Automotive retailers are reporting solid results from the first quarter, but will the favorable conditions carry over into the summer? On this edition of CBT Now, Jessica Caldwell, executive director of industry insights at Edmunds, sits down with host Jim Fitzpatrick to discuss what current trends can tell us about the coming months.
As dealers are well aware, new car inventory recovered substantially over the last three months as manufacturers ramped up production in response to stable supply chains. With the arrival of more stock, profit margins, and values started to deflate. Caldwell notes that this trend is to be expected since retailers now have enough units in store to relieve pent-up demand and believe prices could fall even more in the coming months. “As we head towards summer…I think there will be some of those summer sales events that we’ve seen in the past or even model year sell downs,” she explains. However, she notes that even though declines may be inevitable, most retailers will continue seeing above-average values for some time.
Used-car values have remained in flux for the last year, rising and falling in response to new-vehicle production and pricing. However, despite its instability, the sector could see increased activity as affordability and high prices drive customers into the preowned market. Caldwell notes that the number of models sold at or below $25,000 only accounted for 4% of the market in March, whereas the same price range comprised nearly a quarter of all sales in 2018. “I think that does really affect the used market because people are kind of forced into it,” she explains. This surge in demand is likely to push used-vehicle prices up in the coming months.
Financing has become increasingly difficult for customers. Currently, interest rates sit at 7% for new vehicles and 11% for used vehicles, far higher than their pre-pandemic percentages. While demand has stayed consistent, even through the Federal Reserve’s disinflationary hikes seen earlier this year, the longer rates remain inflated, the more noticeable their impact will become. However, Caldwell also explains that pent-up demand still exists in the car market, a favor which will likely work in favor of retailers and consumers when the economic future becomes more certain.