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Key Takeaways
- Experts say the auto market could shift in consumers’ favor in 2024, as high inventories exert downward pressure on prices and lead to more incentives.
- Auto sales climbed to a four-year high in 2023, according to Ward Intelligence data, with analysts anticipating sales could continue to rise in 2024.
- CFRA analysts said the second half of 2024 could be stronger with the Fed expected to cut interest rates, which could boost consumer sentiment and sales.
The auto market could shift in buyers’ favor in 2024, with declining prices and increased incentives amid high inventories, according to some experts.
Auto sales reached nearly 15.5 million in 2023, up 12.4% from 13.8 million in 2022 and the highest since 2019 before the outbreak of the COVID-19 pandemic when there were roughly 17 million units sold, according to figures from Ward Intelligence.
While auto sales have not reached pre-pandemic levels yet, last year’s surge could signal a rebound in 2024, with CFRA Analyst Garrett Nelson telling Investopedia, “2024 is going to be a much more normal year for the industry.”
J.P. Morgan analysts echoed a similar sentiment, saying they “expect the auto industry to continue normalizing” in the new year, “which in turn should allow for pricing to cool from current levels.”
“After four years of anything but normal,” Cox Automotive reported that the firm “expects balance to return to the U.S. auto market in 2024” which could translate to “more options, better deals, and easier access to online buying tools” for consumers.
Luxury Vehicles Show the Biggest Decline in Prices
The average price for a new vehicle in the U.S. was $48,759 last month, a 2.4% decline from a year earlier, according to Cox Automotive. That “mark[ed]the fourth consecutive month that new-vehicle transaction prices were lower year over year, a unique milestone for the industry, which typically sees year-over-year increases.”
Sales of luxury vehicles in particular have benefited from declining prices. The average transaction price for luxury vehicles was down 8.8% in December versus a year earlier, led by a 25% drop in the average sale prices for Tesla (TSLA) vehicles. Luxury vehicles accounted for just over one-fifth of all U.S. automobile sales in December, after rising above 20% for the first time ever the month before, Cox Automotive said.
New-vehicle sales incentives also climbed in December for the second month in a row, Cox Automotive noted, with incentives accounting for 5.5% of the average transaction price, the highest since August 2021.
Nelson said that CFRA expects prices will continue to decline this year as incentives offered by sellers rise, driven by higher inventories.
CFRA also said the second half of the year could prove stronger with the Fed expected to cut interest rates, which could boost consumer sentiment and sales.
In a Buyer’s Market, Automakers and Dealers Could Face Headwinds
As macro conditions change and the auto market shifts to favor consumers, major automakers could face profitability challenges.
“Automakers expect new vehicle prices to moderate in 2024, driven by supply chain improvements allowing inventory replenishment, but expect also for dealers to share the pain by accepting a lower gross profit margin,” J.P. Morgan analysts said.
The analysts added that Ford (F) indicated the “pricing is expected to be a y/y headwind in 2024” as “incentives have recently normalized higher at a somewhat faster rate, inventories continue to normalize toward ‘new normal’ levels, the supply chain continues to heal (and has healed more quickly than was expected), resulting in less supply/demand imbalance.”
J.P. Morgan said that, for General Motors (GM), soft industry pricing is the “most worrisome new candidate – now that the labor cost inflation headwind is known and quantified” when it comes to headwinds in the year ahead.