The Automotive Advisor Team

Economic Outlook: Source

  • Consumer spending increased slightly in October as price relief for certain categories helped to support purchases.
  • Discretionary spending is increasingly tilting in favor of experiences outside the home, especially among young adults.
  • While residual strength in the labor market continues to support household finances, certain groups — including lower earners, student debt holders, and parents — are experiencing growing budgetary pressures. 
  • Energy, housing, and core services prices continue to prop up inflation, while consumers are more likely to walk away from purchases due to high prices than they were a year ago.
  • Baby boomers tend to be the most price-sensitive and more likely than younger generations to trade down, but Gen Zers have recently been experiencing elevated levels of sticker shock and substitution.
  • High prices for big-ticket purchases like housing and autos have dampened consumer demand as affordability continues to be an obstacle.

The good news is Gas prices have fallen or remained steady since Sep. 19 marking about a 70-day trajectory of decline, Andrew Gross, spokesperson for motor club AAA, said Tuesday.

Not planning to rock the boat, OPEC on Monday said oil market fundamentals remained strong and blamed speculators for a drop in prices as it slightly raised its 2023 forecast for global oil demand growth and stuck to its relatively high 2024 prediction. Source

Retail Sales Trending Source

· U.S. new vehicle sales are expected to surge by 10.2% in November, reaching 1,236,000 units, driven by improved vehicle availability. Despite a six-week UAW work stoppage, rising retail inventory is projected to contribute to a 1.9% year-over-year decline in transaction prices, with the average price at $45,332.

  • Cox Automotive forecasts annual vehicle sales pace in November to finish near 15.3 million, up 1.0 million from last November’s 14.3 million pace, but down slightly from October’s 15.5 million level.
  • November’s sales volume is expected to rise 6.5% from one year ago to 1.21 million units. This is a 0.3% increase from October which had 25 selling days, the same as this month.

Used Supply: Source

Despite the nearly six-week UAW work stoppage, retail inventory levels in November are expected to see a 7.5% increase from last month and a 43.7% increase compared with last year.

Inventory pile-up, however, led to a 1.9% year-on-year decline in transaction prices with an average price of new retail vehicles at $45,332.

Retail Price Trends:

Used Car prices dropped between $100 and $500 in every category. Even though those amounts aren’t large, they were uniformly down, unlike last month, when the results were mixed. The top end of the range in almost every category also dropped, which suggests dealers are slicing away at the prices of even top-of-the-line models. Changes to average prices in segments:

  • Pickup Trucks continue to see the largest declines month-over-month. Since May, the average price of a used pickup on Carfax has dropped by $2,500. The average pickup truck now sells for more than the average Luxury SUV on Carfax. 
  • Speaking of used Luxury SUVs, they dropped by roughly $400 from last month, as did Hybrids & EVs, and Vans.
  • The least-expensive option available, used Cars – including sedans, coupes, and wagons – dropped by $300.
  • The average price of used SUVs and Luxury Cars dropped by roughly $200 each.

Wholesale Market Trends Source 

  • Overall car segment declined by 1.82% last week. A week earlier, car prices softened by 1.35%.
  • 0-to-2-year-old cars dropped by 1.52% and 8- to 16-year-old models slumped by 2.10%.
  • Prices for all 13 truck segments declined last week, with nine of them dropping by more than 1%.
  • Prices for compact vans plummet by 4.25% and values for full-size vans sink by 3.19%.
  • Full-size crossovers dropped by 1.75% and the luxury variants slid by 3.20%.
  • Compact crossovers dropped another 1.40%, marking the fifth consecutive week.

Retail Margin Trends:

The spread between the wholesale and the retail price points our $3900 to the good for the $2020-year model overall $4400 for the non-luxury category and 3800 for the luxury category. High-dollar non-luxury inventory has been slow to turn and requires bigger discounts to move off the lot and that shows in the trends below.

According to the black book below, in the last two weeks days to turn inventory on dealer’s lots have jumped from 49 days to 56 days. Most dealers are feeling that softening on their lots and having to significantly discount aging inventory to return cash flow to buy units that turn faster.

EV Outlook: Source

  • According to Atlas Public Policyelectric vehicle (EV) sales are predicted to account for a record 9% of all passenger vehicles in the U.S. this year. That amounts to a 1.7% increase in new vehicle sales from 2022. 
  • This has been helped by the Inflation Reduction Act, which raised tax credits for eligible new and used EV purchases, and also lowered EV prices for consumers, with reductions of either $3,750 or $7,500, contingent upon specific conditions.
  • With the POS EV cash back or down payment incentives of the same amount beginning in January 2024, the EV adoption curve should continue to rise.

Summary Source

  • The market is still showing depreciation signs in the wholesale channel, but stabilization is still showing in the retail price. That can be seen in the wholesales to retail margins mirroring black book and dealer track transactional on used car sales. 
  • Dealers are finding large independents like CarMax and Carvana are becoming really active in the wholesale channel preparing for Christmas and then the Tax season sales events. This is driving prices up for the most attractive cars that are sub $20,000. 
  • Getting back to the fundamentals will be key to success. This slow time is the perfect time to focus on your dealer operations to tighten the rains for 2024 to take market share. Todd Caputo posted a great outline of this week that we turned into an article here, with his permission, that you can find that HERE on just those efforts to tighten the reigns.

 

You Can view The Automotive Advisor Team Dealer Client Testimonials 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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