2023 Automotive Outlook Symposium Day 1 Panel Transcript

MARTIN: What we're going to do is-- I'm honored to be blessed-- to be joined by this great panel up here, that's going to talk about what's going to happen next year and maybe a little bit beyond. We have Charlie Chesbrough, Senior Economist and Senior Director of Industry Insights from Cox Automotive. We have Haig Stoddard, Principal Analyst of Forecasts from the Informa Tech Automotive Group. We have Joe Zaciek, Research and Industry Analysis Senior Manager, from MEMA Original Equipment Suppliers. And we have Kristin joining us, as well.

So what we're going to do is, each one of the three gentlemen are going to present for about 10 minutes. So we go Charlie, Haig, and Joe. Then we'll go to questions that I prepared in advance. And then we'll start to mix in questions from you all. So that's what we're going to do. So Charlie, why don't you go ahead and kick us off.

MARTIN: Maybe give him a minute to catch up, there.

[FEEDBACK]

The volume went up really loud.

[CLICKING]

KRISTIN DZICZEK: There we go.

CHARLIE CHESBROUGH: There we go. Now I've gone too far. OK. Sorry, everybody. I'm going to stand down here. I can't sit down. We're going to give a little vehicle-market update. I've got 10 minutes. I'm going to apologize up front for talking real fast, but I got a bunch of slides I wanted to show you about some of the things that we're seeing at Cox Automotive.

But I titled my comments, "Not Done with COVID Yet." And when Tom had set this up, he asked me to talk a little bit about the new market. But he also wanted me to talk about the used market. And I can tell you that things seem to be getting back to normal, more or less, on the new side, but we've still got COVID effects are going to be coming to the used market. And I'm going to be talking about that in just a moment.

But I wanted to talk about what our outlook is, at Cox Automotive, for the new-vehicle market in 2023. And our position is-- apparently, from looking at some of the forecasts, we're the doubting Thomases. We're the pessimists of the group. But we see the market next year as really only rising to about 14.1 million. And there's really a big range of where this market could go.

But we think that the market today is in a really different situation than it was before. And as we talk about the potential of a recession in 2023, we don't think there's that much downside risk to the new-vehicle market if it's a normal recession because we've already lost a lot of the customers that normally would be impacted by a recession, from the new-vehicle market.

And I've just got a slide up here, looking at the Great Recession and what happened in the market during that time, when we went into a recession. The market just collapsed down to 10.4 million, before we had the nice comeback.

But look at where we are on the right. As we talk about entering into a recession here, in 2023, we can see we've already lost millions of volume off of the new-vehicle market. These are the folks that we would normally lose when a recession hit. They're already gone. So our view is that, yes, there's quite a bit of downside risk that the recession could be severe. But at this point, we think we've already lost a lot of those customers. So if we do see something happen, it's going to be more like falling off of a curve than falling off of a cliff in this market.

But we think that the outlook is, is that these high prices are really going to mute the recovery that we might have this year because the supply side is starting to work itself out, although the manufacturers are in very different situations. And I think Haig's going to be talking about that in just a moment.

But everyone's dealing with these higher prices. And we think that that's going to be the real battle in 2023, is do the manufacturers try to stay lean and mean, do they try to keep prices high and keep inventories relatively low so that they have real pricing control, or does the old battle that always happens with these manufacturers come, and everybody is fighting for market share, and we start seeing discounting rise dramatically?

Those are the variables that we see happening this year. But we feel like the market has changed from being one of, I can't find my vehicle because of supply, to one of, I can't afford this vehicle because of costs. And we can see that transaction prices have risen dramatically.

This is coming from our Kelley Blue Book data. And we can see that, in our data, that 2023 is going to finish with the average transaction price over $49,500. And you can see that, when the supply shortage really began to hit the market in May of 2021, prices really took off. But as we started through most of 2023, they've pretty much followed a more normal pricing pattern, like we had back in 2019 and 2020.

So we see the market-- there's really not going to be any giveback in the new-vehicle market. We don't see any reason to think these prices are going to be coming down. But certainly, the growth rates should start to moderate.

But all of these high prices mean that we've got COVIDflation in the market. And it's really hitting the monthly payments. This is, again, coming from our Kelley Blue Book and Dealertrack data. And this is the average monthly payment that we're seeing out in the marketplace. For a loan, it's risen to $785. That's where it finished in December, and for a lease, up $661.

These are massive increases. And if we just look in the COVID era of March 2020 to December of 2022, we've seen a 29% increase in that average loan payment, a 33% increase in that average lease payment. So this affordability issue is real, out there.

But it's not the same for all the different manufacturers. Not everybody has risen their monthly payments in quite the amount. Not everybody is focusing on the higher-product sets, the most-expensive product mix. And we can see that the average has been 29, as I said, on the increase for a loan. But there's quite a variation of what the change has been over those 33 months, among the different brands.

You can see, on the far right, Jeep, Dodge, GMC, Cadillac, lot of names on the far right, there, from the Detroit three, where they're looking at 40%, 45% increases in those monthly payments during this post-COVID era. Certainly, at a minimum, their customers are going to be in for a big surprise when they come in to buy their next product from them.

And on the far left, you can see a lot of the brands haven't had anywhere near the kind of price increases, Subaru, Kia, some of the bigger players at the entry market haven't had those kind of price increases. One would think that if we do fall into a recession, some of these brands may be a little bit more insulated from a downturn than others.

But all of this situation, this tight inventory and market, has created a seller's market in the marketplace, where essentially, the MSRP is the price, the dream scenario for the manufacturers. This is our data, again, comes from Kelley Blue Book. And I've got two measures for you, here. One, in blue, is incentives as a of the transaction price.

And you can see that prior COVID, this was more in the 10% or 11% range. That was what the incentive was relative to the transaction price. Once that supply shortage hit, you can see it fell dramatically, falling to about 2% of the price relative to the transaction price-- or incentive relative to the transaction price.

But if you look on the far right there, that blue line, it's starting to curve up a little bit, suggesting that maybe the things are really starting to change out there. And the other metric we have is the transaction price relative to the MSRP. And prior COVID, this ran in the 95% range, with the price relative to the MSRP. Again, once this supply shortage hit, it really jumped up to hitting about 102%, which is basically the MSRP plus delivery charges. That is the price of the vehicle. Negotiation is out the window.

But again, on the far right, you can see this is starting to change a little bit. So there are some signals out there that the marketplace is starting to change and that more discounting may be coming. And that's what we're looking for in the market. We think that there's really not going to be enough demand there, at these high prices, that the manufacturers are going to have to start discounting.

But it's going to be a game of chicken as to who's willing to hold price and not discount, and maybe lose some market share, and who's going to aggressively go at that, and maybe because they have to because their supply situation is getting a little bit too high.

All of this, though, in the post-COVID market, these high transaction prices has really changed the business models out there. And this chart is talking about total revenue. And we don't have any official numbers, but this is simply the back of the envelope transaction price times number of vehicles sold . And the key takeaway I have for you here is that sales, in 2022, finished down about 8%. Total revenue finished up 2%. So we sold 1.2 million fewer vehicles. But we made about $12 billion more dollars.

And if you compare this back to 2019, we sold 3.3 million fewer vehicles last year and we made $15 billion more dollars. So these high transaction prices have really changed the equation for the manufacturers. Maybe they don't necessarily need to be back to 80%, 85% capacity utilization at these higher prices. Again, that's some of the math that I don't what's going on with these manufacturers. But certainly, the situation has changed on the ground out there.

A couple avenues that we see that the manufacturers can use to try and stay lean and mean out there is to start re investing into these two channels, the fleet channels and the lease channels. On the left here, I'm showing retail-- excuse me-- fleet share of total sales. And you can see it's fallen dramatically in the COVID environment. About 22% of the market, in 2019, when we had our last 17 million market, was fleet. This fell to just 14% in 2021. And it's up to about 16% so far this year. We have a couple month delay in this data.

But clearly, they've pulled back on fleet activity. That's a big opportunity. If they want to have increased production but they don't want to give it to the retail channels, the dealers out there, we think that fleet is going to be of the areas that they may start doing more in. The other one is lease. You can see that leasing is down substantially.

Again, 31% of all retail sales was a lease back in 2019. So far, this year, this has fallen to just 20%. I think the most recent data points are in the 15% range. But clearly, you can see it's a downward trajectory on this. Again, this is an opportunity for the manufacturers to get more aggressive on pricing if they wanted to really boost sales.

But all of this really means that the normal supply feeds into the used vehicle market are down substantially. And this is going to have huge ramifications for the used vehicle market over the next couple of years.

Talking about the used market, one of the big issues out there is used-vehicle prices. We had our Manheim index presentation on Monday. I don't if any of you guys saw it, but year over year, at auction, prices finished down about 15% on a year-over-year basis. On the retail side-- this is from our vAuto data-- we can see they're going to finish down about 4% or 5% on a year-over-year basis.

But this is after, in 2021, where we saw used prices rise over 45%. So we are giving back a little bit. But we don't see any kind of collapse in the used-vehicle market. Even though there's high prices and rising interest rates, the lean supply out there in the new-vehicle side is pushing a lot of customers into the used-vehicle market. And that's keeping demand relatively strong and is supporting these higher prices.

So there is some giveback. But we don't see any kind of complete collapse. And part of the reason we don't see this big collapse is that the future supply to the used-vehicle market is going to be down substantially. The less fleet share, the less retail-lease share, along with just lower volumes at the top, means that the feeds into the used market are going to be down.

And just looking at lease maturities, we're going to have substantially fewer lease maturities in the next couple of years. And just looking at the number of fleet maturities between 2020 and 2023-- or excuse me-- 2020 and 2022, that three-year period, and the next three years, 2023 through 2025, we're going to have 2 and 1/2 million fewer off-lease vehicles coming back.

So right when people are looking for affordability, they're looking for a way to get a newish type vehicle, there's not going to be many of them out there. And so that means that CPO, those that are really in high demand, are going to be very few and far between. And all of that should support relatively high used-vehicle prices.

The last comment I just wanted to talk about was this transition to electric vehicles. It's going to be a long, long time until we see the vehicle fleet transition to electric vehicles. This is numbers from IHS, looking at the total vehicle-- or S&P Global, excuse me-- looking at their total registrations data for the number of light vehicles on the road.

We've got about 280 million vehicles on the road today. 99.5% of them are using gasoline or diesel, some sort of petrol out there. It's going to-- the average age of a vehicle is about 12 years. So it's going to take a long time to cycle through all of these ICE vehicles, to transition to an electric vehicle fleet.

And on top of it, we've seen a huge increase in the value of the vehicle park. In 2019, the average age of a vehicle was about 12 years. In auction, in 2019, an average 12-year-old vehicle would go for about $3,900. In 2022, the average price is now $5,500. So that 12-year-old vehicle is now going for over 40% more. And that number is actually down from the peak it was at earlier, last year.

But that means the vehicle park is now hundreds of billions of dollars more valuable. The economics of for a vehicle owner is, do I replace that engine, do I fix that transmission and spend thousands on this vehicle? Well, the economics have really changed to suggest, yeah, it makes more sense to invest in that vehicle. So these 280 million vehicles are going to stay around even that much longer, making this transition to an electrified fleet much more of a challenge, I think, going forward.

The one thing I just wanted to point out, with the different-colored bars, that's looking at what are the brands, who are these old vehicles. And I just wanted to point out if there is any kind of a scrappage program, you can see that when you look at the 20-year-old vehicles, they're dominated by the American brands. Certainly, that would either benefit the Asian brands, if you're going to say that we've got to scrap all of these American brands, or it maybe would, depending on how the dealers want to deal with it, it may present an opportunity to them.

But I do think, when we look forward in the used-vehicle market, one of the big challenges that we're going to be facing is, the dealers are going to have to have the capability to have all of the resources to fix EVs, adaptive cruise control, all of the bells and whistles on these new vehicles, the new technology, and have the capability to clean a carburetor. And that may be a real challenge, going forward, because we've got some very, very ancient vehicles, tens of millions of them, that aren't going anywhere. And they're not going to be going away any time soon. So with that, I'm going to hand it over to Haig to give us another update on the new market.

MARTIN: All right. And before Haig starts, another housekeeping note I want to say is that, as long as the speakers have agreed to release their presentation, they will be posted on the website of the conference after we're done. So go ahead, Haig.

HAIG STODDARD: All right. All right. I'll see-- I'll keep up with this youngster to my right and see if I can step all the way down. Oh, god, I made it. All right, I'm just going to give over our long-term outlook, here. For the North American and primarily looking at the US, we partner with LMC Automotive. So you could say that a lot of these numbers are powered by them.

This is our outlook. And for of North America and the US market, North America, of course, includes US, Canada, and Mexico. We don't see, despite a lot of the huge, pent-up demand that has been built up over the few years, at least on paper, we don't see the levels getting back to, say, the pre-pandemic type, 17-million-plus years we saw for the five years leading up to 2020, until about 2027. And that we think that's going to be about the peak, going forward.

And there are a lot of reasons why we see a slow uptick. First of all, the next couple of years we're still going to see supply constraints, even from the semiconductor issues and so forth. So inventory is still going to be relatively low. There's not going to be that much availability built up over the next couple of years, whether we have a recession or not, wherever that demand is. Also, we think that affordability is going to continue to be an issue over the five years, really for a lot of the reasons that Charlie just talked about.

But I think a lot of people that might have been in the market, if the last couple of years hadn't happened, are now probably permanently more or less out of the market due to affordability issues and also because it's based on an economic outlook, too, that's we don't think-- or it's based on an economic outlook that says that we're probably not going to ever have more than 2% growth in any year over the next five years, for a little bit, too, is just a lack of a surge in the economy, going forward in these five years.

So a lot of what happens, though, is going to depend on if we really do have some kind of a recession this year or next year and how deep it is. The numbers here assume that there will be some sort of a slowdown, probably mid-year this year. But we get right back to growth, albeit slow growth.

And then switching, what does that mean for production going forward? The severe inventory drain the last two years plus there is going to be some increased local sourcing. Vehicles that are sourced from overseas are going to be built here. There's going to be a lot of new product coming out in some plants in the next few years, including electric vehicles that essentially will replace import volume. So production is actually going to grow faster than what the sales growth will imply.

But a lot of that too is just going to-- there is still going to be inventory buildup. We are still in a low-- inventory is still in unprecedented lows, even though it's going up. So there's going to still be some what I would call upward pressure on production, for the next five years, because of the pent up demand that you could say has been built up over the last two or three years. There's always going to be pressure or an upward bias to build more. Again, the gorilla in the room is going to be, do we have an economic recession in the next five years, which could shoot holes through that.

And this is our outlook for capacity utilization in North America. It's steadily improving, but it's still weak compared with the typical 90%-plus levels that we had in about the seven or eight years leading up to 2020 or so. I think that puts it at a new bar, 90% versus in previous and in years past, really, decades past, maybe 70% or 80% was considered what could be profitable.

As Charlie pointed out though, now, obviously, the automakers are making a lot more money and selling more on less. So in a sense, maybe capacity utilization doesn't have to get back up to that 100% or those 90% levels.

My own personal contention is that as long as capacity utilization remains below that 90% level-- and this is based on a two-shift outlook-- the longer that there's a lot of unused capacity in there, whether it's because of the switch over to battery electrics or it's at plants that are building vehicles with internal combustion engines, I think it's the more opportunity it creates for some automakers to see ways to streamline their operations.

So I still think there could be, even on the ICE side, that there is going to be some sort of consolidation going forward or some kind of cuts in the sense of fewer shifts, permanently slower line rates at some plants. We might see some two shift plants close and another plant goes to three-- from two to three shifts. I think the longer we stay below well below that 90% level, the more opportunity there is there.

Then of course, there is the switch to battery-electric vehicles. And as Kristin pointed out, even though it's probably not going to be in until 2030 or later, before we get to a point where the manufacturers are at a point where 50% of their plants are building EVs, much less being dedicated to building EVs, that capacity, as Kristin said, is going to probably build up ahead of time. And the sales will catch up later.

So there's going to be a lot of unused capacity there. Depending on how much money an individual automaker, I think, is making at the time, looking at from the top level down, does that create more opportunity to streamline other operations or, on the other hand, maybe it just goes-- they go back to filling up that capacity on the ICE side. But my thought is, going forward, we're going to see still some shift in the manufacturing base and this, in the next five years even, beyond just what we're seeing on the battery-electric side.

And I thought I would throw this in there because obviously, that's been a big question going forward. Basically, manufacturers are making more money with less. Inventory went down to probably about a quarter-- almost a quarter of what it was running at in the five years leading up to 2020. This chart is showing what the average was from 2015 to 2019, the raw inventory volume for each month. In that period, '15 to '19, which I use as kind of a default for normal, those five years in a row, sales were at 17 million or higher.

You can see what happened in 2021, when the semiconductor shortage really hit. And then we've slowly been coming back. The inventory is coming back. This is based on our current sales and production outlook. So obviously every time the sales or production outlook changes, the inventory outlook is going to change. But right now, we see inventory generally rising through the end of the year, getting back to about, say, 2.5 million units by the end of the year, versus pre-pandemic, we were 3.8 to 4 million a month. December was around 3, usually 3.6 to 3.7.

But my point is in that we're still going to be well below what was considered normal in the pre-2020 time. But considering our sales outlook for this year is about 15 million units, even taking that into account, inventory will probably still be about a half a million units lower than what it would be if you were looking at an inventory-to-sales ratio kind of basis.

Pre-pandemic inventory-to-sales, on a monthly basis, ran 2.5 to 1. This is probably going to put it up to just somewhere around 1.8, 1.9 to 1. So even in a 15 million year, which we think we're going to have this year-- and then you consider that maybe by the end of the year, the annualized rates are actually running higher than 15 million if things play out the way we currently see them, inventory is still going to be lean at the end of the year.

We're still going to have upward pressure on the production side, the way I put it. And as Charlie pointed out, maybe the average transaction prices will start to go down this year, depending on how much weakness we see in the market and as inventory starts to grow. But generally speaking, the pricing power is going to remain on the seller side as opposed to the buyer side.

Based on these numbers, and we would say probably for the next four or five years, pricing is still going to be more on the seller side than the buyer side, compared to what it was for the couple decades that even led up to 2020.

And this just to give you an outlook on where we see some of the manufacturers going. I put a vertical bar there after 2019, and then one at 2027, five years out from now, because I think if you really want to track who's going to be doing better in terms of market share, higher or lower, you really can't look at the last couple of years because the supply-chain disruptions hit everybody, some people more or less. And when they got hit bad, the timing of it was different in manufacturers. So some of those market-share fluctuations in 2021 and even a little bit in '22 are a little bit-- probably not realistic in a way.

But you can see, we see, as far as our outlook for GM, Honda, Stellantis, and Nissan, we don't believe, in terms of market share, they get back to their 2019 levels. Toyota and Honda, we expect to maintain their group-- I mean Hyundai. Hyundai includes Kia and the Genesis brands.

We see decent market-share growth five years out, at Volkswagen and Tesla. Tesla, we see a little bit of a lull. Its volumes grow. But we think later on, in about two to three years, they start really-- they come out with some more product and they really do some more major refresh, besides software updates, to some of their current products.

I want to say not shown here are the start-up volume. But I don't even really actually include all the startups that are supposedly going to be coming in, starting production or sales, because it's still a crap shoot who's going to make it or if any of them are going to make it, long run. But this would include the Rivian, Lucid, and a couple of others in there. But basically, we see sales of the startups at about 2% of the market, five years from now. And then, of course, is all battery-electric volume.

And then I tried to throw in every manufacturer I could on this chart. So I know it's a little bit broad and a little screwy to look at. But this is where we see the manufacturers-- from the manufacturers' side, you can see where we're going. Even though production is rising, it's a lot of the traditional, the Detroit 3, and even some of the long-term Japanese companies.

We don't see them in the long run, related to market share and other issues, like they think they're going to continue to build vehicles that they want to make money on and so forth. Production actually isn't growing in the long run, along with the overall North American manufacturing landscape. It's larger, a lot of part of--

Tesla, we see growing some. Nissan, a little bit. But Nissan's coming from a small base. They used to be much stronger manufacturers. They've lost a lot of market share. They're going forward. They do seem to be following up on their promise to get out of the fleet market. And they're also trying to gear toward selling more higher-priced vehicles.

But we do see some growth, there. Tesla and then the others, a lot of that is, again, startup volume, depending on how much that happens. And some other smaller players, like Mazda and Volvo, we see having some growth there.

And then this will just wrap it up. This is just to give you-- this as our outlook market share by power train or propulsion type, whichever term you prefer to use, our US market-share based on sales. We do see battery electric, at this point, getting up to about one fifth of the market in four to five years from now.

Some of that might change depending on what the final wording looks like on the Inflation Reduction Act, which I think is due March 31 or so. We still see battery-electric vehicles, though, as a long way from getting to that so-called tipping point or 50% of the market, probably sometime in the next decade.

But one of the big reasons is we just won't-- the production capacity isn't going to be there, even to get up to 50% by the end of this decade. And even looking at the programs that are coming out in the next four or five years, it's going to be a slow march to get up to that get up to that level in the US. And of course, I think-- Kris Dziczek, someone pointed out the US is lagging the rest of the world for several reasons too.

But we do see steady growth there. And we'll see-- again, we're going to go through another revision. We'll see that 20% to 25% by 2027 could be, actually, a little bit optimistic at this point. And that wraps it up for me.

MARTIN: OK, Joe.

JOE ZACIEK: All right. Let's get started. My name is Joe Zaciek, senior manager of research and industry analysis for MEMA Original Equipment, formerly the Original Equipment Supplier's Association. We just had a rebranding that launched at the beginning of this year. This is my first presentation doing that. So if I stumble a bit on that breakdown, it's new to me, as it is new to every one of our members.

But what I want to go through is our OE Supplier Barometer. So we're a trade association. We represent suppliers that supply products to other suppliers, so tier two, three, all the way down the line, and then directly to the OEMs.

We have just under 500 members. And we do a quarterly survey with those members, we get, typically, about 100, 150 responses to. So I feel comfortable in sharing this information with you and calling it representative of the supply base as a population.

So what's happened since the pandemic? Really, I want to start with the chart here, on the right. So since the shutdown, the supply base was incredibly optimistic with some of the data that was pointed out earlier, in that inventory levels were just absolutely crushed. And the suppliers anticipated an incredible amount of demand for production, coming out of that. And you can really see these peak bar charts here, on the chart on the right, coming out of the lock downs in the first quarter of 2021.

Since then, we've had a whole host of issues in the supply chain, starting with mainly, semiconductor. However, the shortages of raw materials and acceleration of the commodities prices has really dragged on supplier executive optimism. And you see the decline really beginning at the fourth quarter of 2021 and then extending into the current time frame.

So I forgot to mention that this is a diffusion index. Basically, anything that's below 50 is indication of net pessimism, values above 50, net optimism. Not only that is that the way that the question is framed is, describe your general 12-month outlook. How has it changed over the past three months?

We've seen three sequential quarters in this net-pessimistic territory. So this is a compounding effect on the outlook of our supplier members. So really, the fourth quarter, still not looking too good. I have heard from our members that we're seeing a bit of easement in the supply-chain disruption. However, I think-- and what I'll go through with the rest of my presentation-- one of the biggest challenges is the labor issue.

So same thing from the fourth quarter. What are the biggest threats to the industry over the coming 12 months? You see the data here, from October. Production shutdowns due to supply chain shortages and other issues, it continues to be the number-one threat to the industry, as indicated by our members. However, we did see a bit of improvement, sequentially, from the third quarter, so some good news there.

Weakness in the US economy, our members, they're reading the same thing everyone in this room is. Anticipations are highly likely, recession coming sometime this year, from what I've read. And that's definitely a large concern.

But one thing that's really carried out, and this really began like even before the pandemic, is this issue with labor availability. The supply base doesn't have the purchasing power, so to say, in comparison to the OEs. And they're really in a very difficult place, here. And this has been an issue throughout the pandemic. And they anticipate that this is going to continue within the near term.

So not only have our members really struggled with the difficulty in obtaining labor, but also holding on to them. So these pie charts show regional voluntary turnover throughout North America. And it's cut by the US, Canada, and Mexico.

And it's less so on the salary-- the white-collar side of the business. 5.8% monthly turnover rates are incredibly high. But I think that really is common with other industries within our economy. And that's represented in Canada and Mexico.

But what's more important to pay attention to is this hourly turnover. And this has been the largest pain point, on the production side, for the supply base. And in the US, on average, we're experiencing 10% monthly turnover rates.

But you can see it from the pie chart-- it's on the left bottom, for the US-- is that just over a third of members are experiencing turnover rates that are higher than 10%. So that's incredibly difficult to retrain, reskill your labor force, to meet your customer demands. And it's really a story of competition.

So on the acquisition side is that same question, the same scenario. Here, particularly in the US, we see hourly production workers and hourly skilled workers standing at the top of the biggest difficulty with attracting labor. Engineering, in more normal times, led the way. The focus of DC policy has been on STEM education.

But really, I think this has been pushed down to the back burner, is that we're just missing unskilled employees. And you've seen this at your fast-food places, restaurant dining, just any type of low-skill, blue-collar labor. And it's really hitting the supply base hard.

Moving on. So what do our members think is the biggest issue? Again, lack of qualified candidates. Unemployment rate is at the lowest level in years. But also, labor-force participation is at a terrible level too. So with the production levels being at these very, very depressed levels, I'm not really sure how the supply base will be able to fulfill a higher level of production. So if production were to carry on to 15, 16, 17 million, do we have the employees, do we have the people, to fulfill those demands?

And then there's been, again, the number two issue-- and we're seeing this alleviate a little bit, sequentially-- is competition from other sectors. And then wage issues have improved a bit. And I have another slide on that.

But the fourth thing that I want to show on here is perceived work and life balance. So our members have really focused on bringing in a new company culture that embraces flexibility, that will allow people to take paid time off, spend time with their families, things that were not traditionally associated with the manufacturing sector, particularly the auto sector, so that they can overcome that hurdle. However, just the fact that there aren't enough people to apply for these jobs, come in, that's the biggest issue.

So then lastly, I just want to show the cost pressure that's been put on the supply base. So we have a question, what is your expected change for the coming year for salary and other benefit packages offering. And really, what I want to highlight here is just this huge level of increase for hourly-employee wages and salary-employee wages, so on average, 4.3% and 3.6% in the coming year.

But really, no one is cutting wages. And then additional costs from training exercises, employer-health-care contributions, so on and so forth, down the line. So with that, Kristin? Oh, back to Martin.

MARTIN: You can hand it back to me. Thanks, everyone. Thanks, Joe. And thanks, everybody.

KRISTIN DZICZEK: Thank you

MARTIN: So leading off, Charlie, Haig, Charlie, you had a 14.1 light-vehicle sales number. Haig, you had a 14.9. Kristin's summary slide had a 13, of 15, a 16. So what are the risk factors that could swing us, one way or the other, to hit any one of those numbers? What's in play here? Charlie, you want to go first?

CHARLIE CHESBROUGH: Sure, well, certainly, if the Fed makes a policy mistake, certainly, we won't expect that to happen. But if we do tip into a major recession, certainly, all these numbers may be too optimistic. But as I was saying in my comments, I think that the big variable this year, for the industry, is do they stay lean and mean or do they get these inventories back and they start cutting, discounting substantially, and we start looking at incentive deals left and right, out there in the marketplace, to really try and move the metal.

And I don't how we forecast that because I think each manufacturer is in a different boat right now. You look at the Detroit 3. Their supply levels are maybe at pre-pandemic levels or even higher, some of the vehicles that I'm seeing lately. They've really seen their supply situation change dramatically just since the summer, versus some of their Asian competitors, like Toyota and Kia, are still looking at very, very tight inventories.

So the pressure of who's going to start doing incentives out there and who's not, it doesn't fall equally on all the different players. So I think that's going to be the battle, the battle for market share.

MARTIN: Haig, any risk factors for you?

HAIG STODDARD: No, I think Charlie actually kind of covered it. Like he said, it's really just-- it's hard to forecast. This year, there's so many variables. And we were just talking about it, I think. We've come out of such a-- these last three years have created so many situations that we've never seen before. We're probably going to get blindsided with something this year or next year. It might be good or bad.

I actually think, if we stay away from a recession or anything that gets, at least, perceived by the consumer as a recession this year, I think there's actually a little more upside to the 14.9. Because I think what's going to happen over the rest of this year is, supply-chain issues are getting better. The semiconductor issue, there's still going to be a cap on what they get, or they can get, but that's getting better.

I think we're going to see just more affordable vehicles in the market, in the mix, because I think what sometimes gets missed in what's happening right now, inventory is extraordinarily low. But it's also the mix right now. A lot of the reason the ATPs are so high is because the mix is heavily slanted toward full-size pickups, big trucks, and more higher-trim-level like vehicles.

I think as we get more Equinoxes and Camrys and vehicles like that out into the supply chain, out into the dealer lots, going forward-- and that looks like-- and that is happening-- that will actually bring more people into the market. And then I think we will start seeing some sort of incentive activity.

Again, I would still say it's going to still be a seller's market, even if we see those ATPs start to go down at a top level. I think the Detroit 3 are probably going to start incentivising more of their full-size pickups. They're very dependent on that. They're obviously building a lot, even though the inventory in those full-size pickups has gone up, if you look at it from an inventory-to-sales ratio, way above any other segment or the whole industry.

So I think there'll be some incentivizing and our dealers are going to start-- and as Charlie pointed out, maybe they'll start selling some of them at the MSRP. So I think there actually is some upside, as long as we don't go in a recession, or the consumer things they see things in there that makes them really pull back more than they have been, there is a little bit-- some of that is going on right now.

MARTIN: How quickly can the mix be adjusted, given past decisions to get the mix to where it is now and take advantage of profitability and do that? How quickly can those adjustments be made?

HAIG STODDARD: I would think you would see a significant change, probably, by the spring selling season, the second quarter of this year, that we'll see more of a mix of those more-affordable. And I'm not talking about bargain basement. I mean mainstream Chevrolets and Toyotas and Hondas and so forth. I think in the second quarter, we'll start to see a little bit better mix on that. And then whatever demand is looking like at that time will probably determine what incentive activity there might be, or not be.

CHARLIE CHESBROUGH: I was just going to say, Martin, I think that's-- one of the things in that seller's market slide, I mean, to create the seller's market, it's the dream come true for the industry. And I think that, to just give it away after all the hard work that was put in to get here-- or maybe it fell into their laps, but we're here. We're just a little bit more pessimistic than that.

But I do think that that's-- I think the industry is going to be very reluctant to get back to heavy discounting. And that's why we see it, they're holding back a little bit more in production, because they want to keep the more-expensive product mix out there, that they don't want to change that.

MARTIN: It's just interesting because you say that, but then Haig says, there seems to be an upward bias to production. And so it's-- the past against what's going on now, it seems, is really--

HAIG STODDARD: Maybe the way that I should phrase it, maybe that there's going to be the temptation, there, to produce more because you're going to be-- the underlying demand will be there. And I guess it'll be, how deep do you want to go into a more-affordable-type vehicles and potentially start hurting your profit margins.

MARTIN: So Joe, you've heard these two forecasts. And you've seen others. And from your presentation, it seems like suppliers may have even difficulty following what these guys are forecasting. So can they do it, I guess? It may be a basic question. But also, in the past, we've talked about what the break-even light-vehicle sales level is for suppliers to-- I guess, where is that?

Where does profitability lie among suppliers, amongst the different tiers? Are some struggling more than others? And does that even, with some of the challenges that have emerged because of the pandemic, does that break-even level apply at this point?

JOE ZACIEK: Right. So we have estimated that for last year, it was calculated as 13.75 million units for the industry. And really, what that number means is that, essentially more than half of suppliers are profitable. So it all depends on mix and what programs they're on so on and so forth, and then cost management.

But with all the difficulties with labor, I am confident on the resiliency of the North American supply base. They have just been in a terrible position over the past three years and have remained vigilant, and in some cases, profitable. A lot of the issues with cost management and the contract pricing that they were able to receive on their products, that's been renegotiated. So they have been able to recoup some of those costs, from what I've heard.

And then going forward, they just really need to continue their vigilance on production plan-- or product planning, what programs are on, as well as putting in some kind of safeguard to prevent them from being exposed to such a large price shock and supply shock.

MARTIN: Kristin, what's your reaction to their presentations and 2023 in general, as far as sales go.

KRISTIN DZICZEK: Well, I think Haig said, it's incredibly difficult to forecast and to this environment. There were unprecedented numbers of re forecasting last year, even into November. Usually by November, we get pretty good about what the year is going to end up. But so many things are in play.

One of the things that I'm thinking about, with that buildup of truck inventory, GM never got out of their hole from the strike in 2019. We have much more combative and adversarial relationships coming, in these union contracts. And I wouldn't put out of the realm of possibility that one of these automakers, or more, will face a strike. And how will that go with depressed levels of inventory and what exactly is in the inventory at that time.

It won't in fact demand, necessarily. But production is going to go all over the place and impact our suppliers, as well, because suppliers that were tied to GM also had that long recovery. We're just getting back and then we got hit by the COVID shutdowns. So there are so many black swans, these days. So I am worrywart. I worry about a lot of things. But that's one thing I worry about.

MARTIN: Charlie talking about inventory, but maybe more about used vehicles now-- you've already talked some about the impact on used-vehicle supply. Can you go into a little more detail with, example, the role of leased vehicles coming online via auctions, the decline in lease take-up rates, decline with prices now lower than a year ago. This seems like a protracted period of uncertainty and pressure, coming. Can you just maybe go into more detail? What's going on and what may be to come?

CHARLIE CHESBROUGH: For dealers or just in the used market?

MARTIN: Used in general.

CHARLIE CHESBROUGH: Yeah, well, it's been a crazy time for the used market. The high price increases that we saw over the last couple of years have really shaken consumers. But dealers have been gobbling it up. They've been making good money at these high prices. And so the profits have been very, very strong for dealers out there. But that's starting to change.

One of the interesting things about-- as I mentioned, a little bit about lease maturities-- one of the things that we're seeing at auction is that, generally, a lot of the vehicles that are leased end up at Manheim Auctions. But that's changed dramatically. And it used to be about every two out of three vehicles, that was a leased vehicle, would go back to the leaseholder, would get turned in. We saw last year, that only one out of 10 vehicles was actually getting turned in.

The vast majority were disappearing upstream, with a huge portion of folks that actually leased the vehicle, ending up buying it because it had appreciated so much, that they were turning in the keys to the dealer and realizing there's thousands of equity in this vehicle. And they weren't turning it in. They were just going ahead and buying that vehicle.

So that's really, again, starved the used-vehicle market and also, maybe took a whole bunch of folks out of the leasing cycle, that normally lease every couple of years. They bought their last vehicle so they're not coming back in. So the dynamics have really started to change out there.

But I think one of the bigger issues that we're facing out there is that these high vehicle prices are becoming out of reach for most consumers. And new vehicles were maybe never an every-man product in America. We like to believe that they were. But they probably haven't been for a long time.

But certainly, they're even less so today. And I think what we're finding out now is that more and more, the used-vehicle market is even getting to be more of a challenge. And there's going to be a huge portion of the population-- I don't have a percentage for you-- but with average household income, what, $70,000 for a family of four, or maybe it's even less than that, a whole bunch of folks aren't going to be able to afford even a used vehicle.

And I think one of the challenges for the industries going forward is going to be how do we create affordable personal transportation for people. So I think one of the things we've got to start thinking about is used leasing, used subscription, something where we can offer a lower price point to the marketplace because I think there's going to be a huge void there, that I don't see any easy way to fill it.

MARTIN: I think tacking on Paul McCarthy's question on Pigeonhole was then, add in the impact of aggressive EV rollout on used-vehicle prices. What impact is that going to have on used-vehicle prices, given that the vehicle stock rolls over slowly and will be dominated still by internal combustion power trains over the next few years?

CHARLIE CHESBROUGH: Yeah, over the near term, I don't think it has much impact because there's-- well, in terms of the flow of used EVs into the market, there just isn't that many that happen, at least not yet, because it's a relatively new product and not too many of them out there. Certainly, when we get down to the later part of the 2020s, there's going to be a lot more EVs in the marketplace.

But I think there's a whole slew of people out there that have no interest in electric vehicles. They can't convince some one way or another. I can tell you, people living in Michigan really got to think twice about whether an electric vehicle is going to work for them, with all the difficulties of charging in cold weather, and availability of charging stations, all the usual stuff. + I think the weather environment is really something that doesn't get discussed enough, in terms of holding people back.

But the other thing is, I think, we got to keep in mind about electric vehicles is, you've got to have a garage or you've got to have a regular place to charge them. There's a whole bunch of Americans that this is never in the realm of possibility for them. They don't own a home. They don't have a garage. It's just not going to work.

So I do think that we've got to start thinking of the EV market as maybe its own entity. And I don't that-- I think we're going to have a whole chunk of the potential vehicle-buying population that is only looking at ICE. And you have a chunk that's only looking at EV. And the two aren't going to cross. And then there are consumers that would shop whatever they-- either way. But I do think there's a big portion of the market that's only sticking to their own power train type. And I think that's going to be a challenge for the industry, to identify who's who.

MARTIN: We're going to talk about some of those challenges this afternoon as well. Haig, question from Jeanie Whalen, through Pigeonhole. "When you say the mix now is expensive"-- again, going back to inventory that we were talking about a minute ago-- "and we might see it improved by the second quarter, do you mean all vehicles or just BVs?"

HAIG STODDARD: I was talking about all vehicles. BVs still aren't going to be a significant part of the mix, even this year or next year. No, I'm talking about all vehicles. And again, like I was saying, I just mean we'll see more Chevy Equinoxes, more Toyota-- more RAV4s, more Honda CRVs, Camrys, and Corollas, and so forth will be out there in the market, as opposed to-- and probably at maybe more affordable trim levels-- as opposed to right now, again, the mix is a lot-- the overall mix is really heavy slanted toward big trucks and more high-trim-level type crossovers and so forth, and SUVs.

So by demand, overall, there'll be a bigger mix of affordable vehicles. You might still have to pay a higher price for an Equinox than maybe you would a couple of years ago. But there'll be more of them out there at that lower $30,000 level MSRP.

MARTIN: Let's go to production. Joe, so with suppliers, so you've listed some of the issues that suppliers obviously have been tackling. What-- I guess a little deeper dive into why consumer volumes aren't being met. Obviously, we still have supply-chain issues, labor shortages that even pre-pandemic were an issue, geopolitics. They all stand out from the barometer you shared. But other industries, maybe not with all those issues, but they've seemed to navigate at least a couple of those.

So what's especially giving suppliers trouble? I guess just a little deeper dive. And then with that, you sharing how turnover rates have been very high still. Any recent relief in those, especially amongst hourly workers?

And also, implied from the Supplier Barometer, you had annual real wage-- so inflation adjusted increases-- of about 1% to 1 and 1/2%, coming in 2023. Is that enough to be competitive with some of these new sectors that suppliers now are competing with for talent? So a lot about just a deeper dive into why suppliers are running into issues, trying to meet volume targets from their customers.

JOE ZACIEK: Well, that's a long question. Let me just start off-- So port issues were huge. A lot of specialty goods coming in, specialty materials, components, coming in from overseas, ports delayed that. And then on top of that, you had logistics issues with trucking. So nothing was coming in on time. And this is from semiconductor to resins to steel to aluminum, and then all these other grades of steel and aluminum, and high strength steels for bearings and so on and so forth.

So it's more than just looking at your major commodities pricing and saying, oh, there's a supply shock to aluminum. And it went up by 20%. And it's like, OK, but we have this one particular grade, that's used on all these components, and we can't even get it.

And I have heard of some alleviation with that. And really, before I get into that, that's what really caused the erratic behavior in the production volumes, is just no one knows what's the next thing that we're just going to expect to get on a Monday, have through their production process by Friday, to be shipped on something, but it's not even there on Monday, or it's not sent out to the customer on Friday.

And you can't ship a car without a seat belt, without wheels, without a lug nut. And that has been what's caused this just really umbrella effect, throughout the supply base, is that you may be meeting all your targets. You may be meeting all your customer demands. But one of the other component suppliers isn't. And consequently, the OEM is shut down that line, in some cases, with less than 24 hours of notice. So you're sitting on a lot of inventory. Can you give me a refresher on-- oh, the labor side.

So from the labor side, with the turnover rates, we have seen that improve a little bit this year. And it's shown in the threats to the industry-- that I believe it was my second slide-- that sequentially that's improved. However it's still at a very difficult levels to deal with.

I think that the cool down and the rest of the labor market and the economy-- and this is just my personal opinion-- will put less pressure on automotive labor at the production level, being that it typically carries a pretty substantial premium, with the higher-- the more difficult work, the higher demands on the employee, that competing sectors won't pull away people from automotive.

And also, the luster of going out into the labor market and getting yourself a 25% raise by just switching company, with the uncertainty-- consumers and labor participants are just as aware of these dynamics as everyone else in that, now they're starting to be concerned that, well, if I'm the first one into this company, I may be the first one cut if there is employment cuts.

So I think that this will play out in a smoother manner, at the supply level. It's really the outside sectors, other than automotive, that I think will really experience the brunt of a possible recession and increase in unemployment.

MARTIN: I have a question for everyone up here. I'm going off of one of Haig's slides, in which Detroit 3 market share doesn't recover back to 2019 levels. So I think I'll start with Kristin. So if Detroit 3 market share never recovers back to 2019 levels, in which, over the next few years, we're going to have an EV transition, outside pressures on labor, consumer purchasing power among them, what implications does that have for those companies if that market share is-- those levels aren't or never gotten back up to?

KRISTIN DZICZEK: That's a big question. Some of it depends on what Haig was showing, and what I implied about can they be profitable at lower volumes. So if they're not going to get back to the share, if their overall total sales volumes are down, can they still operate profitably? And that's still a big question, I think, especially as the EV mix comes in.

About 15 years ago, I attended a presentation. And the guy got up and said, we've got this new vehicle. It's the Chevrolet Volt. And I'd be happy to sell you one at cost. The costs are still way out of range. The IRA helps that and may help these big investments and big bets on EVs come to market and recover some more. But where is the consumer? And what's the economy look like?

MARTIN: Haig?

HAIG STODDARD: I guess I would throw it out there. It's not like Kris-- it's not necessarily bad that their market shares and coming back because if they can make-- they're making more money with less, basically. And I think part of the reason we see their market share coming down, as we think they're going to, there's going to be more of a focus on more of those high-profit type vehicles. They're going to stay away from-- the plan is, at least, strategically, to stay away from those lower things.

But I the red flag that I would put out there, with that, though, it is it also means that they're depending still, very heavily, on full-sized trucks, particularly pickups. And the global market for full-size pickups is the United States. So I think there's a lot--

KRISTIN DZICZEK: A little bit of Canada.

HAIG STODDARD: I would say if you want a little bit of Canada, I would say that might be the red flag. As long as people want all those-- as long as they can sell those pickups at $50,000 and $60,000 price tags, they're probably OK. But it also points out, how well are they selling in the other segments? I think Toyota, Honda, maybe Nissan, and the Honda, Kia pretty much probably got what's left of the car segments for the most part.

And then we get into the small crossovers, the medium sized crossovers. How well are they going to hold up against the Toyotas and the Honda's and Nissan's and so forth? And I think historically, the overall-- it's getting better. But historically, I think the perception was that with the consumer, that the Honda's and the Toyotas and the others were better-value vehicles. So we'll see, going forward. But yeah, like Kristin said-- as long as they can keep making money, market share isn't really that big of a deal.

KRISTIN DZICZEK: Well, then market share for market share's sake comes at a cost, a big cost. There was a time when the folks were walking around GM headquarters with the button, with their market share on it, like we're going to defend this at all costs. That did not play out so well for them. So a world in which they can accept a lower market share and higher profits is possible for us.

HAIG STODDARD: Well, I don't want to-- sorry to beat it to death. I'll say one more thing and I'll be quiet. But even to get back to the inventory issue too, I think-- we'll see. And it'll probably take four or five years before we know, are they going to go back to old practices with overbuilding and incentives. But I think right now, especially GM and Ford, and I would say Stellantis too, they like this not having to have these end-of-summer bargain-basement blowouts.

And even the December, the end-of-year kind of stuff, this is really-- it's good for operations. It's good for profitability in a non-recessionary market. But that's going to-- they want to keep incents volume lower because as long as they're making money and the market is healthy, that's actually a good thing. And we're going to see less complexity, probably, on the IC vehicles and so forth that-- I'm getting into a whole other can of worms. But I think generally-- getting back to that inventory control kind of an issue too, they like that too. And less volume actually probably plays into that good.

MARTIN: And, yeah, Charlie.

CHARLIE CHESBROUGH: Well, I think they covered most of it. The only thing I would just add, and I think Haig was touching on it, that there is big savings to being lean and mean. And it's not just less money on incentives. But it's less money on marketing.

I can tell you, our Kelley Blue Book and Autotrader websites are struggling. There's not the kind of advertising that's being done before. I think all of us are probably seeing a little bit less television advertising. Certainly, I saw a few ads at Christmastime, but nothing like the December to remembers that we used to always get inundated with. So there is a lot of benefits to having less market share and keeping the market a little bit starved.

MARTIN: And Joe, from a supplier standpoint?

JOE ZACIEK: Sorry, my mic [INAUDIBLE]. So from a supplier standpoint, the relationships between the suppliers and the domestic OEMs has been incredibly bruised throughout the past three years. So a decline in the D3 market share is-- there's a lot of suppliers out there that they honestly just don't care. At this point, they're ready to take their business elsewhere.

And also, to that note, is that's another risk to the traditional supply-based model, is that with these new entrants, volume per platform is going to just continue to be spread thinner and thinner. So business models do need to be reconsidered in anticipation of those lower volumes, regardless if production does recoup to pre-pandemic levels or not.

MARTIN: So let's shift, now, to EV transition and adoption. Kristin, what role will the upcoming UAW negotiations play? And could that be something that-- not derails what everybody's trying to do, but could maybe put a kink in the plan?

KRISTIN DZICZEK: Well, I think the UAW has understood the EV transition is coming. They had a white paper out, a couple of years ago, about the threats to their membership. And certainly, a large proportion of the propulsion workers, people who work in engine and transmission, for the automakers, about 2/3 of those are D3 union workers. And those are the jobs on the line.

Now Haig's charts show that we're still going to have 70% of the market be internal-combustion engine vehicles. And even those hybrids are going to have an engine in them too. But this contract year is the one where they start to put in place, what does job security look like, which plants might be on the plant-closing exclusion list.

So that Belvidere plant is idle but it's not closed. It can't close because there is a plant-closing moratorium in their contract. They can-- the way they close plants is they have-- we have a plant-closing moratorium except for this list. So that's going to be critical to see if a lot of plants end up in-limbo list, or if the UAW is able to keep every plant on the exclusion.

That doesn't mean it doesn't idle or get unallocated, like the GM plants did a few years ago. But I think that reinvestment in their facilities and-- they want to be building EVs to, and pickup trucks. And they want to have jobs that are 2,000 hours a year. They want full-time jobs and not this-- the supply-chain disruptions have led to some plants being down more than others.

We will see some consequences of that when profit-sharing checks come out, in a month or so because those profit-sharing checks are calibrated to how many hours did you work. So if you happen to work at a plant that made something that we weren't making much of in the last year, your check's going to be smaller. So I think there may be some-- they're progressive. They're accepting that this EV transition is coming. But how it actually plays out, and what are the guarantees for the members to have longevity in their jobs, is important.

MARTIN: And then separate from labor-- and I think we've talked about this-- is how sizable is the gap between the plan to adopt EVs, but then the infrastructure necessary to support what everyone projects to come, as far as charging and vehicle availability.

KRISTIN DZICZEK: There are so many things that have to happen in a precise orchestra. It's not just the charging and the grid, but also the critical minerals and components and mining and refining, and even expansion of certain types of semiconductors, we're going to invest in domestic semiconductor production. But we also need packaging and testing and all these other steps in that.

So is everything going to expand in concert together, and we'll have this nirvana kind of experience? Or is it going to be kind of wonky? I'm betting on wonky.

So there is, as we mentioned, money to invest in charging networks. There are some automakers who are taking on the Tesla Model and building out their own charging network. We were talking about that earlier this morning, about all of the consumer data that you get from knowing where a car charges and when it charges, and how much automakers might want to own that, themselves, too. But yeah, I just I think that to think that everything is perfectly planned and it's all going to work out exactly right is a very slim chance.

MARTIN: Haig, this is a question from Dakota McCracken. "Do you think we will see more in-sourcing from OEMs as they transition to "EVs?

HAIG STODDARD: [SIGHS] Hmm. That's a tough one for me. Maybe four or five years out, that'll play out more, especially as the IRA-- if the IRA plays out the way it's supposed to, in four or five years, I think we might see more in sourcing of things outside, maybe of batteries and materials and so forth. I think will still be a lot of outsourcing or at least joint ventures on the battery side. So probably the hardware, other hardware kind of stuff, there might be more insourcing.

KRISTIN DZICZEK: If I could jump in, I think one thing that the Detroit 3 automakers don't want to see, and certainly this president doesn't want to see, 3 collateral damage from the EV transition being UAW workers on the street. So for the Detroit 3 automakers, those workers who might be displaced, who make engines and transmissions or castings and all of that, there may be a work to in source enough work to keep them employed so that you don't have a large displacement of members. And that comes back to the contract. But I think it may be a different motivation for the D3 than other companies.

HAIG STODDARD: She's right and I'm wrong.

KRISTIN DZICZEK: I didn't say that.

HAIG STODDARD: I meant that earnestly. [LAUGHTER]

MARTIN: Charlie, a question from Dave Golke. "Internal combustion engine volumes are way down in 2022, but not EV. Are we getting to a point where the typical new-vehicle buyer is delaying, or not making an internal combustion engine vehicle purchase because EVs are coming soon?"

CHARLIE CHESBROUGH: Oh, I certainly think there are people who-- I know I'm waiting. I'm waiting until they come up with the 400-mile range. And I can start thinking about it. I certainly think there are people that are waiting to buy the EV until they get the kinks worked out of it.

One comment I just did want to make, though, about EV adoption, that I think is sort of on the optimistic side, is that Cox Automotive actually made an acquisition of a company, I guess about two years ago now, called Sperry Technologies. And they have the ability to quantify the health of the battery.

And that's going to be a key hurdle, that if you want to buy a used EV, the battery's everything, or 99% of it. And so just like with your phone, some people plug it in, take it out, plug it in, put, put, take it out. That's a different kind of charging than plugging it in and letting it sit overnight. That all impacts the health of the battery in your phone. It impacts the health of the battery and the vehicle.

What this new technology is going to be able to do is identify which batteries are at very good health, which batteries are on their last legs. And that's certainly going to make it much easier for consumers to feel much more comfortable about buying a used EV. And so I think that that's going to help at least get the use side of these things, getting consumers more comfortable with them.

MARTIN: And then a question from John Hatcher. "Do you expect EVs to be considerably higher in price compared to ICE vehicles? And if yes, how does that impact demand for EVs? And is there an expected political response to slow the adoption of EVs?"

CHARLIE CHESBROUGH: An expected political response to slow EVs? I do think one of the challenges is our politics. You have one party that's like, let's all go EV, and another party that is probably less focused on that, and maybe wouldn't support the government policies that are going to need to be in place to become an electrified vehicle fleet. I forgot what the first part of that question was so though.

MARTIN: Pricing, will EVs be considerably higher in price?

CHARLIE CHESBROUGH: My guess is they're higher in price for a reason, which is they wealthy people can afford these things, are interested in these things. And so I think that's where the target is right now. I would love to see a $35,008 EV. I know Chevrolet is talking about the electric Blazer. They dangled that price point out there. I don't believe it for a second, but I think it's a wonderful way to get a lot of news media, just like Elon's talked about a $35,000 Model 3. That's not going to happen either.

So I think until we get some innovations in the technology, and some of the costs come down on the batteries and all of that, I think it's going to be a real challenge to get these EV prices at a much lower price point.

MARTIN: A question for Joe, so he doesn't feel too left out, from Paula Gardner, on the labor shortage for suppliers and talking about expected wage gains, how much-- especially given the situation the suppliers are in, how much more can they raise wages to try and attract workers, given what's out there, with competing industries for the same workforce?

JOE ZACIEK: So those numbers aren't just a representation of all the measures that people have been going to. So I have some other information on some signing bonuses, retention bonuses, working with direct management to move ahead in the company quicker, some succession planning in that regard, and internal development.

But with cash flows is constrained as they are, and how they seem to be expected to remain at depressed levels over the near term, I'm not really sure how much wages can go up at a blue-collar level. But they have to, given the pace of wage growth in the other competing sectors.

I do believe that it's slowing. And that's-- we saw that in the last employment situation. But again, you have to maintain that premium, in order to ask so much out of your workers, to work in such an environment.

KRISTIN DZICZEK: And you bring up the point of the flexible pay, like a bonus for-- you stay on 90 days, you get a bonus. We've heard some anecdotal things from suppliers, that people work 90 days and they quit, and they walk across the street, and they get another job. They work 90 days, and they get the bonus, and they quit. So that might be leading into some of that turnover.

But because this is a very cyclical industry, the automakers, the suppliers, all want to have as much contingent pay as possible, profit sharing, these lump sums, not rolling it into base wages. That's the big fear of bringing COLA back, in the D3 contracts, is that you've got an escalator that you've got no control over at all, in the wage side of things. But workers feel protected against really high inflation, in environments like we've had for the past year.

So I'm looking for, when do some of those lump sums just roll into base, and how do they structure this contingent pay to go along with the health of the industry and what the revenues look like.

MARTIN: Kristin, a question from Laura Putra. "Do you of any data on the number of UAW workers formerly working at now-closed plants, moving to nearby non-union partner plants, such as Ultium, whether they are being rehired there, and what kind of wages are they are they getting?"

KRISTIN DZICZEK: I have no idea about how many. And about how much the wages are, we're going to talk about that tomorrow, with the folks from-- Sue Helper from OMB, and Betony Jones. They've got some great information and some things that I don't even have access to, on what those new job wages look like and the quality of those jobs. So wait until tomorrow.

MARTIN: Charlie and Haig, this is a question from a familiar name, Bill Strauss, wondering, when do you think-- your forecast kind of iterated at when sales are going to get back to, what long-run trend is. But I'll add in there, also, is the long-run sales trend, that we've always said it's between 16, 16 and 1/2 million, is that going to change, maybe in the Intermediate period, as we go through this transition from ICEs to EVs, is there going to be any change at all in that, just maybe over the next few years?

CHARLIE CHESBROUGH: Well, I think the path to returning to a 17-million market is definitely on a different trajectory now. And I think these higher prices, the higher cost for the industry, the transition to EVs, all suggest that the pace of us returning back to a 17-million-plus market, I think, is going to be delayed a number of years, if ever, or-- I guess ever is a long time.

But I think some of the big variables that we're dealing with out there, over the next couple of years, I think maybe the largest is the role of fleet. Fleet activity has pulled back substantially. There's probably a lot of pent-up demand within fleet, at least if we avoid a recession, that could really gobble up a lot of the volume that we're kind of like-- is there buyers out there, are the buyers out there for this?

Well, in the fleet market, there may be because it's been so suppressed for a couple of years, that that could help get us back to a much larger market, much more quickly. But I do think that the industry's changed. There's no rush to get back to a 17-million market. So I don't think that we're going to be pulling all the levers to make that happen.

HAIG STODDARD: Well, I would just add, there's other things that we-- besides what we've talked about, affordability and inventory issues and that. Vehicles are lasting a lot longer. And I think, really, our longer-term forecast is that 2027, 17 million that I had up there in my chart, is actually probably the next peak, and that sales will probably actually start hovering around there, actually go south of 17 for a few years, really for a lot of what Charlie said.

I would say, the only thing that I would throw out there, though, is there is going to be this void compared to what we were used to, pre-pandemic, of more affordable vehicles, like-- we used to have vehicles that you could-- a lot of vehicles that you could buy for less than $20,000 and that. Does somebody come in and try to fill that? And that's a whole other show too.

But yeah, that could change that outlook that Charlie and I-- or Charlie has laid out. But other than, no, I think 17 million seems to be the next peak. And then we might-- 16 to 17 might be more of the norm in a good, healthy year.

CHARLIE CHESBROUGH: I think Haig brings up a great point too, which is that the industry may be setting itself up for a low-cost company to come in, VinFast out of Vietnam, or some Chinese EV manufacturer to come in with a AM-radio, roll-up window, cheap EV. They could gobble up a whole bunch of market share at the bottom end of the market, that everybody else has walked away from. And I think that's a risk.

HAIG STODDARD: I would say--

KRISTIN DZICZEK: We have with those, though, right now. If you go on the Department of Energy's list of vehicles that were qualified last year, for the $7,500, The Kandi K27 claimed it was going to get the $7,500 credit. It kind of looks like a golf cart, not much more than a golf cart. It certainly didn't take off. And I don't think it's going to fill that econo-box role, that you're talking about. But there's already automakers, especially imports, that are looking at picking off that bottom end of the market.

HAIG STODDARD: I would say, just to add on to it, don't count out existing manufacturers. And myself, I would bet, if I was going to put someone at the top of trying to fill that void, I'd look at Hyundai and Kia.