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Wall Street and industry analysts remain on high alert for signs of a “demand destruction” scenario for the U.S. automotive industry this year.
Cox Automotive’s 10 predictions for the U.S. auto industry point to a challenging year ahead.
They range from electric vehicle sales outpacing the overall industry to concerns about consumer demand amid economic pressures.

A customer looks at a vehicle at a BMW dealership in Mountain View, California, on Dec. 14, 2022.
David Paul Morris | Bloomberg | Getty Images

DETROIT — Wall Street and industry analysts remain on high alert for signs of a “demand destruction” scenario for the U.S. automotive industry this year as interest rates rise and consumers grapple with vehicle-affordability issues and fears of a recession.
Since the onset of the coronavirus pandemic in early 2020, automakers have experienced unprecedented pricing power and profits per vehicle amid resilient demand and low inventory levels due to supply chain and parts disruptions affecting vehicle production.

Those factors created a supply problem for the auto industry, which Cox Automotive and others believe may switch to a demand problem — just as automakers are slowly improving production.
“We’re swapping a supply problem for a demand problem,” Cox Automotive chief economist Jonathan Smoke said Thursday.
Cox has 10 predictions for the U.S. auto industry this year that point to such an outcome. Here they are along with reasons why investors should be mindful of them.

10. Federal incentives will encourage more fleet buyers to consider electrified solutions

While electric vehicle tax credits under the Inflation Reduction Act have not been finalized, incentives for commercial vehicles and fleet owners promise to be a major benefit.
Unlike consumer vehicles that qualify for credits of up to $7,500, fleet and commercial vehicles do not need to meet stringent U.S. requirements for domestic parts and batteries.  

“This is actually where we think the majority of growth will be in new vehicle sales in ’23,” Smoke said.
Cox forecasts U.S. new vehicle sales will be 14.1 million in 2023, a slight increase from nearly 13.9 million last year.

9. Half of vehicle buyers will engage with digital retailing tools

The coronavirus pandemic forced franchise auto dealers to embrace online retailing more than automakers ever could, as consumers demanded it and many physical dealerships were shuttered due to the global health crisis.
That trend is expected to continue for years to come, as many automakers have vowed to better align production with consumer demand.

8. Dealership-service operations volume and revenue climb

Due to a lack of available new vehicles and higher costs, consumers are keeping their vehicles longer. This is expected to increase back-end service business and revenue for dealers compared to their sales. Dealers make notable profits from servicing vehicles. The increase is expected to assist in offsetting potential declines in sales and financing options.
“We see this as one of the silver linings for dealers,” Smoke said. “The service department usually does well [and] is somewhat counter-cyclical during economic downturns.”

7. All-cash deals will increase to levels not seen in decades

High interest rates are making vehicle purchasing far more challenging for mainstream buyers and less economical for more wealthy consumers. Such conditions are expected to push those who have the cash to purchase a vehicle to buy it without financing it.
Smoke said the average loan rate for a new vehicle is more than 8%. For used vehicles, it’s close to 13%.

6. Vehicle affordability will be the greatest challenge facing buyers

Vehicle affordability was already a concern when interest rates were low. This issue has grown to be more concerning as the Federal Reserve pumps up interest rates to battle inflation. Cox reports vehicle affordability is at record lows.
The increases have led to upticks in average monthly payments of $785 for new cars and $661 for leases, Cox said. The average list price of a new vehicle remains above $27,000, while average transaction prices for new vehicles ended last year at about $49,500.
“The longer-term concern is that this causes what is produced to skew even more towards luxury and away from affordable price points, which means even the U.S. vehicle market has a long-term affordability issue,” Smoke said.

5. Used-vehicle values will see above normal depreciation for a second straight year

Used vehicle prices skyrocketed during the first two years of the coronavirus pandemic due to the low availability of new cars and trucks. The wholesale pricing peaked in January 2022. It declined 14.9% last year and is expected to fall another 4.3% by year-end.
The declines are still not enough to offset the 88% rise in index pricing from April 2020 to January 2022.
Inventory of used vehicles is stabilizing at nearly 50 days — close to 2019 levels before the coronavirus pandemic depleted supply.

4. Sales of electric vehicles in the U.S. will surpass 1 million units for the first time

Cox reports all-electric vehicle sales increased by 66% to more than 808,000 units last year in the U.S., so it’s not too much of a leap to hit 1 million amid dozens of new models scheduled to hit the market. EVs represented about 5.8% of new vehicles sold in the U.S.
Add in hybrid and plug-in hybrid electric vehicles that pair with a traditional engine, Smoke said about 25% of new vehicles sold this year to be “electrified” vehicles. That would be up from 15% to 16% in 2022.

3. Total retail vehicle sales will fall in 2023, as new vehicle sales grow, used sales decline

Automakers are expected to rely more heavily on sales to commercial and fleet customers such as rental car and government agencies than they have in recent years to increase total sales.
Carmakers prioritized the more profitable sales to consumers amid the low inventories in recent years. But with consumer demand anticipated to fall, companies are expected to turn to fleet sales to fill that demand gap.

2. New vehicle inventory levels will continue to increase

Expectations for lower demand come as the automotive industry is slowly increasing its production of vehicles, leading to higher inventory levels.
Inventory levels the past two years were at record lows due to supply chain and parts problems affecting production.
Cox reports inventory levels greatly differ based by brand, with the Detroit automakers — specifically Stellantis — having an ample supply of vehicles. Toyota has the lowest days of supply of vehicles, according to Cox.

1. A slow-growing economy will place pressure on the automotive market

Combine all of the prior predictions in addition to the economic concerns and that’s a lot of pressure on the U.S. automotive industry in the year ahead.
This is also happening during a time when automakers are investing billions in electric vehicles and new technologies such as advanced driver-assistance systems and autonomous vehicles.
“We hope for an economic soft landing but ether way we believe the auto market is going to be held back in the year ahead,” Smoke said.

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Auto companies are among the most sensitive to higher interest rates and a weaker consumer.
The EV industry also has aspects of high-growth tech — the dot-com bust, and later boom, suggests the strong will survive a winnowing-out. 
Tesla is flush with cash and may generate $4 billion more this quarter.
Competitors like Rivian, Fisker and Lucid are the “middle tier” of the new industry.
One investor whose has recently made money shorting the sector tells CNBC, “Those with the capital to get through 2023, we’d bet the farm on.”

Pedestrians walk past the Tesla Motors official authorized car dealer store in Hong Kong.
Sopa Images | Lightrocket | Getty Images

Is the first electric-vehicle recession here, or coming soon?
As electric-car stocks plummeted in late 2022, the rout evoked comparisons to the dot-com stock bust two decades ago. Like the internet industry then, the EV industry boasts companies, notably Tesla,  that look like long-term winners, but it is also made up of young companies that may not have the cash to ride out a downturn, as well as in-between players like Lucid Group, Fisker and Rivian Automotive, that have done their best to prepare, and whose fate may depend on how bad things get.

With the economy at an inflection point between receding inflation fears and broad expectation of a recession beginning in 2023, the market doesn’t know what to make of moves like Tesla’s big price cuts, first in China and then on Jan. 13, in the U.S. and Europe. Analysts like Guggenheim Securities’ Ronald Jesikow said it could push Tesla’s profit margins 25% lower than Wall Street consensus and drain profits from all of Tesla’s competitors. But optimists like Wedbush analyst Dan Ives think it’s the right, aggressive move to jumpstart the EV transition amid macro uncertainty.
“Many dot-coms didn’t make it,” Ives said. “There’s no stress test for a severe recession for an industry that’s in its infancy.” 
What happens next — whether battered EV stocks rebound, whether young companies that need more funding will be able to get it, and whether the sector becomes the jobs engine Washington was counting on when it passed the Inflation Reduction Act last summer, laden with tax credits for EVs — depends on the economy first, and the markets second.
The “first EV recession” theme comes with a big if – that there is a recession in the first place, either here or in China, where Tesla sales dropped 44 percent in December from November levels as the government there continued struggling to contain Covid-19. 
In the U.S., most economists and CEOs think a recession is likely this year, though the market gains of the last week may reflect the beginnings of a change in the investor outlook, with more believing in the “soft landing” narrative for the economy. One holdout, Moody’s Analytics chief economist Mark Zandi, forecasts a months-long “slowcession” where growth doesn’t quite turn negative. Either scenario would likely hurt car sales in general, which were the worst in a decade in the U.S. last year, but where some auto executives are now slightly more confident about a rebound, though the EV outlook among the automakers has become more cautious in the short-term. But either scenario may be too pessimistic if the economy responds positively to now-slowing inflation.

The outlook from China, home to more than half of the world’s EV sales, according to Clean Technica, is at least as murky. Manufacturing moved into negative-growth territory late in the year and housing prices are falling, but the International Monetary Fund says China will avoid a recession and grow its economy by 3.8% this year. That would be half of 2021’s clip and slightly below China’s pace last summer, when the nation began to cope with new Covid-related shutdowns. China is now pushing to reopen its economy amid the pandemic. 
Tesla’s 2023 world is like Amazon and eBay’s 2000
A recession, if it happens, doesn’t necessarily mean EV sales will fall. Most models saw big sales gains last year in both the U.S. and Asia. It’s more a question of whether EV companies will grow fast enough to keep adding jobs, and for companies beyond Tesla to turn profitable when investors expect them to — or before they run out of cash they raised to fund startup losses.
That sets up a dynamic a lot like the one that confronted dot-com companies like Amazon and eBay as 2000 blended into 2001: A web-stock selloff was well-underway then, just as EV companies like Tesla, Fisker and Lucid fell sharply last year — 65 percent for Tesla, 54 percent for Fisker and 82 percent for Lucid. Then as now, weaker players like today’s EV makers Lordstown Motors, Faraday Future and Canoo were scrambling to avoid running out of cash as an economic slowdown loomed, either by cutting costs or raising more money from investors.
“We look at a combination of balance sheet stability and ability to raise more capital,” said Greg Bissuk, CEO of AXS Investments in New York, which runs an exchange-traded fund that uses swaps to deliver the opposite of Tesla’s daily return — in essence, usually a near-term bet that the shares will drop. “We think it will be rocky,” he said, specifically referring to the middle-tier EV makers.
But at the same time, revenue at dot-com companies kept rising fast, and the businesses that were  destined to survive began to turn profitable between 2001 and 2003. Today, EV sales in China are rising, even as Covid continues to hamper its economy, and EVs posted a 52% sales gain in the U.S. At year-end, EVs had 6% of the U.S. light-vehicle market, compared to 1 percent of U.S. retail sales being online in late 2000.
Slower growth isn’t no growth
For EV makers, the likely impact of a recession is slower growth, but not the negative growth the overall economy experiences in a downturn, as new technology keeps gaining market share. 
The best-positioned EV maker is still Tesla, said CFRA Research analyst Garrett Nelson. With the company still expected to have generated about $4 billion in late-2022 cash flow when it reports fourth-quarter earnings Jan. 25, and having had about $21 billion at the end of the third quarter, it’s not in danger of a cash burn, Ives said.
“We think the stock rebounds quickly this year,” Nelson said, calling Tesla his top pick among all auto makers, and noting that CFRA economists don’t expect a recession. It trades at 24 times this year’s profit estimates, which in turn only call for 25% profit growth, numbers that are modest for a growth company with room to keep expanding fast.

After the price cut, Nelson said the company will see narrower profit margin but will sell more cars.
“It should widen the company’s competitive advantage and make many more Tesla vehicles eligible for the $7,500 federal EV tax credit,” Nelson said.
The just-enacted price cut pulled the most-popular Model Y vehicles under the price maximum for tax-credit eligibility in the 2022 Inflation Reduction Act.
Tesla has its own issues, with sales growth having slowed late in the year. Fourth-quarter units were up 32%, down sharply from earlier in the year, missing Wall Street estimates for a second straight quarter. CEO Elon Musk’s antics as the new lead owner of Twitter raise concerns about how closely Musk is watching the store, and how quickly he may respond if Tesla’s decline accelerates, Ives said.
“The biggest [issue] is Twitter,” Nelson said. 
On the plus side, this year’s earnings estimates assume no contribution from the Cybertruck, which Tesla is again promising to launch late this year, after being delayed since 2021. And Goldman Sachs analyst Mark Delaney wrote Jan. 2 that vehicle deliveries should reaccelerate by midyear, helped by lower cost structures at Tesla’s newer factories and a pickup in Chinese sales.  
“Now is a time for leadership from Musk to lead Tesla through this period of softer demand in a darker macro, and not the time to be hands off, which is the perception of the Street,” Ives said. “This is a fork-in-the-road year for Tesla, where it will either lay the groundwork for its next chapter of growth or continue its slide.”
Cash burn and the rest of the EV market
In the middle, Lucid, Rivian and Fisker make up a range of higher-risk possibilities that may well turn out fine in the end. But Tesla’s price cutting may cause them problems: Fisker’s stock dropped almost 10% on its rival’s announcement, since Tesla’s move puts the Model Y’s price closer to that of the Fisker Ocean, whose middle tier is around $50,000.
Of the three, Rivian has the most cash on hand, with short-term investments at $13.3 billion as of the end of the third quarter. Fisker had $829 million, and Lucid had $3.85 billion.
Each company is still burning cash, posing the question of whether they have enough to survive a downturn. Fisker lost about $480 million in cash flow in the 12 months ending in September, and invested another $220 million, meaning its cash would last between one and two years if its losses and investment didn’t slow.
“Our commitment to a lean business model has given us a solid balance sheet, which we have supported with disciplined management of our cash,” CEO Henrik Fisker said in a statement to CNBC. “We are in good shape to manage future economic challenges and to act on opportunities.”
Lucid spent over $2 billion in the first nine months of 2022 on operating cash flow losses and capital investment, and says its cash will cover its plans “at least into the fourth quarter of 2023,” according to its third-quarter earnings call. Lucid’s recent production and delivery numbers did beat expectations, albeit expectations that had already been lowered.
Rivian’s stockpile is more than two years’ worth of recent cash-flow losses and investment. 
All three companies, which declined or didn’t respond to on-the-record interview requests, can also extend their cash runway by raising more capital and, indeed, at least two of them have already begun to do so. Lucid raised another $1.515 billion in December, mostly from Saudi Arabia’s Public Investment Fund, while Fisker has filed to raise $2 billion from an ongoing shelf registration at the Securities and Exchange Commission and has so far raised $116 million.

All three should also give financial guidance for 2023 during earnings season, including updates on their capital spending, and on whether cash-flow losses will narrow as they begin to ship more vehicles.
Fisker began shipping its initial model, the Fisker Ocean, only in mid-November, and plans to ship a less-expensive SUV called the Fisker PEAR next year. Rivian, hampered by parts shortages due to Covid-driven supply chain issues, missed its 2022 production target of 25,000 vehicles by less than 700. It hasn’t yet said how many cars it will ship this year. Rivian also paused a partnership with Mercedes in November, ending for now a plan to co-develop commercial vehicles. Rivian said it would concentrate on its consumer business and other commercial ventures, primarily a deal to sell delivery vans to Amazon, that offer better risk-adjusted returns. That move will help avoid pressure on the startup’s capital base.
Business plans for the future, little current business
Lower on the food chain are companies like Faraday Future Intelligent Electric, Canoo and Lordstown Motors, which went public via mergers with Special Purpose Acquisition Companies, or SPACs, and have lost most of their equity value since. 
Lordstown in November announced a fresh investment by Foxconn, the contract manufacturer that will own 19.9% of Lordstown after the deal, including preferred stock, to help scale up production of its initial pickup truck and bolster the $204 million in cash on its balance sheet. Foxconn has agreed to make Fisker vehicles in Lordstown’s Ohio factory, which Foxconn bought in May, for launch in 2024. It issued a going-concern warning in 2021, before raising money from Foxconn.
“The new capital from Foxconn doesn’t change our focus” on cost containment, Lordstown CFO Adam Kroll said, arguing that the Foxconn deal will slash Lordstown’s capital needs. “We continue to execute a playbook of prudence and discipline.”
Companies like Faraday, Canoo and Lordstown that need to raise more capital could find the path blocked by a more-skeptical capital market than the one that financed them during the special-purpose acquisition company boom, CFRA’s Nelson said. Weaker players include Electro Mechanica, which has proposed a solo EV but hasn’t shipped it in scale yet, British commercial-vehicle maker Arrival, and Green Power Motor, a Canadian electric bus maker, he said. He even includes Fisker, Lucid and Rivian among those at risk from tighter markets.
“They had a business plan but no business, and they got absurd amounts of capital,” Nelson said. “In our opinion, you’ll see many additional bankruptcies, but the market will return to balance. But it’s hard to imagine we’ve seen the bottom.” 
But Nelson does believe the electric car boom is for real — indeed, he says Tesla is the year’s best bet in the overall auto industry. A note of skepticism: After the dot-com boom and bust, Amazon.com began rising off its lows in 2002, rising tenfold by 2008, but didn’t leave its 1999 highs behind for good until 2010. EBay recovered faster but couldn’t sustain its momentum. 
Ives said the Inflation Reduction Act, which offers tax credits of  $7,500 for electric cars costing less than $55,000 and SUVs or pickups selling for $80,000 or less, may throw the industry a lifeline as companies arrange to do enough domestic manufacturing to qualify all of their vehicles. Arrival, citing IRA credits of up to $40,000 for buyers of commercial vehicles, said in November that it is refocusing its London-based company on the U.S. market.
“The pressure in 2023 is less about EVs than the overall macro environment,” Ives said.  “The IRA is not a small point.”
That’s not lost even on Bassuk, who emphasizes that his fund is about helping exploit short-term weakness in the market’s view of EVs. Long-term, he says, EVs are coming, recession or not.
“Those with the capital to get through 2023, we’d bet the farm on,” he said.

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Over the last decade, car shoppers have proved their willingness to spend more on high-end cars with all the options.
With the lucrative luxury segment in such high demand, carmakers continue to upgrade their lineups and scale back on less expensive cars.

If you haven’t shopped for a car lately, brace for sticker shock.
Not only are vehicle prices at an all-time high, but the interest rate to finance a purchase has also jumped dramatically. A record 15% of new car buyers who financed a new car last quarter committed to a monthly payment of more than $1,000, according to Edmunds. 

Such a tall tab can lead to affordability problems down the road, cautioned Ivan Drury, Edmunds’ director of insights. Shelling out more to buy a car today puts consumers at greater risk of going underwater on those loans later on as used car values decline, he said.
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With that in mind, Drury cautions car shoppers to ask themselves if they’re “buying too much car.”

‘Every new car is a luxury purchase’

Part of the problem is that more Americans want expensive SUVs and pickups with all the options, he added, which can cost as much as 40% more than the base price.
Over the last decade, luxury shoppers have proved again and again their willingness to spend more on high-end cars and the financing to go along with them.

Even the smallest upgrades have been met with soaring demand, Drury said, citing the extreme enthusiasm over the Honda Odyssey’s built-in vacuum option when it was first introduced in 2014.
Various packages, or trim levels, offer a range of features meant to appeal to different buyers, such as improved safety features, bigger engines or high-end finishes like leather seats and a better stereo.
Now everyone wants high-tech touch screens, ambient lighting, 360-degree cameras and heated and cooled seats, Drury said, which cost even more. “Less and less people want something basic.”
With the lucrative luxury segment in high demand, carmakers are upgrading their lineups and scaling back on less expensive cars.

“Base models, while enticing in theory, rarely hit the street,” Drury said. “Every new car is a luxury purchase at this point.”
“Who do you blame: The consumer that’s buying up these options, the dealers that are ordering these cars or automakers manufacturing fewer base models?” he said.
As more people are priced out of the new car market, automakers may start testing out cheaper alternatives, he said, although if there is a lot of consumer interest, it could drive up the price for those models, as well.
For now, the best way to get a base model vehicle is to order it directly through a dealer, Drury advised.
“There could be a perfectly good substitute at about half the cost,” he said.
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“Condo king of Miami” Jorge Perez and his Related Group are behind the 10-story, 50-unit Fisher Island project that boasts a sell-out price of $1.2 billion.
Units start at $15 million. The building will also have its own mega-yacht slip.
Sales just started last month. “Almost 30% of the units are spoken for,” Perez said.

Just off the coast of Miami Beach, on ultra-exclusive Fisher Island, there is one crane on one construction site. It is the last plot of land available for development and an unlikely bet on luxury real estate at a time when the housing market appears to be in freefall.
Jorge Perez, also known as “the condo king of Miami,” and his Related Group are behind the 10-story, 50-unit project that boasts a sell-out price of $1.2 billion. They paid $122.6 million for the land, at the top of the market.

Units start at $15 million. The project includes a $90 million, 15,000 square foot penthouse and a $55 million ground-floor villa with a half-acre backyard. The building will also have its own slip for mega yachts. Sales just started last month.
“Almost 30% of the units are spoken for,” said Perez. “Contracts have gone out for over $300 million, and we haven’t really done any marketing. Nevertheless, should the market slow down a little bit, we’re in a fortunate position.”
Buyers have to put down a 50% non-refundable deposit for pre-construction sales.
Perez said initial buyers hail from Brazil, New York, Canada, Mexico and Israel. He said he is seeing far more domestic interest than in the past, as Miami had traditionally been a haven for foreign investors. That appears to be echoing all over the city.

The view from South Florida

“Miami is an international-focused market – 80-90% international – but it flipped during pandemic,” said Danny Hertzberg, a luxury real estate agent with Coldwell Banker and the Jills Zeder Group. “We’ll continue to have this domestic demand for tax reasons, but at some point political instability or a weaker dollar will pull [international] people in.”

Miami has been an outlier in the recent decline in both home sales and prices, with prices still quite strong in the city. The high end, however, has not been as resilient. Pending sales of homes priced above $5 million were down 89% in December year over year, according to Miller Samuel, a real estate appraisal firm.  
“But the one thing to keep in mind in terms of Miami is that inventory is down 60% since pre-pandemic, so what’s different is inventory is extremely limited,” noted Jonathan Miller, CEO of the firm. “That throws out a lot of conventional wisdom on pricing.”
Miller added that the Fisher Island project, “may not sell in five minutes but it’s not out of the realm of possibility even in this market.”

Jorge Perez

The property and its location are both unique. Fisher Island is a 216- acre, ultra-exclusive community, only accessible by ferry or yacht and only open to residents, their guests and guests of the small luxury hotel there. The last condo that sold on the island last year went for $40 million, according to a representative of Related Group.
Hertzberg said Perez’s new building “checks a lot of boxes” for wealthier buyers who have a new mentality since the start of the pandemic.
“They want amenities, privacy and security. That’s a major factor there. They want convenience. There is a private school there. Their own restaurants, their own grocery stores. A private beach,” said Herzberg.
He also noted that instant admission to the golf club for residents is a huge draw. He said there is a five- to seven-year waitlist in greater Miami to join a golf club.
“I am sure they will sell out. The question of when is what happens in the economy and how aggressive they are on pricing,” said Hertzberg. “If I was betting, they would be top of the list. It just has the right elements for the economy and the world we’re in.”

What the future may bring

Perez, who has developed hundreds of properties in South Florida and weathered the massive condo crash during the Great Recession, did not seem at all concerned about the future of his new project.
“Yes, the market across the country has gone down, particularly in luxury units, but we’re finding that in enclaves that we have, like Fisher Island, we still see a great level of interest from those people that can afford the best,” said Perez. 
He does, however, worry about the broader economy and the broader real estate market.
“Of course, it bothers me. It bothers me every day. I wake up every day thinking about you know what is going to happen in the economy,” said Perez. “We’re thinking that interest rates and inflation has pretty much peaked. We’re going to have a rough, in my opinion, one year to a year and a half, two years. And we are ready to weather that storm should it happen.”
If Perez does get $90 million for the penthouse, it will be the priciest condo to sell in all of South Florida.

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Washington, D.C., is poised to officially eliminate its $2 bus fares starting in July, which would make it the latest city to adopt a zero-fare metro system.
The D.C. Council approved the bill unanimously in December and is awaiting a formal response from the mayor to move forward.
The council is also weighing providing a monthly subsidy to rail riders to ease the burden of the subway fare, but has not formally decided on that amendment.

Passengers boarding a Metrobus in downtown Washington, Wednesday, Dec. 7, 2022.
Pablo Martinez Monsivais | AP

Washington, D.C., is on the verge of eliminating bus fares for city residents, joining other U.S. cities that are working to make metro bus and rail systems free to ride.
Already, Boston, San Francisco and Denver are experimenting with zero fare. In late 2019, Kansas City, Missouri, became the first major U.S. city to approve a fare-free public transit system.

The “zero-fare” movement has garnered support among business groups, environmental advocates, Democratic leaders and others who say that public transit boosts local economies, mitigates climate change and is a basic necessity for many individuals. The idea gained traction during the pandemic, which underscored the critical role public transit plays for essential workers who don’t have the luxury of working from home.
But despite the zero-fare movement’s growing popularity, it has drawn political pushback in some areas where the policy doesn’t easily fit in with budgets or local laws.
D.C.’s zero-fare bill was proposed in early 2020 about two weeks before the Covid-19 pandemic triggered a downward budget spiral for transit agencies nationwide.
“I don’t charge you when you need the fire department, but yet we’re going to make sure there’s a fire department when you need it. That’s how you need to think about this,” Charles Allen, one of the D.C. city councilmembers who introduced the bill, said in an interview with CNBC.
The D.C. measure aims to get rid of the $2 fare to ride the bus starting in July. The city council unanimously approved the measure, and it’s awaiting a formal response from Mayor Muriel Bowser, who can either approve, veto or return the bill unsigned.

Bowser initially expressed reservations about financing a zero-fare system that would also serve Maryland and Virginia without receiving funding from those states. The mayor’s office did not respond to a request for comment. In any case, the council’s unanimous support is enough to override a mayoral veto.
The bill would allocate $43 million a year to make the D.C. Metrobus free to all riders and to add a dozen 24-hour bus service lines. The money will come from surplus tax revenue. The D.C. Council is still considering whether to add a $10 million subsidy program, which would provide every city resident with $100 of credit monthly to spend on the D.C. Metrorail.  

The public transit crisis

Kansas City’s bus system, called RideKC.
Source: Kansas City Area Transportation Authority

In many cities, the coronavirus sent ridership on subways and buses to historic lows, largely because white-collar workers were working from home instead of commuting into the office. That left essential workers, who are typically middle to low income, as the primary riders of public transit.
As fare revenue plummeted and transit agencies watched their budgets erode, state and local government subsidies along with federal Covid relief funding became necessary to preserve transportation for essential workers.
Zero-fare transit has since also become a cause among environmental groups that want to get cars off the road, labor unions that want to keep transit drivers socially distanced from riders and business groups that want to draw more customers.
Alexandria and Richmond in Virginia have successfully integrated fare-free transit into their annual budgets. Boston, Denver and others have tested pilot programs. Boston’s zero-fare experiment will stick around until 2024 for three of the city’s bus routes.
Meanwhile, Denver introduced temporary fare-free holidays like “Zero Fare for Better Air” in August and “Zero Fare to Vote” on voting days in November.

Zero-fare trendsetting

Kansas City’s bus system, called RideKC.
Source: Kansas City Area Transportation Authority

In Kansas City, zero-fare transit has become a hallmark of life.
“It feels like much more of a community space and I think that’s because it’s something you can freely enter and exit,” said Matt Staub, a founding member of Kansas City’s fare-free streetcar and a marketing business owner, who used to spend between $60 to $70 on monthly bus passes.
Kansas City first experimented with zero-fare transit in 2016 with the launch of its streetcar, a two-mile fixed rail line in the city’s downtown where riders can hop on and off, free of charge. The city is investing $400 million to expand the streetcar route to more than six miles by 2025.
Since the streetcar began construction in 2014, $4 billion has been invested into downtown development, including hotels and restaurants. Downtown’s residential population has grown from roughly 21,000 in 2014 to about 32,000 in 2022.
“The streetcar, at least from our perspective, is more than a mode of transportation. It’s more than just getting from point A to point B. It’s an economic driver,” said Donna Mandelbaum, a spokesperson for Kansas City’s Streetcar Authority.
The zero-fare bus started in December 2019 as a pilot program. Then after Covid hit, the city’s bus authority kept it in place permanently as a safety measure, since it reduced physical interactions between bus drivers and riders.

How to go zero fare

Making a U.S. city zero fare takes a combination of funding and political support.
Kansas City had both. Fares made up only 12%, or about $8 million, of the buses’ operating budget, according to Richard Jarrold, vice president of the Kansas City Area Transportation Authority. Meanwhile, the city was spending $2 million to $3 million annually on fare collection, according to Morgan Said, chief of staff to the mayor.
Similarly, D.C. fares are under 10% of the district’s transit budget, according to the Washington Metropolitan Area Transit Authority. In Richmond, Virginia, where fare-free buses have been in place since the start of the pandemic, fare revenue was just 8% of the overall transit agency’s budget.
“For some smaller transit agencies that don’t really collect much cash anyway … they’re almost spending more to collect the fare than they’re actually receiving in revenue,” said Grant Sparks, a director at the Virginia Department of Rail and Transportation.
That made the economic argument in those cities an easier sell. Still, Allen, the D.C. councilmember, ultimately wants “to move towards a fare-free system for all public transit.”

Why fare-free is not for all

Kansas City’s bus system, called RideKC.
Source: Kansas City Area Transportation Authority

Even as the idea gains traction, zero-fare transit in America is the exception, not the rule.
In New York City, where a subway ride currently costs $2.75, officials have piloted ways to make fares more affordable. The city started the Fair Fares program in January 2020, which provides transit discounts to eligible low-income residents who apply.
But the city’s transportation infrastructure relies on fares for around 30% of its operational budget, a difficult sum to subsidize.
“Until a new plan emerges for funding public transportation in New York that would allow the MTA to be less reliant on fare revenue, there is no way to consider eliminating a vital revenue stream,” said Meghan Keegan, an MTA spokesperson.
Even in places like Virginia, which has had zero-fare success in individual cities, scaling the system to a statewide level has proven difficult. Virginia law limits how much the state can pay to WMATA, the transit agency that runs bus lines throughout Virginia, D.C. and Maryland.
Denver also plans to stick with fares for the time being, even as it deploys occasional fare holidays.
“In the absence of a significant new funding source, fares will remain an important component of RTD operating revenue,” said Tina Jaquez, a spokesperson for Denver’s Regional Transportation District. Denver’s 2023 transit operating budget is composed of 10% fares.
The conversation is happening at the federal level, too, although the debate has been split along the aisle.
As part of its spring 2020 Covid relief package, the federal government provided $25 billion in public transit funding. That summer, Democrats tried to rally support to extend the federal support. In June 2020, Sen. Ed Markey and Rep. Ayanna Presley, both Democrats of Massachusetts, introduced the Freedom to Move Act, which would provide federal grants for states and cities to institute free-to-ride public transit. It was referred to a Senate committee in April 2021 and hasn’t advanced.
Republicans have not been as bullish on the idea of going zero fare. A budget proposal in Republican-heavy Utah that would make the state’s transit system fare-free for a year met opposition from the state’s Republican House Majority Leader Mike Schultz. He said that the transit system was already subsidized enough and “nothing’s free,” according to local station KUTV.
Zero-fare transit has also drawn criticism from advocacy groups like Transit Center, a New York City nonprofit. The organization found in a survey of 1,700 public transit riders that people would rather have better transit reliability and frequency rather than zero fare.
The split debate means that a federal zero-fare policy likely won’t be established soon.
“There may be some European countries that are doing it at a national level. I don’t think we’re going to do that in the U.S., with 50 states and many more local jurisdictions,” said Virginia state Sen. George Barker, a Democrat. “We’ve got a long way to go to get into that league.”

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Monday – Friday, 6:00 – 7:00 PM ET

It’s that time again! “Mad Money” host Jim Cramer rings the lightning round bell, which means he’s giving his answers to callers’ stock questions at rapid speed.

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Costamare Inc: “I don’t like [the] container ship business. And the rates are falling. I’m not going to say, buy that.”

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Lamar Advertising Co: “They are in a business that is in a serious recession right now. So, I am going to have to say no to that.”

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Torm PLC: “People love the tankers because they look so compelling. That one’s moved. The train has left.”

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Splunk Inc: “We are betting with, not against, Splunk.”

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Monday – Friday, 6:00 – 7:00 PM ET

CNBC’s Jim Cramer on Friday warned investors not to make trading decisions fresh off a company’s earnings report.
Stocks made a comeback on Friday after falling initially on quarterly earnings reports and recession warnings from major banks.

CNBC’s Jim Cramer on Friday warned investors not to make trading decisions fresh off a company’s earnings report.
Stocks made a comeback on Friday after falling initially on quarterly earnings reports and recession warnings from major banks. All three major indexes ended the week up, as investors digested a slate of earnings reports and economic data that suggested inflation is cooling. 

Cramer, who earlier this week offered investors a set of guidelines for earnings season, called Friday’s trading session an example of why investors should be disciplined with their portfolios.
“Every quarter I make the same argument about how you should wait and do more work before you pull the trigger, but a lot of people remain unconvinced,” he said.
He also went over next week’s slate of quarterly reports. All estimates for earnings, revenue and economic data are courtesy of FactSet.
Tuesday: Goldman Sachs, Morgan Stanley, United Airlines
Goldman Sachs

Q4 2022 earnings release at 7:30 a.m. ET; conference call at 9:30 a.m. ET
Projected EPS: $5.56
Projected revenue: $10.76 billion

The company’s stock could soar higher if the earnings report beats expectations, he said.
Morgan Stanley

Q4 2022 earnings release at 7:30 a.m. ET; conference call at 8:30 a.m. ET
Projected EPS: $1.29
Projected revenue: $12.54 billion

Cramer said he expects a “terrific” report from the bank.
United Airlines

Q4 2022 earnings release at 4:30 p.m. ET; conference call on Wednesday at 10:30 a.m. ET
Projected EPS: $2.11
Projected revenue: $12.23 billion

The company will put up great numbers, since consumers are still spending on travel, he predicted.
Wednesday: J.B. Hunt Transport, Alcoa
J.B. Hunt Transport

Q4 2022 earnings release before the bell; conference call at 9 a.m. ET
Projected EPS: $2.45
Projected revenue: $3.83 billion

Cramer said he’ll be watching for any sign that there’s a slowdown in commerce.
Alcoa

Q4 2022 earnings release at 4:10 p.m. ET; conference call at 5 p.m. ET
Projected loss: 69 cents per share
Projected revenue: $2.65 billion

The metals “have become insane stock growers. … The aluminum company knows if the metals move is merely a squeeze or the real deal with actual demand,” he said.
Thursday: Procter & Gamble, Netflix
Procter & Gamble

Q2 2023 earnings release at 6:55 a.m. ET; conference call at 8:30 a.m. ET
Projected EPS: $1.58
Projected revenue: $20.70 billion

He said he expects the company to report a solid quarter as raw costs come down and foreign exchange headwinds abated.
Netflix

Q4 2022 earnings release at 4 p.m. ET; conference call at 6 p.m. ET
Projected EPS: 58 cents
Projected revenue: $7.84 billion

“I think Netflix could be one of the strongest stories out there,” he said.
Friday: SLB

Q4 2022 earnings release at 7 a.m. ET; conference call at 9:30 a.m. ET
Projected EPS: 68 cents
Projected revenue: $7.78 billion

“SLB will tell us where the new finds are. They will play with an open hand. I bet you they give you a little update on Russia, too,” he said.
Disclaimer: Cramer’s Charitable Trust owns shares of Morgan Stanley and Procter & Gamble.

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The CDC said one of its monitoring systems detected a preliminary safety signal for stroke in people ages 65 and older who received the Pfizer booster shot targeting the omicron variant.
This safety signal has not been detected in four separate safety databases, indicating that it is very unlikely that there is a true health risk, the agency said.
The investigation is ongoing and CDC officials will present their findings before the Food and Drug Administration’s independent vaccine experts later this month.

A patient receives a Covid-19 vaccine booster shot at a Pfizer-BioNTech vaccination clinic in Southfield, Michigan, on Sept. 29, 2021.
Emily Elconin | Reuters

The Centers for Disease Control and Prevention on Friday said it is “very unlikely” the Pfizer omicron booster carries a risk of stroke for seniors after it launched an investigation into a preliminary safety concern detected by one of its monitoring systems.
The CDC, in a statement posted to its website Friday, said a surveillance system called the Vaccine Safety Datalink detected a possible risk for stroke in people ages 65 and older who received the Pfizer booster shot targeting the omicron Covid variant. A CDC spokesperson said this issue was first detected in late November.

By mid-December, the CDC concluded the concern was persisting and launched an investigation into whether seniors are more likely to have a stroke in the first 21 days after receiving the Pfizer booster, the spokesperson said. A similar preliminary signal was not detected for Moderna’s booster.
The VSD monitoring system found that 130 people ages 65 and older had a stroke within 21 days of receiving the Pfizer omicron booster among about 550,000 seniors who received the shot, the CDC spokesperson said. No deaths have been reported. The Washington Post earlier reported the news.
No other surveillance system has detected a similar safety concern for the Pfizer booster so far, according to the CDC. Investigators have not found an increased risk of stroke following the Pfizer booster after reviewing data from the Center for Medicare and Medicaid Services, the Department of Veterans Affairs, the Vaccine Adverse Reporting System and Pfizer’s global safety database.
“Although the totality of the data currently suggests that it is very unlikely that the signal in VSD represents a true clinical risk, we believe it is important to share this information with the public, as we have in the past, when one of our safety monitoring systems detects a signal,” the CDC said in the post on its website.
The monitoring systems often detect safety signals that are due to factors other than the vaccine, according to the CDC’s Friday statement. The agency spokesperson said investigators hope to have a clearer picture and more data in the coming weeks.

The investigation will be discussed at an upcoming meeting of the Food and Drug Administration’s panel of independent vaccine experts on Jan. 26.
In a statement Friday, Pfizer said there is no evidence to conclude that ischemic stroke is associated with company’s Covid vaccine. Neither Pfizer and its German partner BioNTech, nor the CDC or the FDA, have observed such an association in numerous other monitoring systems in the U.S. and globally, company spokesperson Kit Longley said.
“Compared to published incidence rates of ischemic stroke in this older population, the companies to date have observed a lower number of reported ischemic strokes following the vaccination with the omicron BA.4/BA.5-adapted bivalent vaccine,” Longley said.
The CDC has not changed its recommendation for the Pfizer omicron shot. Everyone ages 5 and older is eligible for the booster after completing their primary vaccine series. The youngest kids ages 6 months through 4 years old receive the omicron shot as the third dose of their primary series.

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