The Automotive Advisor Team

Economic Update:

 

Q2 2023 real GDP growth came in much stronger than expected and monthly Personal Consumption Expenditure growth reaccelerated in June. Additionally, the consumer confidence index saw meaningful improvement in both June and July. As confirmed again by the recent data, the likelihood of a ‘soft landing’ for the economy is rising, but we continue to believe that a very short and shallow recession is the more likely scenario.  

 

Looking into 2024, the volatility that dominated the US economy over the pandemic period is expected to diminish. In the second half of 2024, Cox Automotive forecasts that overall growth will return to more stable pre-pandemic rates, inflation will drift closer to 2 percent, and the Fed will lower rates to near 4 percent. However, due to an aging labor force, we expect tightness in the labor market to remain an ongoing challenge for the foreseeable future.

 

All that means, is consumers are still fighting, there is a light at the end of the tunnel for our economy if we stay on the same pace, and rates and inflation will both move in positive directions in a very competitive job market. All good news for retailers.

 

 

 

New Car Market’s Current State:

  • The annual sales pace in July was forecast to finish at nearly 15.9 million, up 2.6 million from last July’s pace and up from June’s 15.7 million level.
  • July’s sales volume rose 15.3% from one year ago and reached 1.32 million units.
  • The largest growth in market share growth MOM is .2% in Midsized and .1% in Compact SUVs. Trucks and SUV/Crossovers declined by .1% in July.

 

 

Used Car Market’s Current State:

 

According to Cox Automotive estimates based on vehicle registration data, total used-vehicle sales in July increased approximately 2.1% from June to just over 3 million units. The July increase follows a slight increase in June, as used-vehicle sales this summer continue to surprise. Retail sales also increased month over month in July. Total retail used sales through the first seven months of the year are down nearly 3%1 compared to the same timeframe of last year.

 

 

 

Wholesale Market’s Current State

 

Below you can see a disparity in the two wholesale valuation indexes and at first glance they are confusing. Let’s peel the onion back. Black Book measures 2-6-year-old vehicles in the market and those represent pre-and post-pandemic inventory. It’s very hard to combine those two and get a clear picture. MMR measures 3-year-old inventory which historically has been the largest volume of inventory in the market but of course, it’s not now because of the pandemic shutdown in 2020. However, MMR does represent how pandemic-aged inventory is performing in the market. 

 

We have to be careful looking at one only because, unlike BlackBooB, the MMR index is actually on the rise for the 2020-year model inventory and the same could be said for the 2021 inventory. Taking a blanket look at inventory as a declining indicator is a mistake. This can impact your ACV and PVR if misunderstood. 

 

 

Wholesale / Retail Spread PVR

 

The whole index for our most desirable inventory, the 2 and 3-year-old vehicles, is showing a margin erosion due to wholesale price increases with the continued softening in retail prices. The results in overall PVR was $3212 this week vs. $3,400 last week for a drop of 198 dollars. For Non-Luxury, the PVR was $3,472 last week vs. $3695 this week for a loss of $223, and for Luxury Vehicles we saw a PVR erosion of $93 from $4090 this week vs. $4187 last week. These trends have implications for a dealer’s chosen sales strategy, age strategy, and profit expectations. 

 

 

Summary:

Markings are softening and acquisition is becoming more and more challenging. Finding the right care that matches your inventory demand will require surgical precision and a well-defined exit strategy once bought. 

The good news is top performing dealers are growing market share and as we fight through the rest of this year in the first half of 2024, we look to have some breathing room ahead to maximize the fundamental discipline we sharpened in these tight economic times.