By all accounts the new-vehicle business is expected to return to a state of “normalcy” in the coming months following a protracted pandemic period of depleted industry-wide inventories, sky-high transaction prices, rising interest rates and a dearth of automakers’ incentives.
With dealers again sitting on full lots and consumers showing no signs of falling out of love for new cars, trucks and SUVs, the market research firm Cox Automotive predicts sales prices will continue to decline moderately in the coming year, with discounts and incentives becoming more plentiful. Unfortunately, it looks like high interest will rates continue to adversely affect affordability somewhat.
“A decade from now, when we look back at the years immediately following the global pandemic of 2020, we’ll be awed by the dramatic swings and unprecedented circumstances the economy and auto market endured,” says Cox Automotive Chief Economist Jonathan Smoke.
Already we’re seeing average new-vehicle transaction prices retreating as sales trended upward at year’s end, due largely to successful year-end clearance promotions. According to a joint report issued by industry consultants JD Power and GlobalData, the average new-vehicle transaction price sits at around $46,055, which is down from $47,362 a year earlier.
With new-vehicle Inventory levels currently at their highest volume after nearly three years of bare cupboards, the good news is that dealer discounts are expected to be easier to come by in 2023. The bad news is that sticker prices will continue to swell due to higher material and labor costs, and the continuing market shift toward costlier models, especially posh pickup trucks and SUVs. According to Kelley Blue Book, luxury-brand sales swelled by 19.6% last year, while non-luxury vehicle sales only mustered a 5.9% boost.
A recent KBB analysis showed that 16 new-car brands registered average price declines at the end of 2023, with the largest coming from Tesla (-20.5%), Buick (-6.4%), Land Rover (-6.0%) and Nissan (-5.7%). At the other end of the ledger, the largest transaction-price increases last year were posted from Dodge (11.2%), Ram (10.5%), Audi (7.8%) and GMC (7.8%).
Cox Automotive predicts new-vehicle sales will continue their upward path, but it will be more of a slow walk up a gentle slope than a quick run up a steep grade, with market growth expected to reach less than 2% on expected sales of 15.6 million units.
In addition, the used-vehicle market, which itself had been been disrupted by depleted stocks and abnormally high prices, is likewise anticipated to settle down further in the year ahead.
With higher new-vehicle sales continuing to deliver a steady stream of trade-ins for resale, the Manheim Used Vehicle Value Index (MUVVI) declined by 7.0% over the past year, which is a bigger drop than was originally anticipated. Compared to the Manheim index’s peak two years earlier, used-vehicle values are down nearly 21%.
“Manheim expects constrained growth with a volume increase of less than 1%,” according to Cox Automotive’s Smoke. “As for price patterns, we anticipate a normalization trend, and we expect that 2024 will be the first year in five where we will experience fairly normal depreciation in the wholesale market.”
There’s also good news with regard to automakers’ sales incentives, including cash rebates, cut-rate financing programs and discounted leasing promotions. The aforementioned JD Power/GlobalData report estimates incentive spending is at nearly $2,458 this month, which is up from $1,289 at the onset of 2023. While on the increase, incentives are not expected to approach the record highs recorded in 2019 when they surpassed 10% of transaction prices.
At that, we’ve seen many year-end cash-back rebates being offered in recent months as rich as $5,000 to a whopping $30,000 on a surprising number of vehicles from both the 2023 and 2024 model years.
In addition, we’re finding more deeply discounted financing programs being advertised than at any time since the Federal Reserve Board began raising interest rates last spring. We found several 0.0% interest loans being offered nationally on new cars, trucks and SUVs during December with many more at 0.9%-3.9%. Financing deals can be especially worthwhile with costlier vehicles, simply because there’s more money at stake to save over the life of the loan.
It looks like 2024 is shaping up to be the best period in years to go car shopping, provided political and global events don’t step in to burst the proverbial bubble. As always, stay tuned.
