Auto ECON Updates

Auto ECON Updates (252)

Total new-vehicle sales for June 2024, including retail and non-retail transactions, are projected to reach between 1,336,800 and 1,273,600 units, a 2.6% to 7.2% decrease from June 2023, according to a joint forecast from J.D. Power and GlobalData. June 2024 has 26 selling days, the same as June 2023.

The seasonally adjusted annualized rate (SAAR) for total new-vehicle sales is expected to be between 14.7 million and 15.4 million units, down between 0.7 million and 1.4 million units from June 2023.

New-vehicle total sales for the first half of 2024 are projected to finish between 7,794,500 units and 7,857,700 units, a 0.4% to 1.2% increase from the first half of 2023 on a selling day adjusted basis. H1’24 has 154 selling days, two more than H1’23. Comparing the same sales volume without adjusting for the number of selling days translates to an increase of 1.7% to 2.5% from a year ago.

“Because of the disruption to dealer software systems, June sales will not be reflective of actual consumer demand for new vehicles,” said Thomas King, president of the data and analytics division at J.D. Power.“Instead, a significant number of sales that would have occurred in June are now likely to occur in July.” Retail inventory is projected to finish around 1.8 million units, a 4.5% increase from May 2024 and a 41.6% increase from June 2023. Fleet mix is projected at 20.5%, up 0.6 percentage points from June 2023.

New research by Cox Automotive, the world’s largest automotive services and technology provider, reveals that nearly 75% of automobile shoppers in the market for a vehicle expect the outcome of the U.S. presidential election in November to impact the economy.

The findings underscore a high level of uncertainty in the auto market – across both major political parties and among dealers and shoppers – caused partly by expectations that the November election will reshape the economy, change interest rates, or impact inflation.

Vanessa Ton.

Due to the anticipation of future changes, many shoppers may be adopting a wait-and-see attitude, choosing to stay on the sidelines until a more certain economic direction is established.

“If shoppers believe interest rates will be lower in the future, or that the economy will be improving – or worsening – post-election, they are more likely to stay on the sidelines, waiting for the dust to settle,” said Vanessa Ton, senior manager, Research and Market Intelligence, Cox Automotive. “This new research reminds us that elections breed uncertainty, and when big-ticket purchases like automobiles are on the line, uncertainty is the enemy.”

The key takeaways from the study include:

  1. Nearly 3 in 4 consumers expect the upcoming U.S. presidential election to impact the economy.
  2. A notable 66% of consumers and 82% of dealers feel the outcome of the election will affect interest rates.
  3. Inflation is the No. 1 concern among shoppers, with 74% of consumers and 81% of dealers believing the next election will influence it.
  4. According to 60% of consumers, the November election will affect their next vehicle purchase.
  5. Most consumers feel the election will not impact their powertrain decisions; the majority are opposed to government mandates on electric vehicles.

 

Dealers are More Likely Than Consumers to Believe the November Election Will Impact the Auto Industry

The study – Automotive Shopping and a National Election: A Season of Uncertainty – was conducted in February and includes interviews with more than 500 in-market vehicle shoppers. Of the respondents, 91% were likely to vote in the coming election. Additionally, in late April and early May, 1,026 new and used automobile dealers across the U.S. were surveyed.

Cox Automotive forecasts U.S. new-vehicle sales in June will show mild improvement over last year, but high prices and interest rates continue to hinder a stronger market. In June, the seasonally adjusted annual rate (SAAR), or sales pace, is expected to finish near 16.0 million. This is down slightly from last June’s 16.1 million level and a modest uptick from last month’s 15.9 million pace.

According to Cox Automotive’s Kelley Blue Book estimates, new-vehicle sales volume through the first half of 2024 is forecast to increase by nearly 225,000 units compared to the first half of 2023 – an increase of 2.9%. The sales pace through the first half is expected to be 15.6 million, up from 15.4 million in the first half of 2023.

Charlie Chesbrough, senior economist at Cox Automotive. 

Charlie Chesbrough, senior economist at Cox Automotive, noted: “Sales have been relatively strong over the last few months thanks in large part to lower prices. Incentives are rising, which are helping vehicle buyers, but only somewhat. The expectation of falling prices coupled with rising uncertainty around interest rate policies may lead some vehicle buyers to wait.”

With expectations of uncertainty in the second half of 2024, Cox Automotive is holding its full-year new-vehicle sales forecast steady at 15.7 million, a gain of 1.3% from 2023, when sales finished at 15.5 million. This increase is aligned with the slow growth expected in 2024. Fleet sales are forecast to finish the year at 2.9 million, up from 2.8 million in 2023. Full-year retail sales are forecast to increase from 12.8 million in 2024 to 12.7 million in 2023.

“We remain concerned that the second half of the year cannot maintain the growth we’ve seen so far,” said Chesbrough. “Adding to the uncertainty in the market, many consumers likely believe things will be better, or at least more certain, after the November election, which adds to the hesitancy in buying. We still expect 2024 to finish a little better than 2023 – supported by more discounting and better prices, but we will be fighting an uncertain economic outlook.”

June 2024 U.S. New-Vehicle Sales Forecast

General Motors is forecast to remain the top automaker in U.S. new-vehicle sales through the first half of 2024. However, GM sales are forecast to drop 0.1% compared to the first half of 2023. Toyota, which continues to operate with very lean new-vehicle supply, will remain No. 2 after delivering a sizable 16.3% first-half year-over-year gain. Ford and Hyundai are on track to remain the No. 3 and No. 4 automakers, respectively.

Notably, Honda Motor Company – combined Honda and Acura brand sales – is forecast to move ahead of Stellantis as the fifth largest automaker by sales. With stronger inventory and popular new models, Honda is expected to post a 10.8% volume increase in the first half, compared to a 16.5% decrease for Stellantis in the same period.

The average new-car buyer in December 2023 is paying $323, or 57.1% more per month for an auto loan than the average new car buyer from December 2019, according to the 2024 Alkami Telemetry Data Report released on June 26.

The research, from Alkami Technology Inc., a cloud-based digital banking solutions provider for financial institutions in the U.S., examines the high interest rate environment and its impact on consumers and financial institutions. The transaction data was compiled from an aggregated panel of more than 2.5 million account holders. The data was supplemented by an Alkami-commissioned research study, conducted in partnership with The Center for Generational Kinetics that surveyed 1,500 digital banking consumers in the U.S., to assess how the current macroeconomic environment has impacted attitudes and behaviors of the different generations.

The findings show 67% of digital banking Americans say the rising interest rate environment has had a significant impact on their standard of living and 59% are living paycheck to paycheck.

As U.S. consumers are facing a credit reliance with rising levels of debt reaching over $17T by the end of Q1 2024, the report highlights trends relating to common consumer deposits, and credit products like mortgages, home equity lines of credit (HELOCs), auto loans, credit cards and buy now pay later (BNPL).

Wholesale prices fell for the second consecutive month in May and continued to fall into mid-June, as the less-than-impressive 2024 Spring/tax season market came to an early close, according to the Kontos Kommentary from ADESA Chief Economist Tom Kontos.

Nevertheless, wholesale and retail used vehicle market conditions are amenable to a less dramatic ongoing decline in prices than seen last year, as much of the correction to historical patterns of depreciation, seasonality and price-spread versus new vehicles has already taken place.

According to ADESA US Analytical Services’ monthly analysis of auction industry used vehicle prices by vehicle model class, wholesale prices in May averaged $14,329 — down 1.6% compared to April, down 11.1% relative to May 2023, and up 23.4% versus pre-pandemic/May 2019, as shown below.

The biggest month-over-month drops were in the popular compact SUV/CUV and compact car classes, perhaps indicating lessening dealer need for such units as the Spring market ends. Overall average prices have further declined in June and stood at $14,122 for the week ending June 16.

Wholesale used-vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) decreased 0.3% from May in the first 15 days of June, according to Manheim. The mid-month Manheim Used Vehicle Value Index released on June 18 fell to 196.8, which was down 8.5% from the full month of June 2023. The seasonal adjustment lessened the impact for the month. The non-adjusted price change in the first half of June declined 1.6% compared to May, while the unadjusted price was down 9.5% year over year.

“May ended with stronger than normal price declines in the last few weeks, and that’s continued into early June,” said Jeremy Robb, senior director of Economic and Insights at Cox Automotive. “We are still seeing higher sales conversion levels with days’ supply down as sales have continued to run above last year’s levels.”

Over the last two weeks, the Manheim Market Report (MMR) prices in the Three-Year-Old Index decreased an aggregate of 0.9%, which was above the typical normal decline of 0.2% observed at this time of year. Over the first 15 days of June, MMR Retention, the average difference in price relative to current MMR, averaged 98.7%, indicating that valuation models are lagging behind market prices early in June. MMR retention is down one-tenth of a point compared to the prior year at the beginning of June. The average daily sales conversion rate of 57.8% in the first half of the month was below the June 2019 daily average of 60.7%. The conversion rate has risen almost 2 points from May 2024, indicating that we are seeing stronger buying demand at wholesale markets since the end of May.

All major market segments saw seasonally adjusted prices that remained lower year over year in the first half of June. Compared to the industry’s year-over-year decline of 8.5%, the pickup segment was the only group to outperform the index overall, falling by 7.5% against 2023. The remaining segments did worse year over year, with SUVs down 9.2%, luxury falling by 10.0%, midsize cars declining 10.1%, and compacts performing the worst, down 11.2% year over year. 

The latest Cox Automotive Dealer Sentiment Index remained stable from Q1 to Q2 2024 despite dealer uncertainty in the market and economy. The Q2 current market index score of 42 indicates most U.S. auto dealers see the market as weak. One year ago, the index was 45, also below the 50 threshold. The last time current market sentiment was above 50 – suggesting the market was strong – was Q2 2022.

Cox Automotive Chief Economist Jonathan Smoke.

Typically, the second quarter shows a decline in market expectations for the next three months, and Q2 2024 is no different. The market outlook index dropped from 51 in Q1 to 44, showing more dealers expect a weak market ahead. The downward trend is influenced by a weaker-than-normal tax refund season and ongoing political and economic uncertainty, leading to a cautious dealer outlook.

Cox Automotive Chief Economist Jonathan Smoke noted, “There is a lot of uncertainty in this market, leaving consumers and dealers alike unsure of the road ahead. On top of uncertainty about interest rates, we are heading into an election season, and this one is especially breeding more concern. In the auto business, uncertainty is the enemy – it negatively impacts sales, hurts consumer sentiment, and leaves auto dealers feeling troubled.”

Despite the market’s perceived weakness, the CADSI showed some promising signs in Q2. The profit index, for example, increased for the first time since Q3 2021. While still below the 50 threshold at 36, profit perceptions have stabilized. Additionally, both online and in-person customer traffic improved from Q1, with franchised and independent dealers reporting higher consumer traffic sentiment, though it remains weak.

Top Factors Holding Back Business Among All Dealers

When asked about factors holding back their business, auto dealers in Q2 focused on Interest Rates, the Economy, and Market Conditions, respectively, with minimal change from Q1 and one year ago. (Cox Automotive) 

 

“Overall, dealer sentiment is likely worse than actual market conditions,” Smoke said. “While profits are down from all-time highs, we still believe the dealer business is healthy. Retail vehicle sales have been fairly consistent so far this year, inventory has returned to reasonable levels, and we believe interest rates have likely hit a ceiling. With a good job market, the market is not collapsing, and we believe weak current market sentiment is more about uncertainty than actual performance.”

The Auto Care Association, in collaboration with MEMA Aftermarket Suppliers, announced the availability of the 2024 Joint Forecast Models preparedd by S&P Global.

Despite challenges such as persistent inflation, the aftermarket demonstrated resilience, with total aftermarket sales growing by 8.6% in 2023 to $391 billion. Dealers’ service centers, auto parts stores, and general auto repair sectors all experienced notable growth, outperforming initial estimates.

The Joint Forecast Model predicts continued growth for the U.S. automotive aftermarket, with sales expected to increase by 5.9% in 2024. Looking ahead, average growth rates of 4.5% are forecasted for the period from 2025 to 2027, as inflationary effects subside and the aftermarket grows to $472 billion.

Total nonfarm payroll employment increased by 272,000 in May, and the unemployment rate changed little at 4.0%, according to the U.S. Bureau of Labor Statistics. Employment continued to trend up in several industries, led by health care; government; leisure and hospitality; and professional, scientific, and technical services.

The number of long-term unemployed (those jobless for 27 weeks or more), at 1.4 million, changed little in May. The long-term unemployed accounted for 20.7% of all unemployed people. Both the labor force participation rate, at 62.5%, and the employment-population ratio, at 60.1%, were little changed in May. These measures showed little change over the year. The number of people employed part time for economic reasons, at 4.4 million, changed little in May. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.

Hyundai Motor America reported total May sales of 78,485 units, a 12% increase compared with May 2023. Hyundai set total sales records in May for IONIQ 5 (+82%), IONIQ 6 (+13%), Tucson HEV (+54%), Santa Fe HEV (+116%), Palisade (+45%) and Santa Cruz (+2%). This was the best all-time retail and total sales for IONIQ 5 and Santa Fe HEV. Hyundai’s total EV sales were up 42% in May.

“We continue seeing great success in our eco-friendly line-up with an overall 50% increase YOY,” said Randy Parker, CEO, Hyundai Motor America. “Both EVs and Hybrids continue to gain popularity with Hyundai’s newest HEV, the 2024 Santa Fe gaining 116% YOY and our award-winning IONIQ 5 family increasing 82%. We’re proud to also announce Hyundai has America’s Most Awarded EV Lineup in the industry.”

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