“A decade from now, when we look back at the years immediately following the global COVID pandemic of 2020, we’ll be awed by the dramatic swings” in the car market, says Cox Automotive chief economist Jonathan Smoke. But 2024 may be when we all agree the swinging stopped.
2023 was wild. It started with record-high prices and a massive shortage of new cars thanks to a worldwide microchip supply crunch. It saw interest rates swing to a two-decade high. The United Auto Workers union struck all three major Detroit automakers at once for the first time. Automakers built electric vehicles in record numbers, and EV sales grew…but not as fast as EV production.
2024 could be relatively tame by comparison, Smoke says.
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Cox Automotive, the parent company of Kelley Blue Book, has access to a deeper trove of data about the car industry than any other company. Each year, Smoke and the Cox Automotive economic and industry insights team use that data and their decades of study to predict what the next year of car shopping will look like.
In 2024, they see five themes:
Slow growth and no recession
The U.S. economy will “avoid a recession and move forward with slow, constrained growth,” Smoke says. The Fed is keeping interest rates high, but lenders have begun to let them come down slowly. That, combined with “elevated-but-declining inflation,” will “combine to limit consumer spending and slow job and income growth,” he explains.
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Economists think the labor market will weaken, “but unemployment levels will remain low enough to support a healthy auto industry,” Smoke says. That will slow consumer spending but allow for mild economic growth. “The economy in the year ahead may well be boring, but it sure beats the chaos of a recession,” Smoke explains.
Vehicle supply will favor consumers
The high car prices of the pandemic and its aftermath were caused by a short supply of new cars. But “in the year ahead, Cox Automotive is expecting inventories to be up substantially,” he says. The evidence is already piling up at some dealerships. That will lead automakers and dealers to compete to offer discounts.
The record discounts seen in 2019 likely won’t come back. But the nation’s supply of new cars for sale could top 3 million again. “We will be back to normal,” Smoke concludes.
That could lead new car sales prices to be “more deflationary than the normal rate of 2.5% to 3.0% seen from 2013 to 2019.”
Related: Some good trends are happening in car affordability
The seller’s market will end
Good news for car shoppers can be bad news for car sellers. “Dealer profitability is expected to fall further in 2024,” Smoke says. Dealers are already reporting the strain.
Vehicles won’t grow any less expensive for dealers, but they’ll have to discount them to compete with each other, compressing their margins.
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More EVs, more EV discounts, more EV advertising
The number of electric vehicles for sale will continue to grow, and the industry will work harder to sell them.
EV sales increased in 2023, “but customer acceptance grows slowly,” Smoke says. The increasing number of EV models will require “more incentives, more discounting, more advertising, and more sales muscle” to entice consumers. But “we still believe more sales will follow, with EV sales in the U.S. in 2024 topping the more than 1-million-unit record set in 2023 and accounting for more than 10% of total sales.”
Many EVs lose access to federal tax credits on Jan. 1, but many may regain them during the year. With more models entering the market, though, market leader Tesla
TSLA,
will continue to lose market share.
More: How electric vehicle tax credits will work in 2024, and a list of cars that qualify
Normal and nice
“After four years of anything but normal, Cox Automotive is expecting balance to return to the U.S. auto market in 2024,” Smoke says. Americans will likely be happier with the car buying process “thanks in part to better inventory and the return of discounting, but also from improved processes at the dealership that save time and make car buying more efficient.”
And Smoke and his team of economists may catch their breath. “As an economist, headline-making swings in economic trends are always interesting to see and analyze, but such turbulence is rarely good news for business over the longer term,” he explains.
Plus: GM to lay off about 1,300 in Michigan as Bolt, Camaro end production
A 2024 of slow, steady economic growth, growing supplies, discounted cars, and an industry adjusting to a future of new products sounds calm after 2023.
This story originally ran on KBB.com.
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