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 and unprecedented circumstances the economy and auto market endured. To name a few, we saw historic appreciation in vehicle values, unimagined drops in supply, and interest rates moving from all-time lows to 23-year highs at an unforgiving pace. The past four years have been chaotic, even by auto industry standards, and have shifted many normal seasonal patterns out of whack, which adds to the difficulty of forecasting what comes next.
Still, the process of developing a forecast is an important exercise and one my team and I enjoy undertaking each and every year. At Cox Automotive, we have access to some of the best data in the business and the keenest insights. Based on that, we have developed several themes for the year ahead, which provide our collective vision of what the next 12 months will bring. While our specific forecast numbers may prove to be incorrect, we expect the themes to provide an even more valuable point of view about the road ahead.
For 2024, the Cox Automotive Economic and Industry Insights team believes the market will be steered by five key themes.
1. Slow Growth Ahead, But It Sure Beats a Recession.
For 2024, we are forecasting the economy to deliver weak growth as the effects of high interest rates and elevated-but-declining inflation combine to limit consumer spending and slow job and income growth. In 2024, Cox Automotive is banking on an economy that will avoid a recession and move forward with slow, constrained growth. The labor market – a key driver of vehicle sales in the U.S. market – is expected to weaken, but unemployment levels will remain low enough to support a healthy auto industry. Wage growth will cool in 2024 but will remain above average.
In mid-December, the Fed held their final meeting of 2023 and decided to keep interest rates and overall monetary policy unchanged for the third consecutive meeting. Although the Fed has not abandoned the possibility of raising rates, their new language suggests that further increases are only an option and not their expectation. Ending 2023, the median expectation by the Fed is to see three-quarters of a point potential decline in the Fed Funds Rate by the end of 2024. Albeit small, any decline would help improve vehicle affordability and offer some relief to many strapped households.
Overall, we are expecting consumer debt to slowly grow in 2024 and credit conditions to remain tight, but stable. Consumer spending should slow some but remain healthy enough to support constrained growth. In all, the economy in the year ahead may well be boring, but it sure beats the chaos of a recession.
2. Vehicle Supply Is Back, Favoring Consumers, Placing Downward Pressure on Prices.
Following the global pandemic and ensuing snags in the global automotive supply chain, new-vehicle inventory shortages completely disrupted the vehicle market in the U.S., pushing prices to record levels and limiting vehicle sales in a way that will have long-term effects on the market.
Fortunately, in the year ahead, Cox Automotive is expecting inventories to be up substantially from 2022 levels – the height of the shortage – incentives to be higher, and discounting to increase. Overall affordability will limit what is possible in both the new- and used-vehicle markets, but affordability will continue to improve, as household incomes increase, loan rates stop increasing (and maybe come down some), and vehicle prices in new and used react to the market’s undeniable downward price pressure.
We expect that new-vehicle inventory will approach pre-pandemic norms in 2024, reaching nearly 3 million units – three times the chip-shortage low – and days’ supply will remain at healthy levels. We will be back to normal. Higher inventories will support higher incentives, but record levels last seen in 2019 – a new-vehicle market in excess of 17 million units – will remain well out of reach.
The Cox Automotive team, at this point, expects new-vehicle sales in the U.S. to increase less than 2%, finishing at 15.7 million1 sales in 2024. Retail new-vehicle sales will be mostly flat and fleet sales should recover from an end-of-2023 lull and continue to improve.
New-vehicle transaction prices will likely see modest declines again, much like this year and more deflationary than the normal rate of 2.5% to 3.0% seen from 2013 to 2019. What will drive the lower prices will be increasing discounting as judged by what consumers pay relative to MSRP. As a result of that trend, plus more incentives and continued growth in incomes, vehicle affordability for consumers will improve. However, affordability will limit the market in 2024 and will remain an industry-wide challenge that holds new-vehicle sales well below historic highs seen between 2016 and 2018, when the market was artificially inflated by large discounts and incentives and near-zero auto loan rates.
The used-vehicle market will see gains in 2024, but gains will be minimal – less than one percent. Total used-vehicle sales may reach 36.2 million, with retail used-vehicle sales at 19.2 million, up 1% year over year. We are expecting certified pre-owned sales (CPO) sales to outpace used-vehicle growth and reach 2.7 million units, a 3% increase from 2023. Demand is there, while product availability is limited by the lack of production from 2020 through 2022.
In our Manheim operations, we are forecasting volume to increase less than 1% as constrained growth continues. Repossessions, rental, and off-lease volumes will increase year over year yet remain below pre-pandemic norms. Price patterns will continue to normalize, and we are forecasting that 2024 will be our first year in five for fairly normal depreciation.
Overall, as our team is forecasting 2024, we are building our models with expectations that the ongoing inventory recovery will continue and sufficient pent-up fleet demand will help keep the new-vehicle market from falling backward in the face of headwinds – high prices, high loan rates, and a slow-growth environment.
3. In 2024, We Officially Bid Farewell to the Seller’s Market.
After peaking in the years immediately following the pandemic, dealer profitability is expected to fall further in 2024. Incentives and discounts will continue to grow, but vehicles are not becoming less expensive – only margins are being compressed. Higher material and labor costs, along with more costly technology and a focus on wealthier buyers are causing both manufacturers’ suggested retail prices (MSRPs) and the invoice prices dealers pay to increase, resulting in ever more expensive products. But more supply and increasing discounting will hold down transaction prices buyers pay, cutting into margins and hurting profitability.
In 2024, dealers will be forced to seek further efficiencies to protect their bottom line. The good news: Used-vehicle margins and fixed ops should remain relatively strong in the year ahead. But new-vehicle sales departments will be under pressure as MSRPs and invoices will trend higher while buyers will likely pay less. Thin profits, for many dealers, will be gobbled up by higher floor plan costs and the need to reinvest into infrastructure to support growing electric vehicle (EV) sales. Heading into 2024, dealers are less optimistic about the future, and it’s all about interest rates and weaker profits.
4. In the Electric Vehicle Market, 2024 Will Be the Year of More – More Models, More Incentives, More Discounting, More Advertising, and More Sales Muscle.
It is already happening, and dealers and manufacturers alike are realizing that selling more EVs will require more effort. Expectations for EV growth in the U.S. market have moved from “rosy to reality” as EV sales increase, but customer acceptance grows slowly. Prices are falling and most automakers are seeing inventories build.
In 2024, the Cox Automotive team is expecting that the industry will fully come to terms with the fact that the average consumer has to be sold on the merits of going electric, and many won’t be easily convinced. But with more models, more incentives, more discounting, more advertising, and more sales muscle, 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. Hybrid models will add further to mix, pushing the share of electrified vehicles – EVs, Plug-in Hybrids, and Hybrids – to near 24% of the market in 2024.
While fewer EVs may be eligible for the IRA tax credits thanks to changing guidelines, we do believe federal incentives will continue to encourage consumers to buy electric, and leasing of electric vehicles should continue to increase as well, growing from approximately 20% to 25%, an increase of 5 percentage points.
Market leader Tesla’s share of total EV sales will continue to decline as the industry pioneer will grow volume but lose share. And the nascent used-EV market will continue to be the fastest-growing product segment in the wholesale/used vehicle market. There will be more used EVs in the market, very much aligned with our expectations that 2024 will be the Year of More when it comes to EVs.
5. Car Buying in America: Normal is Nice.
After four years of anything but normal, Cox Automotive is expecting balance to return to the U.S. auto market in 2024. And that will clearly be better for American consumers and fleet buyers who find more choices, better deals, and better access to online buying tools. In fact, in many ways, we are expecting 2024 to be the best year for car buyers since the pandemic.
Our research suggests that Americans are putting more emphasis on buying/owning personal transportation, in contrast to 2018 and 2019, when consumers put a higher value on “access to transportation.” And after tumbling in 2021 and 2022, satisfaction with the car buying process is expected to improve in the year ahead, 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.
Overall, we are expecting sales growth to be constrained and weak in 2024 – a bit more normal compared to the chaos of the past three years. 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. Yes, we will be watching the political climate, hoping for a quick solution to the wars in Gaza and Ukraine, seeing how our own presidential election plays out, and monitoring the Fed’s actions closely, but from our vantage today – and barring any new black swan events – the forecast is for a fairly normal automotive market in 2024. That might not make headlines, but it should be a welcome relief for everyone involved.
1 Full-year 2024 forecast updated to 15.7 million on Jan. 8, 2024, following final analysis of FY2023 sales.
Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.