Good news for buyers, but bad news for borrowers

By | March 30, 2024

Toyota Prius and Landcruiser Honda CRV and Accord collage

Good news for buyers – bad news for borrowersManufacturers

  • New car supply in the U.S. is at about pre-pandemic levels, although inventories for Honda and Toyota remain low, according to Cox Automotive.

  • The higher inventory levels that are fueling a return to substantial sticker price discounts are offset by the high interest rates set by the Federal Reserve as it battles post-pandemic inflation.

  • “I believe we need to cut rates three to four times,” said Cox chief economist Jonathan Smoke.

With the exception of Toyota, Honda and Lexus, new vehicle supply in the U.S. is at about pre-pandemic levels, and average transaction prices are down 5% from their pandemic peak, to $47,244 in February.

This spring could finally be a good time to buy a new vehicle. But that’s if you can afford the car loan interest rates or pay cash.

“In 2024, we will officially say goodbye to the seller’s market,” says an important conclusion from Cox Automotive’s Industry Insights and Sales Forecasts for the first quarter of 2024.

Cox analysts predict that the US will purchase 15.7 million new vehicles in calendar year 2024, only a small increase from the 15.5 million vehicles sold in CY23. About half of this year’s sales increase will come from the fleet, to an estimated 2.9 million, leaving 12.7 million (rounded) for retail sales.

Cox’s Kelley Blue Book estimates that electric car sales will increase by 15% in the first quarter of ’24 compared to the first quarter of ’23, when the figures are finalized in early April. EV volume is expected to decline slightly from Q4 ’23, but will remain above 300,000 this quarter, representing approximately 8% of the total market.

New vehicle inventory is up 50% this quarter compared to the first quarter of 2023, with 940,000 additional cars and trucks available year over year. Cox Automotive analysts expect little disruption to supplies so far, following the tragic collapse of the Francis Scott Key Bridge in Baltimore this week, while shipments of cars and auto parts are diverted to other ports.

q1 24 ev sales growth graph, histogramq1 24 ev sales growth graph, histogram

Cox Automobile

Higher inventory levels that encourage a return to substantial sticker price discounts are offset by the high interest rates set by the Federal Reserve in its fight against post-pandemic inflation.

Jonathan Smoke, Cox’s chief economist, said interest compensation should decline if the Fed sticks to its plan announced this month to cut rates three times before the end of the year.

“I believe we should cut rates three to four times,” Smoke said. “But now some (Fed) officials are backing away” from that plan, which would be the biggest risk to the auto market this year.

If the Fed waits until the end of the year to decide whether to cut rates, it will cause many potential buyers to hold back, despite lower prices resulting from more discounts.

According to Cox’s quarterly Dealer Sentiment Index, new car dealers view interest rates as the top factor holding back business. In the first quarter of this year, 62% of dealers surveyed cited this as a concern, compared to 65% in the fourth quarter of 2023.

‘Economy’ remained second in this Cox survey, although down six points to 55%, and ‘Market Conditions’ came in third, down eight points to 40% (the survey allows dealers to select one or none of the ten listed check factors).

With inventories up and average transaction prices down, dealers will have “their fourth most profitable year,” Smoke said, and overall dealer sentiment is better than Cox’s Sentiment Index data.

Tesla vs. other electric vehicles

While electric vehicle sales rose 15% overall in the first quarter compared to the first quarter of ’23, sales growth for all electric cars except Teslas rose 33% year over year in the first quarter, according to Stephanie Valdez Streaty, director from Cox Industry Insights.

In February, there was a 114-day supply of all electric vehicles, including Teslas, compared to a 74-day supply for all vehicles.

q1 24 ev transaction prices chart, line chartq1 24 ev transaction prices chart, line chart

Cox Automobile

The February ATP for all electric vehicles was $52,314, which was $5317 higher than the ATP for internal combustion, hybrid and plug-in hybrid vehicles. But Tesla’s ATP for February was $50,307, or $3310 more than the $46,997 ATP for ICE, HEV and PHEV models.

Hybrids are rising

ICE models captured 83.2% of the market in calendar year 2023, down 4.2 points from CY22. While the share of battery electric vehicles rose from 5.8% to 7.6%, HEVs rose from 5.5% to 7.4% in CY23, and PHEVs from 1.3% to 1.8%. You can be sure that HEVs and PHEVs will drive the increase in 2024.

Jeeps dominate PHEVs

It’s no surprise that Tesla’s Models 3 and Y accounted for a 52% share of the EV market by 2023. It’s perhaps more of a surprise that the plug-in hybrids Jeep Wrangler and Grand Cherokee, along with the Toyota RAV4, accounted for 45% of the total EV market. PHEVs were sold last year.

Honda CR-V and Accord, and Toyota RAV4 hybrids took a 38% share of the HEV segment.

What we buy

The largest single automotive market segment, compact crossover SUVs, is experiencing a revival, capturing 18% of the market in the first quarter of this year. Midsize SUVs come in second, but fall to just over 16%. Number three full size declines faster, from almost 14% in 2023 to around 12% in the first quarter of ’24.

Subcompact SUVs, compact cars and luxury compact SUVs are all on the rise, while midsize cars and luxury midsize SUVs are in decline. These eight top segments make up 80% of the market.

Cox analysts say small and midsize pickup trucks are outpacing full-size trucks and are now the ninth-largest segment in the U.S.

Q1 Bar chart with 24 inventory levelsQ1 Bar chart with 24 inventory levels

Cox Automobile

What we can buy

About those encouraging inventory levels: Eight brands have inventory below the 73-day average, although Subaru and Chevrolet are close, at about 70 days each, and BMW just below that.

Kia and Land Rover are in the 55 to 60 day range, and Lexus and Honda, in the mid-40s, and Toyota, under 40, are in the “you’d be lucky to pay” sticker range .

Of course, this will vary by model, and that applies to the brands with the most overstock, with Dodge’s range being in the mid-150s at the all-time high. Ram and Jeep are just behind, and Nissan, Mazda and Lincoln are at 100 days or more.

If you are looking for a new car, what is the atmosphere like in the showrooms? Comment below.

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