The Automotive Advisor Team

 Economic Update:

  • The US Bureau of Economic Analysis (BEA) reported that consumer spending increased by 0.7% in September 2023, 0.4% in August 2023, and 0.8% in July 2023.
  • According to a report by The Conference Board, the US economy is projected to enter a short and mild recession around the turn of the year due to falling consumer and business confidence, softening consumption and investment, and geopolitics-induced energy shocks.
  • A recent report suggests that consumer confidence rebounded back to 59.7 in December 2023, likely due to cooling inflation and a solid labor market. However, with further rate hikes and unemployment projected to rise we need to watch these sentiments six months from now, which is when experts project the US to enter a mild recession.
  • IHS Markit predicts a 0.2% increase in the consumer price index (CPI) in November 2023, compared with a 0.4% increase in October 2023. For core CPI, which excludes the direct effects of food and energy prices, they estimate a 0.4% increase in November 2023, compared with 0.3% in October 2023

Economic Outlook:

UBS Group AG is a multinational investment bank and financial services company that predicts the following outlook for 2024. It’s important to note that According to a Politico article, UBS’s inflation forecasts have been well above consensus expectations on Wall Street over the past year and have been accurate so far.

  • The Federal Reserve will slash interest rates by an eye-popping 275 basis points next year, according to UBS.
  • That’s nearly four times as steep a cut as the market is expecting.
  • UBS expects a mid-2024 recession to encourage the central bank to start easing.

Explanation for outlook: The US economy will slip into a mild recession next year and that’ll lead to the Federal Reserve bringing in steep interest-rate cuts.

 

Retail Sales Trending

Used: Source

Retail used sales volume are estimated to be 1.57 million in October, down only 0.4% from the 1.58 million recorded in September. The used retail sales pace ticked up to 19.3 million in October from September’s revised 18.9 million level. November is starting off soft as well.

 

Day Supply:

New: Source

  • New-vehicle inventory opened November at 2.4 million units.
  • Days’ supply of new vehicles rose to 67.
  • The highest supply was for large trucks, while crossovers and sedans were in lowest supply.

Of the top-selling 30 models, large trucks from the Detroit automakers had the largest supply entering November. Specifically, the Ram 1500, Chevrolet Silverado and Ford F-150 took top spots for high supply, which is normal for the industry.

Used: Source

  • The total supply of unsold used vehicles on dealer lots across the U.S. franchised and independent was down 4%, or 93,298 units, from the same time a year ago.
  • Used retail days’ supply indicates November began with 49 days’ supply, flat compared to the start of October and four days lower than November 2022 of 54 days.
  • Not surprisingly, the lower the price segment, the tighter the inventory. Used vehicles priced under $10,000 had a days’ supply of 32, with days’ supply increasing with every higher price segment to the over $35,000 category with the highest days’ supply of 58.

Retail Price Trends:

New: Source

Compared to one year ago, when incentives were near historic lows, average new-vehicle transaction prices in October were lower by 1.4%, or approximately $670. Year to date, new-vehicle transaction prices have fallen more than 3.5% as downward price pressure continues to favor buyers in the market.

 

Used: Source

The average used vehicle listing price of $26,533 at the beginning of November was down from the start of October and down 3% compared to the same period in 2022. Used vehicle listing prices have been below $27,000 since the end of July. Meanwhile, according to the Manheim Used Vehicle Value Index, wholesale used-vehicle prices decreased 2.3% in October from

 

 

Wholesale Market Trends: Source

After increasing through September, the index has declined through the first two weeks of October. Dealers are now paying 3.3% less, on average, than they did a year ago. Wholesale price trends tend to become resale after six to eight weeks. The trend isn’t the same for every type of vehicle. Pickup trucks saw wholesale prices rise 0.4% in early October. But, in every other segment of the market, prices dropped. Analysts expect used car prices to remain historically high.

 

 

Diving Deeper into the Wholesale Valuation Details: Source

  • With the strike now fully in our rearview mirror, the market is in a state of correction, particularly in the Truck and SUV segments, where declines for Full-Size Vans and Full-Size Trucks are reporting record level, single week depreciation.
  • In general, though, a majority of the segments reported declines exceeding 1% and some even exceeding two and three percent.
  • On a volume-weighted basis, the overall Car segment decreased -1.13%. For reference, in the previous week, cars decreased by -0.57%.
  • The volume-weighted, overall Truck segment decreased -1.73% compared to the depreciation seen the prior week of –1.12%.
  • The Used Retail Days-to-Turn estimate is now sitting around 50 days.

 

Retail Margin Trends:

Shown below you can see the profit is there. The market is handing it to you but the erosion of that spread below happens quickly as you can see below that if you let the market dictate your turn. We can make sure you get every dollar of this profit with our Used Car Optimization program. Let us help you grow now.

Summary: Source

The market is slowing, and valuations are declining week after week. But if you look at the rate of the cost to own a car vs the cost of selling that car the margin grows to the good. This is evidenced by the rate of retail price dropping less than the rate of wholesale price drop. That ratio differential is represented in your trade tools and lead generators.

The outlook is not bleak, it is opportunistic. Is the sales rate slowing if you stand still, yes. Is affordability and credit an issue with getting people bought, yes. It isn’t easy but it is opportunistic. The bottom line is you have to get surgical, and you have to stay diligent. You cannot be one and done. Frequent check-ins with your support teams, the data and constantly monitoring your rate of acquisition to your rate of sales will be required at a minimum. We can show you how.

If you are willing to stretch and have a growth mindset to increase sales rate with best practices and upping your operational game, you can take market share and continue to grow while others are holing and hollering. We can help you build this exact plan and execute this plan. Reach out HERE..

John Ellis CEO & Founder of The Automotive Advisor Team, LLC

Author: John Ellis

Founder & CEO The Automotive Advisor Team, Inc. BEVEveryting, Inc. Double E Consulting, Inc.

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