Smooth running or a rocky road? Our 2023 market forecasts

As 2022 comes to a close, we’re sharing our forecasts for 2023 and what we expect to see on the new and used car market.

New car sales on the up, but only if supply shortages continue to ease

The last few months have seen new car transactions see a year-on-year rise and we expect this to continue into 2023, with new car sales expected to increase 22% year-on-year.

Our 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.  

Of these new car registrations, we are forecasting that 19% will be for an EV. This is a downgrade on our original forecast for new EV transactions over the next decade as we have seen a decline in demand in the latter half of 2022, something which may persist into 2023.

Used car sales to remain flat as “lost” new car sales hamper growth

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 shortage of 0-1- and 1–3-year-old cars will impede sales in 2023, we predict 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 we believe 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) of people waiting for a driving test, the current disruption in public transport (cited by 50% of respondents in our 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 some of our recent research, with more than three-quarters (77%) of car buyers needing a car to get around (up from 71% in pre-pandemic February 2020). And with strong levels of employment (over 75%) 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 a stronger position to withstand a recession

During previous recessionary periods, there was an incredibly strong pipeline of new cars entering the market via manufacturers, retailers, and fleets, 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 order bank 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.   

What are your predictions for 2023? Let us know in the comments.