As we move further into the second half of 2024, we are eager to examine the current new vehicle inventory and the average transaction price. On the latest episode of CBT Now, we are joined by Erin Keating, the Senior Director of Economic and Industry Insights at Cox Automotive, who will provide insights into these numbers.
Key Takeaways
1. The average transaction price for new vehicles has been on a downward trend for ten consecutive months. This decline signifies a market adjustment as inventory levels increase and dealerships offer more incentives. The high prices of recent years, driven by supply chain issues and low inventory, are giving way to more balanced pricing as supply catches up with demand. Dealers now see a broader range of vehicles at lower prices, reflecting a more normalized market where affordability is improving for consumers.
2. Additionally, the growing popularity of subcompact and compact SUVs significantly influences the drop in average transaction prices. These vehicles, generally less expensive than full-size trucks and luxury models, make up a larger share of sales. This shift helps lower the overall average transaction price. Full-size trucks traditionally have higher price points but are still significant in the market, and their average impact is counterbalanced by the increasing sales of more affordable segments.
3. Despite a growing interest in EVs, the market faces challenges due to the high cost of production. EVs are generally more expensive to manufacture than internal combustion engine vehicles, and manufacturers are compelled to offer incentives to drive consumer adoption. The need for incentives like the $7,500 federal tax credit underscores the disparity between the high production costs and consumer willingness to pay. This dynamic suggests that while the EV market is expanding, significant support is still required to reach broader consumer acceptance.
4. Stellantis is experiencing notable inventory issues, with many unsold vehicles, including current and prior year models, particularly for Dodge and Chrysler brands. This excess inventory pressures dealers to offer substantial incentives to move these vehicles. The challenge is compounded by the need to balance the availability of new models with the existing stock, which may lead to deeper discounts and more aggressive sales tactics to clear out older inventory.
5. Nonetheless, the decline in auto credit availability, marked by a four-month trend of reduced financing options, indicates rising financial stress within the consumer base. Increasing delinquencies and defaults are causing lenders to tighten credit standards, which could impact consumers’ ability to secure loans for new vehicle purchases. This tightening of credit could slow down sales as potential buyers face higher barriers to financing, making it crucial for dealers to explore flexible financing options and support mechanisms to assist customers.
"Dealers need to remember they are the front line of helping consumers figure out their options. Being prepared to offer multiple vehicle choices, understanding EV ranges, and improving financing options will be key to navigating the current market challenges." — Erin Keating.
