The automotive market is slowly stabilizing thanks to increased new-inventory levels, growing incentive expenditures, and new baselines in used and new pricing, according to a Black Book report released this week.

Electric vehicle sales will continue to grow, but BB does not expect a revolutionary change this decade – instead, they forecast gradual market share gains by electric vehicles as the country continues to invest in infrastructure to support electrification.

According to the latest Fitch Global Economic Outlook, the likelihood of a recession in 2024 appears low. The forecast points toward a year of slow-paced economic growth, with the GDP expected to grow at about half the rate of 2023. Despite this, the labor market will remain solid, with unemployment rates projected to increase modestly to around 4.6%. A significant trend is the anticipated reduction in CPI inflation to about 2.6%, which will lead to interest rate cuts by the Federal Reserve in the latter half of the year to stimulate economic activity and offset sluggish growth. Given these positive economic indicators, consumer confidence is expected to improve, thereby enhancing demand for vehicles.

Used Retail and Wholesale Market Trends

The wholesale market is anticipated to resume the normal seasonal trend. This trend is likely to start in early February and continue through the Spring market, which ends in May. Then, a faster rate of depreciation is forecasted for the second half of the year. The depreciation rate for 2024 is forecasted at approximately 18% annually, compared to 20% in 2023 and a pre-pandemic average of 15%.

The Black Book’s Seasonally Adjusted Retention Index is set to experience a modest decrease of around 5% by year’s end. However, it is expected to remain at least 25% above pre-pandemic levels despite this decline.

A downturn in retail demand, which began in 2023, is projected to lead to reductions in used retail pricing as a strategy to accelerate inventory turnover. This will likely be worsened by reduced pricing pressure from the new vehicle sector due to their higher incentives and improved inventory availability.

Furthermore, the composition of available inventory in the used vehicle market is forecasted to shift. The quantity of off-rental units re-entering the market is set to rise in 2024, yet it will stay below pre-pandemic numbers. A steady increase in repossessions is also expected to add to the auction inventory. By the year’s end, a noticeable drop in the availability of 3-to-4-year-old off-lease units is foreseen, indicating a shift in the age distribution of available used vehicles.