As we head into 2024, the automotive industry in the U.S. is at a pivotal crossroads. High interest rates, rising inventory, and online sales are just a few of the factors bringing change to car buying. To gain deeper insight into these evolving dynamics, we spoke with Zach Shefska, Co-Founder and CEO of CarEdge, to understand his perspective on where the car market is headed in the coming year. Finally, normalcy may be on the horizon for some of the car market.
Rising Interest Rates Put Pressure on Buyers and Seller Alike
A key driver in the 2024 car market is the elevated interest rates, now hovering around 10% for new cars and exceeding 14% for used vehicles. This hike in rates is squeezing consumer budgets, making it challenging to find affordable monthly payments.
On the dealer side, soaring floor plan expenses – up by 200% year-over-year in some cases – are turning once profitable inventory holdings into burdensome financial obligations. One dealer reported that their inventory floorplanning expenses have jumped from $49,000 to $670,000 per month as interest rates soared and manufacturers shipped more cars to their lots.
CarEdge’s Zach Sheska reminds us that it isn’t just buyers who hurt when interest rates rise. “80% of car buyers finance their purchase, a statistic that is falling as buyers who can afford to pay cash pay in full to avoid interest. However, it’s important to note that smart dealers will be more open to negotiating prices once they encounter a buyer with car market knowledge. They’re feeling the pain of interest too, and are incentivized to move inventory quickly.”
The Return to Pre-Pandemic Norms
The automotive industry is undergoing a reversal of sorts. In both new and used car markets, we’re seeing a gradual but pronounced ‘return to normalcy’ reminiscent of the pre-pandemic state of affairs.
New car inventories have made a remarkable recovery from their pandemic lows, soaring to 2.40 million from a mere 0.9 million. This substantial increase in inventory, along with the urgency to address rising floor plan expenses, is compelling dealers to adopt lower pricing and more assertive sales tactics.
Is it a buyer’s market? If 2024 will be a buyer’s market remains to be seen. The good news is that market forces are headed in the right direction.
OEMs are offering the best sales and incentives in years, aiming to increase sales volumes to achieve yearly and quarterly sales goals. These developments, coupled with heightened operational costs and the reintroduction of cash and finance incentives, are clear indicators of a market that is stabilizing and adjusting to the challenges faced during the chip shortage and production interruptions of the past years.
Used Car Prices Fall As New Car Prices Inch Lower
The average cost of new and used cars remains high, exacerbating the affordability crisis for consumers. Today, the average price of a new car has fallen ever so slightly to $47,936, and used car prices average $26,533. In 2019, the average new car sold for $36,000, and used cars averaged $23,000.
Historically, the most popular used car segment was vehicles under $20,000 with less than 50,000 miles on the odometer. That’s becoming harder to find these days. Recently, iSeeCars found that in 2023, only 11 percent of the used car market is priced between $15,000 and $20,000. The average listing in this price range has over 63,000 miles. On top of paying a higher sticker price, the average used car loan rate is now at a 20-year high of 14%.
However, increasing supply and growing dealer incentives are beginning to ease price pressures, offering some relief in a rising rate environment. To get a sense of where used car prices are headed in 2024, we can look at the best leading indicator that we have: wholesale used car price trends. At wholesale car auctions, used car prices have dropped 9% in two months. Some segments, such as used vans, compact sedans, and luxury crossovers, have dropped by 15% or greater.
Retail used car prices have been slower to fall, but are dropping nonetheless. “What’s changed more profoundly is negotiability in the used car market. CarEdge Coaches say that today, dealers are more willing to negotiate on prices and add-ons today than at any point in 2023. For car buyers willing to put in the work, a much better deal can be earned,” noted Zach.
On the new car front, year-end deals end soon. With rising new car inventory and 2024 models arriving daily, dealers and OEMs alike are eager to sell cars before the end of the year. Hyundai, Mazda, Nissan, and Honda are all offering limited 0% financing for select models. General Motors, Ford, and Kia offer financing at 1.9% APR. With the average APR approaching 9%, anything under 5% APR is a great deal.
The Amazon-Hyundai Equation
A significant headline moving into 2024 is Amazon’s partnership with Hyundai to sell new vehicles through Amazon.com. At first glance, this would seem to indicate a shift towards online retail in the automotive sector. However, challenges remain, particularly in the relationship dynamics between auto manufacturers and car dealers.
Zach says that a reality check may be in store. “Amazon is about to find out the hard way that for legacy car brands, dealerships have the final say in vehicle pricing and customer service. Amazon’s strategy of partnering directly with OEMs may face hurdles due to the historically complex relationships between these OEMs and their dealers. Dealers will push back, especially if the Amazon partnership targets their profit centers.”
Automotive News outlined the many questions that remain unanswered about the Amazon-Hyundai partnership. Right now, there are more questions than answers.
A Different Approach to Online Car Buying
Here at CarEdge, we’re taking a different route to ‘fixing’ car buying, one that’s guaranteed to have more immediate impacts. By pre-negotiating fixed pricing directly with car dealers, CarEdge has introduced a new level of transparency never before seen in the new car market.
With nationwide shipping, anyone can buy a new car with fair and transparent pricing, all without the hassle of talking to a dealership salesperson. CarEdge’s team of industry experts takes care of it all. Will Amazon find a way to provide a customer experience that’s equally stress-free and pro-consumer? That remains to be seen.
Electric Vehicles Go Mainstream
Last month, U.S. electric vehicle sales surpassed 1 million annual sales for the first time ever. EV sales now account for 8% of all new cars sold in America. By 2024’s end, we expect that figure to be closer to 12%, and maybe a tad higher.
As charging infrastructure improves, more car buyers are willing to make the switch. Tesla will continue to dominate with over 50% of EV sales, but the likes of Hyundai, Kia, Ford, and GM will continue to grow in market share.
One year ago, EV transaction prices averaged 20% higher than the overall new car market. Today that price gap has narrowed to 14%. Automakers and dealers alike make less profit per EV sold than they’re historically used to with ICE vehicle sales. If EV sales continue to grow, that will put pressure on every facet of auto sales. How will the industry respond to narrowing profits? Will dealers and manufacturers simply recoup profits by raising prices in ALL vehicle segments? 2024 will shed light on that, too.
The Car Market in 2024 Will Bring Surprises
Rising interest rates, evolving market dynamics, and online car buying platforms are reshaping the way we buy cars. The gradual return to pre-pandemic norms and shifting consumer preferences hint at a market ripe with opportunities for informed buyers. While challenges like affordability persist, the increase in manufacturer and dealer incentives are promising signs.
With that said, surprises will introduce wildcards to the market. From economic recession to geopolitics, it’s impossible to know where the world will stand in 12 month’s time. Staying on top of the latest market updates will be key to making smart purchasing decisions in the evolving automotive world of 2024.
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