Cox Automotive has released its new car forecasts for 2023, highlighting the positive position of the UK market but with continued scope for volatility.

Philip Nothard, insight and strategy director at Cox Automotive

While UK new car registrations fell 2.0% in 2022 due to the chip shortage, 2023 has brought grounds for optimism, reinforced by latest SMMT figures which show the market rose 14.7% in January.

However, the SMMT has warned that the market remains fragile while Cox Automotive has now said in its latest AutoFocus report that the outlook for 2023 “could go either way”.

Its upside, baseline and downside scenarios consider the positive position the new car sector currently finds itself in, having already navigated several significant headwinds.

The upside prediction would see new vehicle production recover quicker than anticipated, consumer and business confidence improve and a resolution in Ukraine that “returns the sector to its halcyon days”. This would equate to 1,904,024 new car registrations, 18% higher than the actual figure in 2022 but still down 17.6% on pre-pandemic levels.

The company’s most likely scenario for new car registrations throughout 2023 stands at 1,711,447, which would be a 6% increase on actual 2022 levels, but still 26% down on pre-pandemic levels. That’s based on steady stabilisation, interest base rates continuing to meet forecasted levels, and appetite within fleet and leasing companies returns following market incentives to aid new vehicle purchases

Cox Automotive’s downside scenario predicts a reduction in fortunes, with worsening complications caused by the ongoing conflict in Ukraine, failed government incentives to slow inflation, and further interest rate rises to put additional pressure on consumer spending. Its downside figure for the full year is 1,614,352 new car registrations, the same number recorded in 2022 but still 30.2% down compared to the nine years prior to 2020.

Grounds for optimism include work by manufacturers to increase supply levels, breathing life into the new car market.

The EV sector also continues to grow – a fifth of all UK registrations were plug-in vehicles during 2022 – but concerns surrounding EV prices and infrastructure remain.

Philip Nothard, insight and strategy director at Cox Automotive, explained: “As we edge closer to the ZEV mandate regulation, more needs to be done for EVs to truly become the dominant mode of transport. Significant investment is still needed in the charging infrastructure to support a growing EV parc. In addition, there are still barriers to entry for many people, with the cost of EVs being higher than their petrol/diesel counterparts.”

Meanwhile, the planned move to an agency model by various carmakers brings positives and negatives – and following Volvo’s recent postponement of its agency model launch for three months, Cox Automotive expects several other OEMs to hold back and observe competitors before choosing a similar route.

“An area of caution around the agency model is its pressure on cash generation, working capital and market volatility, all exposures currently managed by retailers. It could prove advantageous for those OEMs not entering immediately. However, even in countries such as Australia, where many manufacturers felt compelled to transition their dealer network to the agency model due to the supply disruptions resulting from the pandemic, it remains unclear what the impact is on both volume and profitability.”

Finally, the rise of Chinese brands in the UK and Europe could also change the shape of the sector for years to come.

Nothard added: “The timing couldn’t be better for Chinese manufacturers as established OEMs step away from affordable but ultimately unprofitable legacy models. This has left a void to fill as people still need small, cheaper cars.”

To access Cox Automotive’s latest AutoFocus report, click here.