demand in 2023
Despite an impending recession and wider economic pressures, Auto Trader has forecast a cautious, but confident outlook for the retail market next year, with new car sales expected to increase 22% year-on-year. And whilst the dramatic recent shortfall in new car stock will impede used car transactions in 2023, Auto Trader believes sustained levels of consumer demand will limit the potential impact, with used car sales expected to be broadly in line with 2022.
Auto Trader’s forecast analysis predicts circa 1.9 million new car registrations in 2023, which marks an 18% fall on pre-pandemic 2019 levels (and below the mid-term average of 2.4 million cars), but a positive 22% uptick on the 1.6 million registrations anticipated by the close of this year, as well as the two years previous. However, this target is largely dependent on levels of supply into the market, which has been constrained for the last three years by global shortages of vital parts, as well as COVID related closures, some of which remain unresolved, but are anticipated to ease during the year ahead.
New car supply will also be a major influence in the used car market. To date, an estimated 2.5 million new car registrations have been ‘lost’ since the start of the pandemic, which due to typical three-year finance cycles, will begin to significantly reduce the availability of younger second-hand stock from next year. Whilst this dearth of 0-1- and 1–3-year-old cars will impede sales in 2023, Auto Trader predicts the market will be in the range of 6.8 – 7.0 million used car transactions, similar to the expectations for 2022.
This is due to the fact, that Auto Trader believes levels of car buying demand will be partly shielded from economic pressures due to unique macro factors. This includes the huge backlog (circa 500,000[1]) of people waiting for a driving test, the current disruption in public transport (cited by 50%[2] of respondents in Auto Trader research as being a crucial factor to owning a car), and the combined 5 million lost new and used car sales which still leave a level of unsatisfied pent-up demand in a market that’s been constrained by supply. What’s more, cars are, for most people, a fundamental need rather than a discretionary luxury, which was highlighted in recent Auto Trader research, with more than three quarters (77%) of car buyers[3] needing a car to get around (up from 71% in pre-pandemic February 2020). And with strong levels of employment (over 75%[4]) projected to continue into 2023, it’s unlikely the car will be the first thing to cut. With these factors combined, robust levels of consumer demand should be sustained throughout 2023.
Then and now – today’s market in stronger position to withstand recession
During previous recessionary periods, there was an incredibly strong pipeline of new cars entering the market via manufacturers, retailers, and fleet, all of which would in turn flow into the used market. Due to the abundance of stock, brands and retailers spent heavily on discounting and marketing activities to stimulate demand for both new and used cars. It meant that once recession hit and demand began to wane, there were few ‘levers’ for the industry to pull to stimulate demand.
In contrast, today’s retail market is heading into a potential recession in a far stronger position. Due to the huge shortfall of supply, marketing activity has been dramatically reduced, and with average new and used prices rising significantly since 2019 (up circa 20% and 47% respectively), discounting hasn’t been necessary. Accordingly, brands and retailers today have many levers still available to them during the year ahead. What’s more, with a very strong orderbank of new cars (approximately six months), the industry has a strong cushion to help absorb any potential softening in demand, putting it in a strong position to weather the potential economic storm.
Commenting on the forecast, Auto Trader’s Brand Director, Marc Palmer, said: “With so many different variables at play, predicting the direction of the market is never an easy task, and not one we take lightly. But as ever, we are led by the data. As we have found this year, the market performance has been dictated by supply, not demand. We have consistently seen on our marketplace, where there is stock there is strong demand, whether that be for new or used cars, a trend we fully anticipate continuing into 2023. And whilst the year ahead will be a demanding one, based on what we’re tracking across the market, we believe it is in a far stronger position than previous periods of economic turbulence.”
[1] DVLA data
[2] 2002 car buyers surveyed in July 2022
[3] 2002 car buyers surveyed in July 2022
[4] ONS data November 2022
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