An interview with Jonathan Smoke, Cox Automotive Chief Economist
October 12, 2023
By Jeff Kelley, VADA.com
Across Virginia, the retail automotive market has performed in line with the nation for new vehicles and EVs, which now constitute 8% of automobiles sold in the Commonwealth, Cox Automotive’s chief economist told VADA.com this week.
When it comes to EVs in Virginia, “it's really a story about Northern Virginia, Charlottesville and Richmond. And then there's everyone else,” says Jonathan Smoke, who leads Cox’s economic and industry insights team. And that’s the same story nationally: big urban markets are driving EV adoption, with rural areas almost none at all. For the first time, U.S. dealers are expected to sell more than 1 million EVs for the year, which Smoke calls “a significant milestone specific to the U.S.”
At the start of September (Cox’s most recent data set), new-vehicle inventory nationwide was 68% higher than in 2022, fueling healthy sales as consumers shrugged off record interest rates. “This year, it’s been about having new vehicles to sell,” Smoke says.
“Franchises have been enjoying a recovering new vehicle market this year” and strong fixed operations, Smoke says.
- Nationally, the new-vehicle sales pace for the year is expected to finish near 15.5 million, up from September 2022’s 13.6 million pace and up from August’s 15 million level.
- Cox's Q3 Dealer Sentiment Index was 45, below the threshold of 50, indicating that more dealers see the current auto market as weak than see it as strong. After hitting an all-time high in Q2 2021 of 67, the current market index has been sliding downward.
Even if the U.S. economy turns south, “it's very possible that Virginia avoids a recession, especially in the vehicle market, because the kind of recession the country would have would be a relatively mild one, similar to what we had in 2001,” he says.
“Virginia has some of the strongest local market economies in the entire country, with an unemployment rate well beneath the United States in almost every market,” he says. “It’s seeing strong growth, and strong population migration into the state from other places. And those are the recipes for continuing to have that mojo into the future.”
On UAW strike impacts
“UAW impacts have been pretty minimal up until this point,” Smoke says. There was no apparent impact in September on sales or pricing, which Cox expected (Cox’s Dealertrack registration and titling service is a VADA partner).
Since the start of the September 15 “Stand Up” autoworkers strike targeting the Big Three Detroit automakers versus a single OEM, “the best estimates we’ve seen is that we’ve lost about 70,000 vehicles that would have been delivered to the market,” Smoke says. That’s still a far cry from the nearly half-million units that would have been lost under past strike tactics.
However, “because the disruption is growing, and the threats are to impact some of the higher-profile, more-important truck factories, if progress isn't made this week, then the disruption could get worse,” Smoke says (we spoke on Oct. 9).
On Q4 and beyond
Sales challenges including the strike, consumer confidence and buying power, the reinstatement of student loan payments, chaos in Washington, higher oil prices, record interest rates, and unease overseas are contributing to economic uncertainty.
“Those are all things that are tough to not see having some impact on vehicle demand in the fourth quarter,” Smoke says. “But that said, I think we'll navigate it.”
- He sees a strong five-year horizon of growth in both new and used vehicle sales, and Virginia is likely to be a recipient of higher-than-average volumes thanks to a robust economic climate in the Commonwealth.
Battery-electric vehicles now contribute to 8% of new vehicle sales, representing 80% growth year over year. Inflection Reduction Act credits are helping drive adoption and federal regulations calling for final assembly to occur in the U.S. are causing OEMs to build factories to support the mandate.
Supply is expanding too, with dozens of new models coming soon. But with an abundant oversupply of EVs, Smoke says he “can pretty much guarantee” more aggressive pricing and incentives on EVs in years to come.
The Biden administration has demanded 50% of new vehicle sales be BEV by 2030, but Cox Automotive is “skeptical that we are going to see the adoption that the President has called for,” Smoke says. Existing U.S. supply chains only get the nation to 46% adoption, Smoke says.
“Given the fact that we're already oversupplied, and we're not seeing sales adoption, we're not going to hit that number and it's likely to be lower,” he says. Smoke sees stronger demand for hybrids and alternative-fuel vehicles, as BEV is often not the best fit for every retail or fleet consumer.
Still, he says, “we believe we’re going to see strong EV growth for the foreseeable future” as prices fall and drivers become more comfortable with range and charging availability.
Every quarter, Cox and Smoke release their Dealer Sentiment Index, which interviews both franchised and independent auto dealers to get their insights on the market. He incorporates thematic songs into presentations and includes a playlist on those quarterly index reports to capture the tone of dealers nationwide. Smoke, a music fan who DJ’d in highs school, realized earlier in his career that music could apply to takeaways he wanted his audience to know.
“They sometimes call economics ‘the dismal science’ for a reason,” he says. “And sometimes music is a fun way to deal with difficult topics.”
Get Smoke’s fall playlist and a link to his recent sales call. Here’s to upbeat 2024 playlists!