Dealers are assessing what the return of new-vehicle supply and used-vehicle depreciation means for demand in 2024
Pent-up demand for used vehicles remains strong at the start of 2024, though dealers plan to closely monitor how a gradually normalizing new-vehicle market influences that throughout the year.
Of increasing concern for dealers is how much automakers with revived new-vehicle supply push for and incentivize new-vehicle sales in certain segments — and how that trickles down to impact used-vehicle demand.
Jim Farkas, general manager of Germain Honda of Ann Arbor in Michigan, told Automotive News that with automakers starting to be more aggressive on new-vehicle sales, dealers need to strike a balance between new- and used-vehicle inventory and stay efficient in turning the used vehicles.
“I’m having our used-car management staff make sure they’re talking to new-car managers and understanding the supply and demand,” Farkas said.
An oversupply of new vehicles would affect used-vehicle prices, he said.
“This would be due to the manufacturer noticing the supply growing, then offering incentives,” said Farkas, who also is used-car director for Germain Motor Co., which ranked No. 58 on Automotive News‘ list of the top 100 dealership groups by used-vehicle sales in 2022. “Whether it’s a value incentive, such as cash or rebates or APRs, [that] will have an impact on used-car sales, which will of course force them to decline in price.”
The extent of that influence on pricing will vary, he said, since supply of each brand is “totally different.” Stellantis dealerships, for instance, generally have more new-vehicle days’ supply than Honda or Toyota dealerships do right now, he said.
Nathan Myers, used-vehicle director for Sons Auto Group of Atlanta, said his group will be cautious this year about stocking an overabundance of new-vehicle inventory in certain segments, such as full-size pickups.
Dealers didn’t have to think much about that in 2021 when few new vehicles were on the ground because of the shortage of semiconductors during the COVID-19 pandemic, he said.
“I think you’re going to see that come up with every manufacturer” in 2024, Myers said. “It’s just going to be [a matter of] to what extreme.”
Cox Automotive expects a semblance of balance to return to the U.S. market in 2024, particularly on the used-vehicle side.
Wholesale used-vehicle prices are decreasing more consistently, Cox said. On a mix-, mileage- and seasonally adjusted basis, they fell 0.5 percent in December from November, according to the firm’s Manheim Used Vehicle Value Index. That is down 7 percent from one year ago, Cox said.
That ended a normalizing but still somewhat volatile 2023 with about half the decline the firm saw in 2022, but more than what’s seen in a typical year, said Jeremy Robb, senior director of economic and industry insights for Cox, during call with reporters this month.
Though prices have come down over the last two years, they are still about 33 percent higher than they were at the end of 2019, Robb said.
The fact that new-vehicle supply has returned to spring 2020 levels also should favor consumers and lead to lower vehicle prices, Cox Automotive Chief Economist Jonathan Smoke said during the call.
“This means we officially bid farewell to the seller’s market that has defined the last four years,” he said.
There also remains the broader complication of affordability: New vehicles are increasingly more expensive, and higher interest rates continue to keep some shoppers wary of financing a vehicle.
Myers described how a Sons Auto Group customer ended an almost-closed sale in the dealership finance office when the buyer realized the loan interest rate would be 6.9 percent. Those scenarios did not happen two years ago when borrowing costs were lower, Myers said.
Germain’s Farkas said he is watching to see if customers being more conscious about their used-vehicle budgets will have a measurable impact on revenue — particularly on the F&I side.
“I feel people are still stretching for the car that they would like to have and F&I products might not fit in that budget as much as [they] used to in the past,” Farkas said.
Though the used-vehicle market is still challenging, there are some encouraging signs, CarMax Inc. CEO Bill Nash said during the company’s earnings call in December.
The return of more consistent used-vehicle price depreciation could attract budget-conscious customers who have been hesitant to buy, said Nash, who oversees the company that retailed the most used vehicles in the U.S. in 2022. If interest rates at least stabilize, that could be similarly useful, he said.
In its fiscal quarter that ended Nov. 30, CarMax reported an average used-vehicle sales price of a little more than $27,000. In its fiscal year that ended Feb. 29, 2020, that was $20,418. Nash said he thinks it’s possible for CarMax to get back to an average sales price in the mid-$20,000s. Though it’s unlikely prices fall all the way back to 2019 levels, there is “plenty of room” for adjustment, he said.
“Do I think they’ll get all the way there? I don’t think so, partly because new cars are becoming more and more expensive,” Nash said.
