Economic Outlook: Source
Auto Market Updaet: The policymakers foresee unemployment rising to 4.1% next year, from its current 3.7%, which would still be a low level historically. They project that the economy will expand at a modest 1.4% next year and 1.8% in 2025.
Fed will start cutting interest rates in the second quarter of next year, delivering as many as six 25-basis-point rate cuts totaling 150 basis points.
Those rate cuts would bring the effective Federal Funds rate to about 3.83% at the end of 2024 and to 2.83% at the end of 2025, compared with today’s Fed Funds rate of 5.33%.
What could be the impact on our retail business?
- Interest rates have a direct effect on consumer behavior, impacting several facets of everyday life.
- When rates go down, borrowing becomes cheaper, making large purchases on credit more affordable, such as home mortgages, auto loans, and credit card expenses.
- When rates go up, borrowing is more expensive, putting a damper on consumption. Higher rates, however, do benefit savers who get more favorable interest on deposit accounts.
Retail Market Trending
Over the last few weeks, the rate of decline in the wholesale price of 3year old vehicles has softened creating a reduce gap between for profit between buying and selling.
The sales rate in used are following yearly trends shown in blue below right as is the day supply to the left in that blue line.
The used care listing price for the 2–6-year-old vehicle is showing stabilization seen below in the grey dotted line.
Wholesale Market Trends: Source: Cox Automotive
Wholesale depreciation slowed again this week, with 3-year-old models dropping only 0.1%. Lane efficiency bounced back after the Thanksgiving holiday. Used retail sales finished the month strong, with a sales rate that was higher than in most previous years. Like used, new car sales also finished the month strong, and days’ supply dropped to 53.
- The 3-year-old index decreased 0.1% to 87.4%. Non-luxury flats and luxury decreased 0.4%
- Sale prices continue to run lower than MMR (-1.30%) but to a lesser extent.
- Lane efficiency rebounded from the Thanksgiving holiday and is following the 2021 trend.
- Non-luxury retail values decreased 0.5% and luxury decreased 0.6%. Six-week lagged spreads increased due to sharp wholesale declines a few weeks ago.
- The used retail sales rate rebounded after Thanksgiving week. The sales rate was slightly higher than in most previous years. Days’ supply dropped to 44 days.
- New car sales trended much higher to close out November. Days’ supply moved down to 53.
The Black Book vehicle valuation trend for the 2–6-year-old vehicles in market look a lot different below than the 3-year-old value above.
Luxury items are generally more expensive and have higher quality, more features while non-luxury items tend to be lower in price, lower quality, and have fewer features. Looking below you can see they are acting much differently in the market today and that should be no surprise if you are following consumer affordability trends.
State of EVs: Source
The overall EV sales in November 2023 witnessed an increase of approximately 9.54 % from last month, reaching 1,52,514 units. On a YOY basis, EV sales in November 2023 increased by 27.15% from that of EV sales in November 2022. With the slow-down talk about EVs in the market today, the trajectory seen below still looks robust. despite claims that demand for EVs is cooling, the global electric vehicle market grew 34% year-to-date last month. We had a lively discussion on this topic this week on Clubhouse’s “All Things EV” biweekly call Tuesday at 8am. You can find the replay HERE.
Cox Automotive guide ice this week confirms our speciation over the last few weeks regarding the Feds intentions and 2024’s opportunity. They wrote this week that, with the lower prices on new vehicles and depreciation returning to used vehicles, affordability has modestly improved despite the increase in rates. Affordability limits demand, but affordability should improve more in 2024 as prices continue to fall thanks mostly to discounts and incentives and as rates hopefully begin to decline as well. It is now a question of when that starts and by how much.