vehicles will contain any acceleration in the depreciation of used cars and keep a floor under used prices. Smoke believes that used car margins will stabilize, even as dealers must work harder to maintain inventory levels. Shifting Markets for New and Used Vehicles Increased production and the recovery of fleet sales helped drive a 12% year-over-year increase in new car sales in 2023. Smoke projects a slower pace of 1% to 2% growth in 2024. Beneath that modest growth are changes emerging in the new car market that could extend beyond 2024. OEMs are shifting their production, catering to buyers who can afford more expensive models and premium configurations. Producing fewer high-priced vehicles keeps manufacturers’ margins high, incentives and discounting low, and vehicle supply tighter. As one of the biggest surprises in 2023, OEMs have effectively dropped entry-level vehicles from their new vehicle portfolios — only two new vehicles currently carry a sticker price under $20,000. Certified preowned vehicle (CPO) sales have been and will continue to fill this gap created in the market. CPO programs have changed eligibility requirements to allow older cars and those with higher mileage to qualify, providing buyers priced out of the new car market with an opportunity to access extended warranties and better financing options. As manufacturers begin to promote attractive leasing programs to consumers, Smoke expects leasing volumes to lead growth in 2024’s automotive markets: “After effectively abandoning leases over the last four years, OEMs will go back to relying on leasing offers to address affordability, grow volume and boost demand without resorting to even higher incentives.” The Long Road to Electrification Smoke expects electric vehicle (EV) sales to continue their current path of growth supported by generous tax credits, government policies and manufacturers’ target production levels. After years of demand exceeding supply for EVs, production has caught up, creating a potential challenge for dealers who may have a greater days’ supply of EVs as opposed to vehicles with internal combustion engines (ICE). While demand may be enough for California dealers to clear EV inventory, dealers in more rural markets throughout the South and the Midwest — where consumers aren’t yet exhibiting strong demand for EVs — may struggle to move their EV allocations. On the service side, a more EV-centric market is turning out to be better news for dealers than feared. “The silver lining showing up in the service data is that dealers are making more money servicing EVs,” says Smoke. While today’s service work is weighted toward recalls, he adds, “EVs are more expensive vehicles, prone to having sensor issues and other complex problems. When there is a service appointment, it tends to be a more expensive one.” Smoke points out that while EVs are steadily gaining share, ICE vehicles are not going away quickly. “We think this is the beginning of what will likely be a 30‑year plus journey, where EVs and ICE vehicles coexist in the automotive market.” Set Your Plans To Prepare for the Conditions in 2024 Planning involves being ready for future conditions while preparing to support both ICE and EV vehicles over the long term. Your Truist Dealer Services relationship manager can help you anticipate what’s on the horizon so you can position your business to make the most of it. Scan the QR code to learn more. https://www.truist.com/ commercial-corporateinstitutional/industryexpertise/auto-dealer Truist Bank, Member FDIC. ©2024 Truist Financial Corporation. Equal Housing Lender. DEALERS’ CHOICE 22
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