30th Annual Automotive Insights Symposium

MARTIN LAVELLE: All right. Hi, everybody, in person, virtually. The temperature actually is double digits outside today, which, going off script right away, how do we feel about the Auto Show moving back to January? Any strong feelings about this?

STEPHANIE BRINLEY: Should have never left January.

MICHELLE KREBS: Right. It's the right thing to do.

DAVE ZOIA: Yeah, it's a better fit, at least, I think.

MARTIN LAVELLE: OK. We're all OK with--

DAVE ZOIA: Because we hate the cold, it's a better fit. Yeah.

MARTIN LAVELLE: I just don't know if, with the sudden new competition of home Detroit Lions downtown playoff games during the Auto Show time, how that might deter consumer traffic to the Auto Show. So anyway, it's great to be with you again.

This year, we have a tremendous panel. So we have Kevin Riddell, Senior Manager, Americas Powertrain from GlobalData; Dave Zoia, Senior Director of Content, Informa Tech Automotive Group; Michelle Krebs, Executive Analyst, Cox Automotive and Stephanie Brinley, Associate Director, Research and Analysis, S&P Global. Thank you. Thank you for joining us. Thank you for taking the time to be with us.

So my name is Martin Lavelle. I'm Senior Business Economist based in Detroit. I have a lot to do with our Beige Book submission, so this panel kind of fits what I do in terms of keeping track of current business conditions and updating everybody on what's going on.

So I am going to show a couple things, numbers wise, so maybe if we can go ahead and put the couple slides I put together up. And I also want to thank the panel for agreeing to do this a little differently this year. Typically, in the past, we would have had multiple Outlook presentations. Everybody would give their take and go through a PowerPoint deck on sales and production and so forth.

I thought it might be a little more interesting, a little more interactive, less repetitive to show a couple things, but then have a conversation about trends and where things are going. So-- oh, I'm going to I'm going to get the power here. OK.

So that slide is for your reference online, in person, virtually, to show just a couple of things that stood out from what I asked panelists to submit to me in advance. But really I want to show this. And the first question, and I'm going to start with Stephanie on this one, is, just looking back on 2023, as you can see going into 2023, the consensus Blue Chip estimate for new light vehicle sales was around 14.5 million units on the new side. The range seemed to be somewhere between 14 and 14.5, from looking back at from what people were thinking about for 2023. So why did we miss?

STEPHANIE BRINLEY: Why did we miss? Well, it's a forecast. It's never perfect.

And actually, I think, when I work with my forecast team and watch us continue to go, well, it's going to be a little bit higher with a lot of our forecast rounds, I think it really comes down to the resiliency of the consumer. We also had expected-- and S&P Global doesn't often do this, but we sort of expected a mild recession in the first two quarters of '23 that didn't really happen. So those two things, I think, have changed a little bit of that dynamic.

All the way through COVID we found and still find that the consumers that are willing and able and ready to buy a car are buying a car. And the people who have stayed out have stayed out for other reasons than whether or not they can. And they've been resilient and they've come back and said, yeah, we still want to do that.

There's a lot of affordability issues. There's a lot of other issues that we're going to talk about throughout this. But the resiliency is there. The interest in buying a car still does remain.

MARTIN LAVELLE: Michelle?

MICHELLE KREBS: I have to agree, the consumer resiliency was amazing. We kept upping our forecasts throughout the year. And everybody thought consumer spending would tone down, Christmas would be terrible. It wasn't. So the resiliency of the consumer has been remarkable.

The other thing is that fleet sales were pretty strong this past year. And that really boosted the overall sales numbers. So businesses were also resilient.

STEPHANIE BRINLEY: And fleet sales needed to come back a little bit. They were down for so long. There's still people-- and that goes back to the resiliency, a little bit more car rental, a little bit more activity there.

And in 2020 and 2021, those fleets cut back pretty dramatically, and eventually you do need to replace them. So that was a healthy-- it was a healthy step to fleet sales, not back in the bad old days where you pushed fleet to keep production up. So it was a very healthy fleet mix, but that did come up quite a bit this year.

DAVE ZOIA: I think if you think back to a year ago and the headwinds that we were facing, there was the war in Ukraine, there was China-US trade tensions, there was inflation taking off. You start to look at those things. You had the looming labor negotiations coming up. So all those things, I think, tamped down our forecast a bit.

And we said going in, we thought there was more upside than downside to the forecast. And I think that proved right. But I think with all those things, potential for a looming recession, we were on the conservative side.

And we would say the same thing going into this year. I think there's more upside to the forecast than downside.

MARTIN LAVELLE: OK. Kevin, 2023?

KEVIN RIDDELL: I would have to agree with the consumer resiliency was really key. But I think at the same time, finally the capability and the industry being able to start building up those dealer inventory rates as well, too, giving consumers more selection, bringing some more lower priced products back into the market. I know overall MSRP didn't really go down, but really kind of bringing in some of the lower end products, less restriction on what was immediately available was also another big part of why 2023 kind of really outperformed what most of us were expecting.

MICHELLE KREBS: Yeah, I think production really surprised us too because it ramped up from the chip shortage quicker and stronger than we anticipated. Wasn't across the board, but--

STEPHANIE BRINLEY: Right. And then in the beginning of '23, you're still-- this was our third year of what's going to go wrong. So even though we kind of got the sense that chip shortage was finding a stable level, and that really means it still takes a long time to get the chips, but you know they're going to come so you can plan for it better. But how well that was going to integrate in was a little bit uncertain. So yeah, everybody was a little conservative at the beginning of '23, but fortunately the upside did come through.

MARTIN LAVELLE: So I hear for 2023 consumer resiliency, which I definitely agree with, interest in buying vehicles, we know there's pent-up demand out there. And we'll talk a little bit more about that later. Fleet sales, that was pretty visible and picking up, inventory continuing to rebound, productions also surprising on the upside. So with all of those contributing to 2023 surprising on the upside, how do you feel about everything we just talked about going into 2024 and how that may affect things on the upside or the downside?

KEVIN RIDDELL: I think, going into 2024, what we're expecting to see, we're expecting to see the market kind of continuing to recover. We're still not quite to where. We've been using 2019 kind of as our baseline as to what normal was, and we're still going to be a little below that in 2024, about 16.1 million sales currently. But I think we're seeing some positive factors going in.

We don't see-- we expected a recession in later '23 or pushing into '24. We actually have kind of gotten out of that. So we expect to see GDP about 2, 2 and 1/2% this year. So I think-- but there still is kind of that risk of a recession. But again, this consumer resiliency has really kind of helped pushed us over that to get to at least a bit more comfortable positioning.

And as well as production continues to recover, we did have some challenges on that aspect of it going in through 2023 with the UAW contract talks, still some supply issues occasionally. But we're seeing a lot of recovery here. We're continuing to see a lot more selection coming into the market, especially with the big push on more BEVs coming into the market as well. So we're seeing a lot of positive factors going into this year.

MARTIN LAVELLE: I have to ask you. So you're expecting 2 to 2 and 1/2% real GDP growth for '24. Just can you talk more about what's going into that?

KEVIN RIDDELL: I can't really talk to you about that.

MARTIN LAVELLE: You're definitely on the high side with that.

KEVIN RIDDELL: We work with Oxford Economics, to be honest with you, to establish that baseline GDP growth. And so really that's not really my forte, that I couldn't really expound upon. I could certainly get back to you on it.

MARTIN LAVELLE: OK. Dave?

DAVE ZOIA: Yeah, I agree with what Kevin said. Mainly we see more upside, like I said, than downside. I think-- it's an election year. Things usually go well for the auto industry in election year. So I think that's a little bit of a positive.

They do have the production issues are mostly cleared. There's still some inventory issues, I think, in terms of mix and things like that we're keeping an eye on. But by and large, we see a pretty positive path in 2024.

MICHELLE KREBS: We're always conservative. We would much rather raise our forecast through the year than not, so we're still a little bit cautious. Our forecast is for 15.7 light vehicle sales. I know that's at the lower end for most people.

But we just-- and we do see things getting a lot more normal. Production is more normal. Inventories are really rising. We're up to a 70-day supply. We see that moving up to more normal territory, maybe not quite as high as 2019.

I think we wonder how long can the consumer be that resilient. There's a lot of consumer debt. We're seeing increases in delinquencies and now defaults are starting to increase, still really small, but a little strain.

And affordability is still a big issue. We estimate that about 10% of people who would normally buy new vehicles have dropped out of that market, maybe into used because of the affordability issues. On top of still high prices, although they're moderating, high interest rates, which we don't anticipate right away will come down, and the other costs of ownership, insurance is one that's popping up as a big cost.

MARTIN LAVELLE: Well, it is. But it's interesting, though, and putting these dots together and collecting information from you all, and then comparing it against what the median or the consensus Blue Chip estimate is, we're all believing in-- I mean, while we're conservative, we're closer to that upper bound of where the highest Blue Chip light vehicle sales estimate is. So it's interesting that you're conservative, but there's a greater belief in the upside in this year than versus last year.

MICHELLE KREBS: We don't anticipate a recession. But election years can be funky.

STEPHANIE BRINLEY: We're at 15.9 for 2024. We're a little bit conservative, I guess, by comparison. But when we talk about what's normal and we talk about comparing it to 2019, I went back and looked at some of our 2019 forecasts, our 2020 forecast at that point. We expected then, before COVID, for 2020 and 2021 and 2022, to settle to that mid 16.

We didn't think we were staying at 17. We would have been at 17 for five or six years. That wasn't expected to stay. So we're looking at 2025 being at 16.5, which is really actually close to what we thought we were going to be in 2020. So we may actually be, in 2025, in a much more normal state for production and for sales even than in '24.

Production in '24 might come down a little bit in North America, but you're really looking at a lot of product changeover. You're looking at the plants in Canada being down for a bit while they change over to battery electrics. You've got some other projects that are coming in and out. And I think that's the biggest impact for production in 2024 right now.

It's going to be interesting in '24 watching the balance between BEV and ICE, and where does that really go and how do you slip and keep those ICE products. I think Chevrolet and Hyundai and Kia are three brands that are really well positioned for that in 2024. Chevrolet is revamping some ICE products. They've got some EV products there ready to go.

Affordability, I think, is going to be a key because that's how you reach the buyer that can't get to 50,000. And I don't think that the real problem is an affordable battery electric, it's just an affordable vehicle. And I think we're seeing things like Chevrolet Trax, we're seeing things like Buick Envista. We're seeing Nissan increase production of some of their lower end stuff.

And we're going to see in this year-- 2022, when we were deep into the semiconductor problem, they were putting chips in, building the most expensive vehicles that they could because people were willing and able at that point to do that. Now you have to look at your mix and go, wait a second. We need to fill in some of the lower mid trims. We need to make some of those available.

And then even in the market, we will see some people shift down to a smaller vehicle to maintain the bells and whistles. We will see some people shift to a lower trim level to stay in the size vehicle that actually works for their life. But I think we're going to see a much broader availability and that's going to lead to more affordability.

But we also the vehicle prices are going to come down really slowly. This is not going to be in July all of a sudden we're at a 30,000 average again.

KEVIN RIDDELL: Right. I was just thinking of another thing about that affordability as well, because obviously that's going to be pretty critical. But something that we saw towards the end of 2023, too, were incentives at the dealership were starting to rise, too. And I think that's going to help with that consumer affordability as well, particularly when you're looking at personal passenger vehicle sales. And I think that's going to be key. And I think we expect those to continue to go on an upward trend as we go into and through 2024.

And that was something that we really didn't see a lot of, since from COVID, up until about the beginning of 2023 and even into it a few months. But now you're starting to see the competition to get those sales is starting to really kind of come back, as opposed to they're just going to buy what we produce because that's what's available. So you're starting to see that transition back, a continuation kind of back to where we were.

STEPHANIE BRINLEY: Sort of. I mean, incentives are coming up, but Kristin's slide showed incentives aren't coming up to where they used to be. They are going to come back up. And just being able to offer incentives-- American consumers are kind of interesting. They do like to haggle about their cars. They complain about it, but they like to feel like they've got a good deal on it at the end of the day.

So if you start to see more incentives, I think that with interest rates sort of settling down, and at least not going up, there's a confidence story. So the media stories coming out of the beginning of January are, look, we've got more cars. Look, we've got more incentives. Look, the interest rates aren't going to go up next month.

So the story changes and says, hey, people, if you want to buy a car, this isn't a bad time. Last year, it was like, I don't know, you're probably going to overpay. You're probably not going to get what you want. So I think there's going to be some more optimism that will help go along with the incentives. I don't think they need to go back to old time levels, but they are going to keep going up and they will help.

MARTIN LAVELLE: While we're on the affordability question, so kind of jumping ahead for a second, so we have the dynamic in which we expect incentives to maybe continue their upward trend as a percentage of MSRP. However, is it in-- this question that we've been asking the last couple of years, is it in the OEM's best interest to try to get that inventory level back to or at least in shouting distance within its pre-COVID level? After realizing the benefit of inventory was lower than maybe ideal, but inventory was suppressed, however, we were able to get more full-price sales. We realized pretty nice margins for so long.

And obviously, those days are probably past, given the affordability challenges and also rising-- and then now the new challenge of we have more inventory to finance on site eating away at margins. So any feelings on the balance between, OK, maybe we see the rise in incentives, but is the inventory going to be in a position where and is it going to be in the OEM's best interest, the dealer's best interest to-- how is that all balanced? How do you think that's all going to be balanced together?

STEPHANIE BRINLEY: It's art and science. So it's going to ebb and flow, and it's going to be that. But we don't see production dramatically increasing. So there's a stop in there. It's not that the production is suddenly going to outpace what's there. There's still a balance that's happening there.

So yes, incentives go up. Yes, inventory is much better than it was. But there's not a push to build new plants. There's not a push to take your plant and double the capacity.

So we aren't planning for a huge production increase. I think that will be one of the reasons that, one of the ways that it they're able to keep it balanced and use it well.

MICHELLE KREBS: Which isn't a matter of them being disciplined because we don't--

STEPHANIE BRINLEY: Not necessarily.

MICHELLE KREBS: We don't see that. But it is one of the things we hear is that dealers-- we do a survey every quarter of dealers. They're not too thrilled because they've been order takers for the past few years, and now with the highest profits that they've ever seen.

So now they've got to do a lot more work selling because it'll be-- the growth isn't going to be huge. There are a lot more competition. There's more availability. And so their biggest complaint is it's squeezing their margins, still their fourth best year ever.

MARTIN LAVELLE: Right Yeah, definitely complain, when I talk to them for the Beige Book, that they're having to work harder to sell vehicles before. They're still selling, but it's taken a little more little more effort.

DAVE ZOIA: Yeah. I mean, we don't see day supply going back to pre-COVID levels. We count differently from Michelle, I think. But we're looking at maybe 50 days being more the norm than 60 historically. And so I think the industry will try to keep them low and keep margins high and try to manage it.

I think the problem is you get one guy that kind of goes off and says, I'm going to start producing higher volume and go back to discounting more. It kind of throws everything up in the air again. But I think they will try to maintain that discipline and keep margins high and inventories low, rather than get back to the old days where they were incentivizing production, basically.

MICHELLE KREBS: It's also there's a wide variation. I mean, if you look at Toyota and Honda, they're way low on inventory. Toyota told me they're way too low. By their count, they're 13-day supply. We have them a little bit higher than that.

But at the other end of the spectrum, you've got the Stellantis brands that have a lot of inventory and did throughout even the strike. So it's wildly different.

KEVIN RIDDELL: Yeah, I think that we aren't going to quite go back to, like David just said, we're not going to go back to 60-day supply or 70-day supply to have that safe inventory level. You're going to start to keep it.

But part of that is going to be kind of how disciplined are they going to be able to maintain because, yeah, they've gotten used to, OK, we were able to get through the lower production volumes by selling the higher trim levels, selling the more expensive product. Well, OK, now you're getting into the affordability question again. You're starting to sell cheaper products. It's going to be kind of what each OEM is kind of comfortable with going down to, especially at the same time, when they're still staring these huge investments into electrification over the next five or 10 years.

So it's kind of a balancing point on what they're willing to do now for future investments or how they're willing to impact those future investments as well. So I think they're going to still try to maintain at least some semblance of making sure they don't get into these crazy incentives that we had before.

STEPHANIE BRINLEY: They can't afford to. And I think they've addressed some of that. And there aren't as many small cars, and a number of automakers have said, well, we're not making money in that segment. We just won't play in that segment.

And so that changes the dynamic as well because you do definitely-- how much can you afford to incentivize because you've got to have that track? You need more affordable vehicles in the market in order to capture the people who can't right now, and that's going to be part of increasing sales. But at the same time, you can't let the margin go so low that you can't finance your [INAUDIBLE] electrics that you need to come down the road.

So that makes, I think, this whole conversation-- that's one of the differences between what happened coming out of last recession or even in 2019, is it's not just about financing the products, the next normal product cycle. It's investment into plants. It's investments into batteries, investments into the supply chain that we were talking about. It's pressures that didn't have that.

We know we have a chasm to cover with battery electrics. We know it's going to be choppy. And that is going to force, I think, a little bit more discipline in making sure that you incentivize where you need to.

But you've got to have-- and each OEM is at a different level. One of the reasons that Hyundai and Toyota and Honda have stayed in small cars is because of the global footprint they have for these vehicles. So the dynamic for each company is going to be slightly different as well. What they're capable of doing and how they can address it is going to depend on their global business as well as their North American business.

MARTIN LAVELLE: And we'll talk more about global in a little bit. Two more things related to US new light vehicle sales, are we concerned that even, I guess, throwing Oxford Economics real GDP growth estimate out, the consensus Blue Chip estimate for real GDP growth in the US in 2024 was 1%, the SCP from the Fed in December, the median estimate of real GDP growth was 1.4%. Any additional concern that below trend, US real GDP growth could actually bring some downside risk to what is even with a slight year over year, even with an improvement in new light vehicle sales in 2024 versus 2023, it's not that much of an improvement. So with a weaker US macro environment in '24, does that bring you any concern about sales still continuing to move up?

MICHELLE KREBS: I think employment's the big story. People feel confident about taking on a car loan if they're employed. And so far, so good.

DAVE ZOIA: Yeah, I think it's confidence more than anything, consumer confidence. And I think we're seeing they've been more confident. It seems like we've gotten used to all the noise, basically, the bad news, and people are still going out and spending money. So I think it's really more about that.

MARTIN LAVELLE: OK.

STEPHANIE BRINLEY: Well, and the growth that we're talking about for the US is, like, 2% this year for vehicle growth. So we're not talking about a year where it's a sudden breakout and we're going to hit 17. So we're looking at a fairly-- we're looking at growth, but we're looking at fairly modest growth. We're looking at growth that does make sense with the conditions that we have more so than expecting it to be a breakout year.

One of the things that-- the US light vehicle market is relatively mature. There's limits to how many people are going to be available, even if pretending that we were in whatever normal is post-COVID.

MARTIN LAVELLE: I guess then it gets to my last thing about sales is, where do we think trend is, especially post-COVID? I mean, pre-COVID it was 16 to 16.5, maybe closer to the higher end of that. Where do we think trend is now and how is that evolving?

STEPHANIE BRINLEY: 16 to 16.5, I think, is where we're--

KEVIN RIDDELL: Somewhat somewhere around 16.5 in our opinion right now. 17 was pretty robust. We don't quite expect to get to those steady levels anymore. But still 16.5 is a very strong level and very doable over the next few years.

MARTIN LAVELLE: OK. So it looks like, if that's trend, then the panel's at trend. The consensus doesn't seem to doesn't seem to get there. So we're still on the upside as far as 2025 goes at this point.

OK. So let's talk for a minute about production. So I'm going to change this. And so you can see from production, everybody's in a more narrow range.

Even in looking at other forecast estimates of North American light vehicle production for 2024 and even especially 2025, it's interesting, we're at the more towards the bottom end of where we expect North American light vehicle production to go. So I guess, what's our thinking about this and what's going into these estimates?

KEVIN RIDDELL: I think it was mentioned earlier that going into 2024, we've got some growth in production. But we're also seeing a lot more product, particularly on the BEV front, which isn't going to be bringing quite the volume. And you're going to have challenges in rollout. That's to be expected, especially with the number of products that are coming on that are being built in North America.

You're seeing a few refreshes and product redesigns also coming in, so that's going to be kind of reducing that challenge. But you're not dealing with the same supply issues that we've been having for the last couple of years, too. So you've got those that positive working for you. You have a positive environment from a sales perspective to help drive it.

We're rebuilding inventory, so it's not a requirement that, oh my gosh, whatever we produce, we just can't get enough out there. So it is coming back to a more normal level, I think, moving into 2024.

DAVE ZOIA: Yeah. I think, just to add to that, there isn't that mentality anymore of producing and incentivizing and selling. So I think we're reaching that point where we've got the equilibrium a little bit and so that's probably where we'll settle.

MARTIN LAVELLE: I guess a related question to that, and if you have any input to this, because is it the discipline that OEMs are implementing that where we're not producing to the max? Or is it that we hear pretty regularly that we'd like to have more labor to produce more regularly, or we can't find the workforce that would maybe allow production to jump up a little bit? So is it is it a discipline-- is it actually discipline driving the behavior? Or is it just, if we had more people, maybe we actually would produce more?

KEVIN RIDDELL: I think there's probably a combination of the two. Some of it is discipline. But workforce, I think, it's still a problem. You talk to the OEMs, if you talk to the suppliers, they still can't get the people to bring on the line to make parts. So even if the OEMs have the discipline, even if the OEMs have the workforce, it's the tier ones or the tier twos making sure that they have the labor force, that they're able to attract to be able to produce these steady supplies.

I think we're still going to see some supply chain niggles over the next few months, next months, the next couple of years. That's just going to continue to happen while people are still seemingly a bit slower to come back into the workforce.

STEPHANIE BRINLEY: Yeah, I think it is the workforce is certainly an issue. And again, maybe it's discipline by default, because like we referred to, I think the BEV investment is a huge factor in this. Have to be really careful where you're spending money and you have to be really careful that you're getting the margin that you need. And whatever that is for each automaker is a little bit different and each vehicle is a little bit different.

So I think it's a combination of factors that are forcing a discipline. And you could find an automaker go out of norm and not behave as disciplined. When you look at Tesla's dropping prices to match their production, that's such a classic automaker move. And Tesla likes to talk like they don't act like a normal automaker. I'm like, check your history book on that because that's precisely how auto industry got into a weird position for a while.

So we'll see some automakers make different decisions. But I think the discipline comes as much from the external conditions and the capital allocation needs as it does from hard-nosed discipline. You have to be disciplined in order to get through this process.

MARTIN LAVELLE: OK. And with the-- also going into production, how do we feel about the volatility that we've experienced over the last couple of years? Kevin, you mentioned maybe there might be some supply chain wobbles. I think, Stephanie, you mentioned it's still going to be volatile to some extent. Is it still improving, I guess, overall?

STEPHANIE BRINLEY: I think that it's still improving overall and I think we may be getting back to a point where the industry continues to learn, and it's always learned at with every crisis how to address the supply chain issue a little bit differently. Maybe in '24 we get to a point where the disruptions come at a pace that we're more used to.

Before COVID, there were disruptions. Things happened and they caused-- there's a magnesium fire that took out some Ford plants for a little while. There's earthquakes, there's tsunamis. There's a number of things that happen and no automotive production year is really without its challenges.

But hopefully, in 2024 the challenges are more on the level of before COVID than the massive ones that we've had. But I wouldn't expect that we'd go through a year with no disruptions. Something will happen.

KEVIN RIDDELL: Yeah, I would have to agree with that. A year without some sort of disruption, whether it's a natural cause or a fire, who knows. You forecast to the best of what you would expect to happen under a normal year. It's really-- you can forecast a recession perhaps in a couple of years based on cyclic nature of things.

But trying to forecast a disruption like that, you really can't. You kind of have to react. Those are the situations that, as a forecaster, you have to kind of respond and what's going to be the overall impact. I think we've paid a lot more attention because we've had a lot more disruption in the last couple of years.

So I think the fact that there's just a bit more focus on the disruptions that are continuing to happen or the potential for the future, but you're certainly not going to stop all of it in future years. They're going to continue to happen. They're going to continue to challenge. They're just going to have to be dealt with. And that's about the best you can do for the forecast.

MARTIN LAVELLE: So do we feel like supply chains are in a better position to handle shocks than maybe-- obviously, the shock from two to three years ago was pretty unprecedented. But we like to talk about supply chains normalizing, but has it been more of a function of just demand decreasing and that the supply chain's been able to handle that? If something were to come up that's relatively major in the supply chain, I guess, maybe with what's going on in the Red Sea we might find out. Is it is it in a better position to handle something like that, or something happens it goes on for some time and the supply chain hasn't built up any additional resilience?

MICHELLE KREBS: I think Stephanie's point about we've learned a lot. I mean, I remember the earthquake and tsunami. Wow, a lot of lessons were learned from that can be applied now. So they're always thinking contingency plans in a way that I don't recall that they did before. So I think, lessons learned.

MARTIN LAVELLE: OK, that's helpful.

DAVE ZOIA: Yeah, I think they've backed off the just in time a little bit, and I think that's-- we'll mitigate that a little bit. And also they're starting to look a little bit more strategically about not having one source or coming from one country. And so I think they're trying to insulate themselves a little bit better than what we saw that happened during COVID.

KEVIN RIDDELL: But I think it's still going to have the continued challenge of trying to maintain excess capacity levels to a reasonable extent because you don't want to obviously overinvest in capacity if you wind up never ever having to use it, which is great. So I think there's where I think what we're learning is trying to get more flexibility out of what we do have available as well. So you can shift a little more on the fly than we were able to in the past as well.

STEPHANIE BRINLEY: And it depends on what that disruption turns out to be, which none of us know.

MARTIN LAVELLE: Right. So a challenging question I pose to the group, and it's the last thing I'm going to show, is, so let's say we do have some downward movement in interest rates. We know there's pent-up demand for vehicles. We also there's pent-up demand for housing.

We there's a pretty robust correlation between light vehicle sales and single-family housing construction. That's what this chart shows. So what I've done here is indexed the two. And the relationship still shows up.

Now, we with rates having gone up, that's been a deterrent to some extent for both of these. So if we do get some interest rate relief, what's the feeling on which pent-up demand is going to open up first, vehicle sales or housing?

MICHELLE KREBS: I'll take that one because I'm not a housing expert, but my boss is. He was chief economist for Realtor.com, Jonathan Smoke. His thinking is that housing will be first, to answer your question really directly. However, we don't expect big drops in interest rates and huge boom because there's still the availability challenges and still affordability.

So housing first, but we still see the correlation with automobiles. Like, in the first six months of moving, you're apt to buy a new vehicle.

MARTIN LAVELLE: OK.

KEVIN RIDDELL: Yeah, I would think-- I'm certainly not a housing expert. I would think auto would actually be first, just from the affordability aspect of it, even though both markets still are relatively restricted at the moment, because really, if you don't have a car to get to your job to get the new house, there's going to be a problem. And I think that's going to have some influence into that situation.

DAVE ZOIA: Yeah. Again, I'm no housing expert either. It's a tough question. I feel like there's more upside in housing maybe. We've said the auto market's been pretty resilient through this. So it seems like there might be a more of a spike to housing, depending on the time of year, but that's just a gut-- yeah.

MARTIN LAVELLE: So selfishly, I follow construction real estate pretty closely, so I'm on the upside on housing. But I was curious on what our vehicle panel would say to this, since I'm also in that space too. Another thing we're watching is, again, this post-COVID changing of consumer behavior. Wall Street Journal showed this graph a few weeks ago that vehicle miles per capita and the number of average trips a household takes hasn't recovered to its pre-COVID levels yet.

So how are we-- in thinking about putting outlooks together, how are we thinking about not just with consumer behavior on the affordability side, but also just how often they're going into the office, how often they're driving? How are we thinking about these kinds of things?

STEPHANIE BRINLEY: We were looking at '24 being about the same as '23. It's not my area, so I was asking one of my colleagues, more people are going to be going to the office in 2024 because-- and he's like, no. It's actually the peak was in 2023 when people were coming back, and we don't really see a huge change from '23 to '24 in that set.

And one of the things that we're looking at is the expectation that there would be more air travel in '24. Where in '23 and '22 people were driving to vacation instead of flying, we sort of expect a little bit more air travel to pick up. So a couple of things are happening that we don't really see a massive change in vehicle miles traveled. And we're not looking at vehicle per capita, so it wouldn't line up with the chart you were looking at.

But we're not seeing a big spike in 2024 and a little bit more of a steady nature, which I was like, oh, that's interesting. Thank you for sharing, because my gut would have said that we would be increasing vehicle miles traveled, but that ebb and flow. And there may be some people that go back that weren't. But a lot of people went back in '23 that were going to, and there's other things that are happening that are decreasing what you might take an airplane instead of a car on a family vacation.

MICHELLE KREBS: I wonder, too, if corporate policies of, you must come in this certain number of days. If that becomes more widespread, if that will have an impact, too. But we'll see.

MARTIN LAVELLE: You guys have any thoughts on that?

KEVIN RIDDELL: Yeah. Actually, my initial thought was probably the same as well as my thought was, well, corporate policies are saying, come back in to work. You can't just work home four days out of five. Start coming in two or three or four days.

But you're right. At the same time, that public transportation is opening up. There is a lot more air travel for your vacations. And even on a lot more business trips and things like that, you're getting back to a lot more face-to-face time, but it's more where air travel starts to become a factor in that as well. So the two of them kind of balance out.

But I do think it's kind of an interesting thought because that kind of has a longer-term effect on how long people are going to own cars if they're not putting as many miles on them in the meantime, too. So how fast is that stock going to rotate, having these consumers coming back into the market?

MICHELLE KREBS: I will say, though, we just did our 15th annual car buyer journey where we interview thousands of consumers about, and we are seeing a really strong trend again towards personal ownership of vehicles. If you remember a few years ago, it was like, oh no, we're going to substitute one of our cars with ride sharing or whatever. No, they're very strong emphasis on personal ownership of vehicles. So we'll see how that plays.

STEPHANIE BRINLEY: Yeah, I was skeptical when that sort of conversation was-- people would like to subscribe and people just want to own what by what they use. And I'm like, yeah, that's because you're still at home. That's because you don't have your own kids yet. That's because you haven't done the math yet to realize that paying x number of dollars--

MICHELLE KREBS: And I think COVID had an impact. I mean, they want their personal space.

STEPHANIE BRINLEY: Yeah. So I think they were going to maintain personal ownership.

MARTIN LAVELLE: Dave, did you have anything to add?

DAVE ZOIA: I'd just say, yeah, I think upside, a little bit on the miles driven just because I think-- maybe it's even post 2024, but I think that trend of going back to the office is happening and it's going to continue. You might see summer gas prices lower than we had last year. That might boost people's-- and air travel is great, but it's awful expensive, too. So I think that could push people back into the cars.

MICHELLE KREBS: And crowded.

DAVE ZOIA: Yeah, and crowded, absolutely.

STEPHANIE BRINLEY: It was-- and I didn't bring all the numbers up here with me. I apologize for that. But when I asked about the vehicle miles traveled, because there's a bunch of other industries that already went back to the office, so I was like, oh, well, because it affected me last month. I thought everybody. So that was part of the feedback from my colleagues, was that a number-- you get out of automotive and you get out of the space, there's a lot of other industries that have already done that, that maybe aren't necessarily on my radar and a lot of other areas in the country that have already done at least a few days back to work, if not five.

MARTIN LAVELLE: We will see about that.

STEPHANIE BRINLEY: Yes.

MARTIN LAVELLE: We have very different-- that's a conference for another day. Just a reminder to submit questions through Pigeonhole so that we'll get to those in a few minutes. But now what you've been waiting for, we're going to talk about EVs now. I think, Kevin, I'm going to look your way to start off with this.

Where are we at with-- I mean, adoption rates seemed to flatten out as the year progressed. And I guess, maybe even why have we gotten to this point and where are we going?

KEVIN RIDDELL: Well, I don't know if adoption rates have really flattened out. I mean, throughout the year, you kind of went through ebbs and flows of it. It would boost up for a couple of months and just level out, and then boost up a couple of months and level out. And I think that's really because we're still in that early adoption phase.

As Kristin showed earlier in her presentation, we're still early adopters. These are still the trendsetters that really want to go into the new market. The penetration of EV sales in the light vehicles closed '23 at about 8%, which, without knowing the number of new products that were coming into the line, the price war that Tesla wound up starting to get into in 2023, those factors had a big effect. We're expecting a number of new vehicles coming in '24 as well to help keep that momentum go on.

And I think the more vehicles that are out there, people are starting to get more acclimated to at least seeing them, maybe pique their interest in it a little more. They might still know, yeah, there's still a bunch of challenges in there coming up and maybe they're not going to be for me per se, but there are so many factors going into it. I mean, there have been so many programs in the last couple of years to help improve the charging infrastructure, to help bring battery production in North America or the component production, that there's just so many factors that are helping to push the sales.

The prices have come down. Thank you very much, actually, to Tesla and that fact. Is there still a ways to go? Yes, definitely, but we've seen some big progress.

There used to be a $10,000 average transaction price between EVs and the average vehicle sales. That gap has come down a lot in '23. So I think these are all factors that are kind of helping.

There's still challenges. We're still relatively early on a number of aspects. Just when I thought we were going to converge on CCS charging, in comes Tesla to say, we're going to create the North American charging standard. And so far, probably 80%, 85% of the volume by 2025 are going to offer that charging standard. So there's still a lot of work to do.

By the end of '24, we expect to see about a 10% battery electric adoption rate. And it's a little conservative, but had some manufacturers starting to pull back on their plans, slow them down a little bit. Ford's come out to say they're going to produce a few fewer of the F-150 Lightnings. General Motors delayed the Orient assembly from transitioning to the full-size truck production.

But at the same time, you're going to see Tesla continuing to push. You're bringing out new products from just about every manufacturer this year. So there's really a lot of strong tailwinds, even if we are still facing relatively high interest rates to what we're going through. The economy is still not quite back. There's still the possibility of some slowdown further on. But there's a lot of strong, positive tailwinds coming into '24 for BEVs.

DAVE ZOIA: Yeah. I mean, I think it's going to continue to grow for sure, but I also feel like it's still very much a policy-driven market. I kind of go by the adage of Woodward and Bernstein, you have to follow the money. And with the election looming and a potential big policy shift in terms of supporting EVs in terms of emissions regulations and incentives and charging incentives and things like that, I think it has a chance to really chill the market in the US.

And so I would look very closely at that. I think for a lot of people, we're still very much-- it's not a mass market yet. It's sort of early adopter. Maybe it's moving a little bit off that. But I still think that we have to show some momentum behind policy.

I think the fact that Ford scaled back on its battery plant plans in Michigan, GM delayed some product launches, I think all that to me politics plays into that a little bit. I think they're a little wary about what the direction of the policy in the US is going to be. And there is more product coming in. And so I think I think sales will continue to creep up, but I also think there's a chance that it could really chill in the next year or so, depending on how the policy shakes out.

MARTIN LAVELLE: So do you think that decision then was mostly policy-driven versus demand-driven?

DAVE ZOIA: I think it was a little of both. I mean, we have seen the demand currently level off or get past that initial hype curve kind of thing. So I think it's certainly a reaction to the market and all that. But I also think there was an eye towards policy, too. Yeah.

MICHELLE KREBS: Let's be clear, it was a record year, 1.2 million. We anticipate another record year. The story got so muddled this past year because sales were up, but inventories soared and prices came down. It wasn't that sales were dropping, which was the story we were constantly pushing back on.

There are challenges, the infrastructure and the price and all those kinds of things. But the other thing that is very clear is, just like we were talking about the regular car market, we have to do some selling. We can't just take orders.

And what we find in our research and we see on our websites, Kelley Blue Book and Autotrader, is EV shoppers do way more research than do shoppers of ICE vehicles. So there's got to be a lot more education. I think a lot of negative publicity, like this week and all the EV sitting at icy charging stations doesn't help, but a lot more education.

MARTIN LAVELLE: Just to follow up quickly with talking to my fair share of Midwestern dealers--

MICHELLE KREBS: Yes.

MARTIN LAVELLE: --who aren't afraid to share their feelings about how many EVs are sitting on their lots and how consumers discuss their feelings about EVs, again, it's one part of the country. What's your sense on how, if you had the median consumer talk about an EV, what's their overall feeling about it?

MICHELLE KREBS: Well, I think there's a lot-- our surveys show there's a lot more interest in EVs than before and hybrids, but it is definitely geographic. And you see all the strength on the coasts, pretty much Florida, Texas, now too. But yeah, I think the middle of the country will be a bit harder of a sell, and especially just geographically being so much bigger and lack of EV charging infrastructure and that kind of thing.

STEPHANIE BRINLEY: So we all thought these 500,000 chargers were going to be in next month.

MICHELLE KREBS: Yeah.

STEPHANIE BRINLEY: Come on. This is a long-term solution. This is a long, long-term play. And even if General Motors says that they want 100% of their light vehicles to be electric by 2035 and Biden saying, I would like it to be here, that sets the tone and the direction. In some ways, it's not as important if they get to the 100% in 2035, is that drives the decision making process throughout the company.

When the presidential administration says this is where we're going, it tells the Congress where to spend money. This is where that happens. It doesn't mean that it's going to meet that particular target.

We're going to see a choppy couple of years. We have more vehicles coming in. Consumers are some ready, some not. We talked about the chasm being the infrastructure is being developed, but it takes time.

The December picture that Kristin had up, that Pilot J and GM program was announced before the MV and before the Infrastructure Act, and it still took until the summer of '23 before the first things were open. It took us a good 50 years to get to a gas station pump that had a self shutoff so you didn't have to have somebody standing in there holding it. This is going to take time to evolve and develop, and that's going to drive the geographic issues as well.

So we're looking at about 13% EVs for 2024. And that feels like a fairly comfortable state, looking at what we've had last year. And it's going to continue to grow and we're going to continue to move in this direction. It's just not coming on as fast.

And I think that one of the things that happened in '23, relative to the tone of stories about vehicles not moving fast enough and sales collapsing and the sky is falling-- we like to say the sky is falling, whether it is or not. But the other part is we saw a pretty good, healthy sales growth. And in '22, automakers seem to be reading off the hand-raisers that were like, I'll give you $100 and I'll stand in line and see what happens. And in '23, the buyers who came back were like, I'm going to buy a car now.

And so we had more buyers who weren't EV buyers and interested coming back than EV, so the share changed. The share growth didn't come as fast, but I think that the expectation in '22 was off-base. So I think that our hype was ridiculous. And to see it be choppy and to see Ford and GM and various automakers say-- and Tesla hold back a little on the Mexico plant and say, we're going to make sure we have everything in place so that we can grab it when we need to, but we're going to ease into it, is not the wrong thing to do.

With the election coming up, there's a risk there. And I think that the emissions requirements is part of it because that can help a company figure out what to allocate when and do I move this down the road a little bit. But nobody's talking about stopping. They're just like, OK, well, maybe it'll be a little bit longer. To Kevin's point earlier, this train is going. It's going to get there.

But I think probably more important than the individual tax credit is the support for manufacturing. That's where the real money is and that's where automakers and suppliers and batteries and critical raw material people are able to pencil something that they might not be able to otherwise. And so if that-- I mean, the infrastructure law and the bipartisan Act are laws, but a Republican or a non-supportive White House could slow it down to a trickle. Those funds could not-- and that changes some of the investment plans and it changes the timing, and I think that's a bigger risk for slowing things down. But I don't know the direction doesn't go, doesn't change.

MARTIN LAVELLE: If the pace of adoption-- is there a pace of adoption that would concern us? Like, how slow the pace would be if there's-- I can't imagine, especially with those who have purchased electric vehicles, they would turn away from them in mass numbers. But is there--

STEPHANIE BRINLEY: We have some turn away. We've had some turn away, for sure, getting frust--

But again, even an EV buyer who buys one today and turns away, all of this investment that's getting into better vehicles, more vehicles, more segments, more infrastructure, the picture is much different in 2028. You have a more robust lineup. You have more vehicles available. You have better infrastructure so that if somebody had bought an EV in 2012 and decides they're not-- they're going to go to a gas right now, they can still come back.

The next two years are in some ways kind of academic, in terms of where consumers really are, because there's so many things that still need to be in place. Michelle's point about dealers is huge. If they're down on it, their sales guys aren't. And it's so hard.

It's so hard. I mean, think of somebody who just doesn't pay attention to cars and just walks in one day. This is a massive amount of information to go through. So there's a lot of challenges. And I think the next couple of years will be choppy and we'll see various stories that talk about it. But I don't think this means the long-term story doesn't happen.

MICHELLE KREBS: I think a big mistake was made a few years ago when, oh, we're going to do this, we're going to do this. And then now we're hearing, oh, well, that's going to be choppy. Well, they didn't say that a few years ago, so the expectations were that, oh, this is going to be linear. I never thought it, those of us who the business. But that was a big mistake.

STEPHANIE BRINLEY: Well, we also saw in the last couple of years, less so in the US, but the emissions requirements and regulations are pretty stiff, and obviously more stiff in China and Europe. And that drives some of the assumptions. That drives some of the expectations.

But we're seeing London push back some of their dates. We're seeing California pulled back on some of the port emissions requirements for January '24. So there was this, OK, the mandate is going to be there, we're just going to have to follow it.

And I was like, yeah, but those change. California's been going for ZEV for 40 years and haven't gotten there yet. And I think that sort of happened as well in '23. At least from a planning perspective, automakers and suppliers sort of realized that, yeah, these regulations are aggressive, but there might be more wiggle room there than we think.

At the end of the day, the consumer is going to decide. The regulation will change. If the consumer refuses a product, the regulation will change. If the consumer doesn't take it as fast as the government wants, the regulation will have to change.

DAVE ZOIA: I think we're going to get to the point to where product's going to outpace demand to some extent. We're seeing a lot of product and that's going to boost sales overall, but not everybody's going to be able to sell everything. So I think it's going to be interesting to see what that does to the price pressure on BEVs and who actually can play in that market.

KEVIN RIDDELL: Yeah, I think that's one of the biggest factors, is the adoption of BEVs has been the fact that the technology is coming down to an affordable level. How fast is that? Because we've seen battery prices come down enormously in the last decade, and that's kind of really helped enable and really kind of raised the confidence that we can make this transition. All the global focus on reducing CO2 emissions, not only on the vehicle level but total footprint, well to wheels, a lot of industry going to zero emission.

But really that is going to take an effect. Do we have the materials? Are we putting enough investment into it? Is the technology going to be affordable?

California's been pushing ZEV for a very long time. And about 20 years ago, when they first started, they wanted 10% of their cars to be battery electric 20 years ago. The technology certainly wasn't there. They had to pull that back completely.

But now it's much more feasible. Now you're seeing 10% is very possible across the nation here. But I think one of the-- and you mentioned you had a question earlier about the pace of battery electric sales. And I think that will vary maybe more in the US than it has in Europe and in China, just because our policies haven't been that as steady as in Europe, they've always had this steadily declining CO2 challenge for a couple of decades.

In China, once they started bringing in their program, that was it. They're bringing in their level 2, their level 3 generation soon. But in the US, it's a very politically charged element. So if there's a change in the White House, a change in policies, like you said earlier, that could reduce the progress that the US sees to a trickle.

But at the same time, now the OEMs are thinking, we have all of this free money coming from the government, effectively, to put it into the supply chain. Suddenly the US doesn't look too unattractive as an export country, potentially. So you have that to fall down on.

So will the sales decrease? Probably, especially if we don't see, to your point earlier about the dealerships really kind of getting positive and being able to sell BEVs better as well, kind of that whole kind of really informing the consumers. But I think you'll definitely see the industry from a manufacturing standpoint continue, maybe not quite to the same level if we don't have that same domestic demand. But I think that puts it in a pretty strong place since those rules are already in place.

STEPHANIE BRINLEY: And another element is on this, to go with that too, is this is the direction that's been set. As an automaker, you really can't just be like, I'll pick it up in 2030. We'll be good. You have to make the investment or you have to have the plan.

And we're seeing some automakers are maybe not making the investments as fast. And they're still trying to figure out when the right time is for them. And 2028, 2029 is feeling like much more of a sweet spot to me, and 2030, than anything before, '26 maybe. 2024 and 2025 will still be iffy.

But in order to be there in 2030 or 2035, you have to have that investment plan. It's not going to turn around. So we made a change.

In 2020, when the US sort of went back into the Paris Agreement, prior to that, we all covered the industry and we were at different programs, and the conversations from automakers where we're going to try and figure out how to fund ICE and BEV. We're going to fund these two paths. We're going to make this all work. We weren't sure how, but they're going to make it all work.

Once the US got a little bit more aggressive, then there was definitely a shift to, OK, we're going to invest x percent and we're really going to go to the electrification side of things. And our investment in ICE products and in ICE engines is going to be the one that gets cut and it gets reduced, whereas before it was more like, well, maybe we'll be, like, ICE and we're still trying to balance. And then it was like, oh, no, we're not trying to balance. We're trying to make sure that we can sell cars until we hit the transition, so we can't ignore ICE.

But that shift happened about 2020. The language and the way that automakers talked about what their future plans were to changed about then. A new president in the United States is not going to change that. The only thing that really changes that is consumer demand.

If you really can't get them along, then you've got a problem. I expect we'll be able to get them along, though.

MARTIN LAVELLE: So one more on consumer demand for EVs. When a consumer goes into a dealership and thinking about adding it to their fleet, is the EV the first car, second car, third primary car? How does-- where is it falling in the consumer pecking order?

MICHELLE KREBS: Well, I think right now it's an addition to the fleet. I think the big challenge will be a household like mine. I have one vehicle. It has to do it all. That will be huge to make, that shift.

STEPHANIE BRINLEY: Yeah, I think it's still secondary. But it's also geographic.

MICHELLE KREBS: Yeah, true.

STEPHANIE BRINLEY: I mean, that's a huge the huge element of it, too. And again, you're still early adopters.

KEVIN RIDDELL: Yeah, I actually found an interesting thinking back to the big regions that are big in EVs, the East Coast and the West Coast, which obviously, pretty much Section 177 states. But then Texas has always been a big EV selling point. They don't have the incentives, but EV sales, it's one of the strongest states in the nation annually.

And that always kind of fascinated me. I'm thinking, wow, what's really different about Texas? Well, I guess you don't have the nice, cold weather that the Northern states, like we have to really impact a lot of the negativity in that aspect. But I just think that it's a very interesting challenge in that respect.

STEPHANIE BRINLEY: I've had the same sort of thought process to with Texas and Florida. Neither of them are Section 177 states, and they are number 2 and 3 in EV adoption. They're also number 2 and 3 in anything, but still, their EV adoption rate doesn't have to be as high even, but they are. And what is the magic secret sauce that is making it acceptable in a non-Section 177 state? There isn't an incentive in that way.

KEVIN RIDDELL: But what I'm-- something I was just thinking of, too, that might help EV adoption ultimately, too, is the used car incentives because that's pretty restricted as far as what your personal income can be, as to how expensive that EV can be. But even if that's somebody who can just afford one car at that time, too, it's not a luxury feature to have a second, third, or fourth car in your garage. So those are the people that you're really transforming as well. And then as they get better jobs and they have more income, they're going to be starting to go into the new EV clientele potential as well.

So you're really starting to open it up from the multiple avenues. Not only are we bringing those new EV prices down, but just getting more people into the older ones to give them experience with it, to say, hey, this works for me now, and that'll give them the confidence when they're able to buy a new car into that market and say, OK, let's take a look at what the EVs are today.

MICHELLE KREBS: And we anticipate that the used EV market will really start booming in the next year. It's a matter of supply at this point.

KEVIN RIDDELL: And I think that's something, too, is the supply challenges that we've had over the past few years are going to really be a bit beneficial to that market as well, to help it develop. Since a lot of people hold on to their ICE cars for so long, too, the ICE used vehicle market has been really challenged as well. So that really kind of helps give BEV another avenue for a push for some upward boost.

STEPHANIE BRINLEY: One interesting thing-- I was looking at our registration data through the end of November. In 2023, at that point, hybrids were 7.46% and EVs were 7.4. Hybrids have been around for 25 years. Consumers will tell us how fast the share grows, just in case you're wondering.

I thought that was really interesting. We've had hybrids for a very, very long time and they are growing for a lot of reasons. But we might see a scenario where you get to 25% EVs and then you stay there for a while. The consumer will ultimately determine the pace of this change.

KEVIN RIDDELL: I think part of that, too, was it goes back to the regulatory drive, too.

STEPHANIE BRINLEY: It does.

KEVIN RIDDELL: Because if you think back, when Toyota first launched the Prius, they were saying, eventually hybrids are going to be in all of our product line. But look at how long that took in the US. It's just finally starting to happen in the last couple of years. And to be honest, that's a big part of why we're seeing hybrid volumes increasing, too.

STEPHANIE BRINLEY: Absolutely.

KEVIN RIDDELL: Just because of Toyota, because Hyundai, Honda's new plans, Ford's plans towards increasing hybrid sales as well to help mitigate kind of the immediate need for more BEVs into the marketplace, too. So I think some of it is the OEMs kind of want to, or at least they use it as a, hey, here's our flag, we're going to plant it here.

But really, I think it takes regulation, not just consumer acceptance, to really help push the technologies along. Whether or not we're being forced a little too hard at times is going to be something that we're going to find out over the next few years. But you need kind of both of these to happen.

STEPHANIE BRINLEY: Yeah. I mean, regardless of where we are on the pace of pure EV adoption, this is about the time frame that you're going to see ICE vehicles electrified in one way, shape, or form, just to meet the emissions requirements that were already in play. So we're looking at that. We're looking at a few years ago, we're looking at almost no ICE that doesn't have at least stop/start. So electrification, one way or another, is going to dominate ICE, the rest of ICE's time on the planet.

MARTIN LAVELLE: All right, there are a couple of things I want to get to before we get to Pigeonhole. Used vehicle sales, one thing that's-- trends that seem to have not resettled post-COVID, still seem to be doing some interesting things.

MICHELLE KREBS: Well, yeah, because of availability. When you don't sell a lot of new cars and you don't lease very many, that's been a huge factor. The availability is just not there.

So we anticipate used vehicle sales will increase. They're just such an amazingly steady market. But prices will continue to be fairly high. If somebody was in the market in 2019 and looked at a used vehicle now, they'd be shocked. But there's just, for the next few years, there's going to be a shortage, and high demand because, as I mentioned earlier, we're seeing people who would have bought a new car go to a used car market. So the demand is really strong.

MARTIN LAVELLE: And the affordability challenge is given that what we've produced lately has been the mix of bigger--

MICHELLE KREBS: Right. And what you've seen is the automakers have expanded their certified pre-owned program to be older vehicles and more mileage, not as tight conditions. And that has helped that part of the market. That's a really popular part of the market.

MARTIN LAVELLE: Global vehicle sales, how is the US and North America comparing to other regions around the world?

KEVIN RIDDELL: It's interesting. I actually looked into this a little bit recently. And in the US, we seem to be kind of like in the middle ground, again, using that 2019 factor to now. By 2025, we expect to be about 2% under where we were in 2019 for sales, but still that's right about close.

The Asian markets are doing considerably better. We expect in 2024 they're going to be at or above where they were. So they've really managed to kind of get through the challenging times right now.

The European markets, on the other hand, are kind of a lagging market at the moment. They're having a much larger effect. They've had the direct influence from the Russian Ukraine invasion.

You have high energy costs. You have the Red Sea challenges right now as well. So there's a lot of challenges in those regions. You're also seeing kind of the CO2 and a bigger push on BEV over there, so you have a lot bigger impacts.

And if you actually kind of even break it out from Eastern European and Western European, it's actually a bigger effect on the Western European countries that are having kind of the slower regain back to normal levels from a lot of these challenges. So it was really eye-opening as to how we are doing in our paces, involved particularly against the other major regions.

MARTIN LAVELLE: And Dave, I know you went to CES, with new trends, new normal, what's going on and what innovative things are you seeing in that space, especially with connectivity and the increased level of coding that's going to be required going into vehicles? And how does that seem to be playing with consumers?

DAVE ZOIA: So I guess the thing I saw at CES most, when you're looking at the digital cockpit and the digital chassis kind of thing, is the two big things that were talked about there was generative AI and personalization. And I think what most people are looking at is this sort of more personalized environment for people as they get into the car. So you will have potentially face recognition that will get you into the vehicle. The car will then know your settings and adjust.

The AI will interact with you. If it knows that every day when you get in your car on your way home from work, you call your spouse, it'll say, do you want me to call your spouse, kind of thing. If you're on a road trip and you're approaching a city, it might suggest places to stop, things like that. So a more proactive interaction, I think, next-level kind of AI assistant to people, that seems to be the direction everybody's focused on in the next couple of years.

And from the OE perspective, they see it as a data mining operation, that they can learn better about how you're interacting with your vehicle. That will suggest maybe new products. That will suggest maybe features that they can offer you as a download, if they see you have certain habits or certain things like that. So I think the OE is looking as a potential-- as a revenue enhancer, as they start to learn more what people are doing.

MARTIN LAVELLE: Complementary products to the vehicle itself, or just maybe add-ins, add-ons to the vehicle experience? I guess I'm thinking the potential of partnerships between an OE and, say, an electronics company that could go hand in hand, in increasing the experience and riding in the vehicle.

DAVE ZOIA: Yeah. So there's a whole new supply chain, I think, emerging. It's very much ecosystems, partnerships. It's the chip guys are leading that a lot. They're working with the tier ones, they're working directly with the OEs.

There's the app people at the end of the line. There's the software people in the middle. So it's a whole complex supply chain, I think, that's emerging around this. And you'll see those kinds of partnerships formed.

And what it's producing is a whole different cockpit experience, I think. We're seeing screens all over the place, different ways to display things. ADAS systems are part of that. So it's a whole new world, an industry that's transitioning from a mechanical industry to a software industry.

MARTIN LAVELLE: All right, so I'm going to go to Pigeonhole now for questions. And unlike last year, when you submitted, you're all known by number. So I'm sorry if I'm not going to be able to give you a shout out. You're just going by number here today.

So the first question that received the most upvoting-- and again, you can upvote questions to move them up the chain as far as getting asked. So what do you think demand for an EV for less than $25,000 would be like, and would it juice the market? And thinking of, I didn't ask the question about Chinese EV-- potential Chinese EV penetration and what impact that could have. So what do you think demand for an EV for less than $25,000 would be like, and how would that juice the market?

STEPHANIE BRINLEY: Honestly, I don't think that's our big problem. Even at the $25,000 price point, it is part and parcel of increasing vehicle sales. It's part of the market that needs to be addressed. But a vehicle of that size is not necessarily where people are aspiring to.

So it's supporting things. I think when you look at affordability, it's more in that $30,000 to $40,000 range that you really need to get a more robust environment in that space. In a month and a half or so, you'll be able to get a 500 E for $32,000.

But the market for two door hatchbacks in the United States is this big. It's not about $32,000. It's about, does that vehicle fit in my life? So that $25,000 element is important.

And the other thing is, especially a new car buyer, because we're still in the new car buyer conversation at this moment, not the used car buyer and kind of whatever. But your claim to Fame is like you bought the $25,000 car because it was the cheapest one, because that's what everybody tries to do when you're driving around. I think there's a space for that market and it does help EV adoption, but it doesn't become the higher volume space. It's a support and an enabler.

It's not really the thing that says, oh, now we're in EV land because you can get one for $25,000, because we can today. You can get the Nissan Leaf down around that time frame. You can get the Nissan Leaf down below 30, you can get the Chevrolet Bolt down below 30.

These are doing OK, but they're not moving the needle because they're not the form that more people want and will use every day, and because people buy a $25,000 vehicle because that's what fits in their life. And as soon as they can get out of it and move on to something that's nicer, then they will. If they can't, they won't. But if they can, they will. So that's not your goal, that's not your aspiration.

MARTIN LAVELLE: Kevin?

KEVIN RIDDELL: Yeah, I was actually just thinking the same thing. Whereas a $25,000 car, really most of the entry levels, particularly from the Detroit 3 are somewhere right around that range right as it is. So would that be competitive against that? It could be.

But is it the right kind of car? Is it just a compact car, like a Ford Fiesta size? Or is it going to be something more of an Escape or an Equinox or something that people really have really been moving into for the past years? And I think that's going to be the bigger point.

The $25,000 BEV could-- I think it will help establish future BEV buyers, but it's not necessarily going to put them back into that market. It might be something, again, the secondary car, something maybe well off folks will buy their kid for a first car or something like that. But really that's going to be the entry point to get people familiar with it.

Kind of back when the B3 had a much larger car line, they were just trying to get people used to buying a Chevy, used to buying a Ford, to buy a Ford SUV, to buy a bigger SUV. And I think that's what that $25,000 EV is going to do is it's going to get people to look at BEVs more, not necessarily to say, this is where I want to be. This is my means to get to where I want to be.

STEPHANIE BRINLEY: I think when we go into 2030s and 2035-- although I think about the 500 E, I think about the Mazda MX-30. And I do think that when you do have a robust EV market, then you've got the space for a smaller vehicle with a smaller battery, and a more affordable and people understand that they don't really need 200 miles range, they can do it with 100. But that still remains a relatively small portion of the market.

But I think those products have-- they have a better chance when we have a more robust EV market and there's a place for them. But again, they're not the driver. There's a sport.

MARTIN LAVELLE: OK. All right, we have an up voting competition going on between a couple of questions. So breaking moderator's discretion, I'm going to ask, because I kind of like this question. No, I really like this question. Do you foresee the used EV market to resemble the used car market, or more resemble the used consumer electronics slash cell phone market?

MICHELLE KREBS: Well, since we're in that game with Manheim Auctions, I don't know if I can compare it to CES. But I think one of the big challenges with the used EV market is it's all about the battery and how healthy is that battery. And we spend a lot of time at our company trying to figure out what is the health of that battery, how much life is left, and how much is that worth. And so in that way, we know what ICE engines are worth and that kind of thing.

So I think that will be more of the big challenge. I don't I don't know that I see it being like CES. I think it will evolve into its own thing within the auto market, be more like normal with the auto market.

MARTIN LAVELLE: OK. Anybody else have any thoughts on that?

KEVIN RIDDELL: I would imagine that it will be more like the auto market. It's not quite like just your used BEVs, at eight years it's just going to be recycled because the battery contents are going to be worth it. You're going to find out that the batteries, I think, last longer than expected. The government mandates an eight-year warranty or 100,000 miles, and I think that's going to help-- that's one of the steps that's going to help that's helping consumer confidence is to make sure, OK, my battery's not just going to puke after a year and a half as it would, say, in a cell phone if I'm just using this thing continuously. Obviously, you're not using it quite as often as you would your cell phone for a lot of people.

But I think they will be surprised, similar to when hybrids first started, at the longevity and capability of the batteries. Will recycling become a big point? Yes, but I think in the shorter term, you're seeing a lot of recycling coming from battery scrap because there's still a lot of battery scrap during the production process that needs to come into play, get that product back into a battery electric. And I think that's going to be, if you're looking at just from a sheer battery recycling point and getting more product out there, I think that's going to be the bigger play in the short term.

So I think, like I said, I think the battery electric used market will develop. But I think it's going to develop a bit more like the car market, because I think once people get more confidence in it, similar to the hybrid market 20 years ago and that was developing.

MARTIN LAVELLE: OK. This question may be more appropriate for Kristin's UAW panel later, but I'm a man of the-- I serve for the people, so I'm going to ask the panel anyway. So dockworkers in Sweden are refusing to offload Teslas. Other unions have joined the protests. So what role does organized labor play in EV adoption?

STEPHANIE BRINLEY: To the degree that it affects pricing?

MARTIN LAVELLE: Pricing, supply chain.

STEPHANIE BRINLEY: And supply chain. I mean, if a disruption like that stops Tesla from getting their cars into Sweden, then that affects the sales. I think that's the bigger issue relative to organized labor and consumers.

We're in, of course, the Michigan area, so there's probably nobody in this room that doesn't have some family member that's related or whatever. So it's a little bit more personal for us. But I think when you get outside of that space, people may be supportive of organized labor, but they don't necessarily connect it to the connection to the purchase of the vehicle.

We talked about the Buick Envision coming in from China and I would bet that most people haven't realized that that vehicle was built in China. And it's a lovely car and they should not feel sad about buying it. But they're not doing that level of research. More consumers don't do that research than do. So even if they're sympathetic with the organized labor, I don't think, at the end of the day, it affects the purchase that much.

MARTIN LAVELLE: What's the role of Mexico in the long-term North American production footprint? And how is that changing with EVs and the new UAW contract?

STEPHANIE BRINLEY: So far, there's not a lot of change because there was EV programs going into Mexico already. The big wild card for Mexico is the China investment that was alluded to earlier, even though we don't think-- I don't think $25,000 is the magic.

I feel like for the Chinese automakers, BYD in particular, I was at the Japan Motor Show this year and made sure I sat in some of those cars and will echo Kristin completely. These are real cars with-- I couldn't drive it, but nice switchgear feel. It didn't stink. That's a low bar, but still. They're ready.

But the US market is still so difficult to break into. Where's our capacity to absorb another brand as a consumer and how long does that take? Clearly, Honda, Toyota, Hyundai, Kia, we've had examples that have been successful.

We also no longer have Daewoo and we also no longer have Suzuki. So you do still have to get over that. And even if the product is good, if we're looking at 650 vehicles on offer in 2026 or 2027 because of all this new, that's all the known brands. You throw in a couple of other Chinese brands and where's the consumer going to even find it in that mix?

MICHELLE KREBS: But that's assuming that they come in under their own brand. I still think they may come in under the radar through established brands.

STEPHANIE BRINLEY: Yes, like Volvo, like Geely. Yeah, that has more legs to it than coming in. I think that-- Yeah I think you're right. I think that coming in under another brand, under a known brand, is a different dynamic coming in under their own. Not to say it's impossible, but it's a really tall mountain and it's going to take the 15, 20 years that it took Hyundai, Kia to grow.

MICHELLE KREBS: But they're in for the long term.

STEPHANIE BRINLEY: And they are in for the long-- so with Hyundai, Kia. If you're in Tesla, Hyundai, Kia, Toyota, Honda, the Chinese, they're all proving the thing is, you've got to be there for the long haul. And the long haul is 25 years to figure out to get anywhere, really.

KEVIN RIDDELL: I think something that's really kind of helping a potential and-- yeah, the Chinese are really kind of making a strong push into the Mexican market and into a lot of the Latin American countries in general. But what I think it is, in the past, a lot of that's been dealership network because you have to be able to establish where you're going to sell these cars. I think as US sees-- and Tesla has really helped to open a door on this-- online and direct sales, and it's still a challenge in some states.

But I think this and the fact that Tesla has been successful at it, you have the other EV startups that are coming into the fact, trying to use a similar strategy, and I think that's opening the window especially. Because if you look back 10 years ago, the Chinese were trying to get in here. They wanted to introduce us and at least expose us to their product. And I think, with more direct sales potential, I think there's a stronger potential. But I also think the name, the product name has to be potentially different as well because we do have-- so much there's so much anti-china sentiment in the US in a lot of ways that's really been played up. And that's something that's going to have to be overcome and would be kind of a further headwind to establishing and getting a Chinese brand up and running into the US.

DAVE ZOIA: But to some extent, if they come in with electric vehicles, which is their strength, that is kind of a wide-open market at this point. So they have, I think, an ability to compete.

And I think we should lose the notion that it's all about price and cost for the Chinese because their products, in many ways, are leading. When I talk to some of these companies at CES about who do they have the most traction with, it's always the Chinese in terms of the infotainment systems, the ADAS systems. So in some ways, the US automakers are trailing in terms of adopting new technology and stuff that I think will entice consumers.

MICHELLE KREBS: Don't underestimate them.

KEVIN RIDDELL: Absolutely.

STEPHANIE BRINLEY: Yeah, don't underestimate them. And it's not about the product. My concern is just that getting that awareness and getting on the radar, because the product will be good enough to do it.

KEVIN RIDDELL: Right. I think Europe is actually a great example of that, too, is the Chinese battery electric manufacturers, particularly the MG brand in the UK. What they really came across with is a strong value package because you have a lot of technology and it's on the more affordable end of the products that are available. And that really took the UK, France, Germany to start making, to start pushing legislation to say, hey, how can we kind of slow this off. We're trying to develop our own industry as well. They've got the potential to really I mean to come in and take a quick lead away from the domestic manufacturing.

MARTIN LAVELLE: And with that, we're going to leave it there. Let's give our panel a great round of applause.

[APPLAUSE]

OK, I think I'm directing where to go now for lunch. I think the buffet is right behind you. So go out those doors that way. I think it's double-sided.

And then you're going to sit over there in the sunlight of the atrium over there. Don't forget, the bathrooms are behind you, and enjoy.

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