As we look back at the aftermath of the 2020 global COVID pandemic, it’s clear the economy and the auto market have experienced extraordinary shifts. Historic appreciation in vehicle values, dramatic drops in supply, and rapid changes in interest rates have marked these years. Jonathan Smoke, Chief Economist, and the Cox Automotive Economic and Industry Insights team, drawing on extensive data and insights, shares their forecast for the year ahead, framing it around five key themes for 2024.
Economic Overview and Forecast A Glimpse into 2024’s Economic Landscape In 2024, the economy is expected to exhibit weak growth, influenced by high interest rates and declining inflation. This combination will likely constrain consumer spending and slow job and income growth. However, the economy is projected to avoid a recession and maintain slow, yet steady growth. The labor market, crucial for vehicle sales, is expected to weaken but not collapse, supporting a healthy auto industry. Wages, while cooling, should remain above average. The Federal Reserve’s decision to maintain the status quo on interest rates towards the end of 2023 signals a potential decline in rates by the end of 2024, possibly easing vehicle affordability.
Vehicle Market Dynamics The Return of Vehicle Supply and Consumer Power Post-pandemic supply chain disruptions led to unprecedented new-vehicle inventory shortages, driving prices to record highs. For 2024, a substantial recovery in inventories is anticipated, increasing incentives and discounting. This shift is expected to improve overall affordability, despite limits imposed by stagnant income growth and persistent loan rates. New-vehicle inventory should approach pre-pandemic levels, but the sales peak of 2019 remains out of reach. In the used-vehicle market, slight gains are forecasted, with certified pre-owned sales outpacing overall used-vehicle growth.
Dealership Challenges and Opportunities Adapting to a Shifting Market Dealer profitability is anticipated to decline in 2024, as increased incentives and discounts compress margins. Higher costs for materials, labor, and technology, combined with a focus on wealthier buyers, are expected to push up manufacturer suggested retail prices (MSRPs) and dealer invoice prices. Dealers will need to seek efficiencies to protect their bottom lines, with used-vehicle margins and fixed operations potentially remaining strong.
The Rise of Electric Vehicles 2024 – The Year of Electric Expansion The EV market is poised for significant growth in 2024, driven by more models, incentives, discounting, advertising, and sales efforts. Despite slower customer acceptance, the industry is expected to come to terms with the need to actively promote EVs. EV sales in the U.S. are projected to exceed 1 million units, accounting for over 10% of total sales. The market for used EVs is also expected to grow rapidly, reflecting the broader industry trend towards electrification.
Consumer Trends and Car Buying Experience Embracing a New Normal in Car Buying The car buying landscape in America is returning to a semblance of normalcy. Consumers are expected to put more emphasis on owning personal transportation, reversing trends seen in 2018 and 2019. Satisfaction with the car buying process is projected to improve, thanks to better inventory, the return of discounting, and enhanced dealership processes. This shift towards a more balanced market is seen as a welcome development after the chaotic past few years.
Looking ahead to 2024, the automotive market is expected to normalize, providing a welcome relief from the turbulent post-pandemic period. The Cox Automotive team anticipates constrained but stable growth, a trend that may not make headlines but promises a more predictable environment for businesses and consumers. While political and economic uncertainties remain, the outlook for the automotive market is one of cautious optimism.
This forecast is the result of rigorous analysis by the Cox Automotive Economic and Industry Insights team, leveraging some of the best data and insights available in the automotive industry. It reflects our collective vision for the year ahead, grounded in a deep understanding of market dynamics and economic trends.