The U.S. auto market saw an uptick in sales and inventory over the course of 2023, as dealers and car manufacturers made progress clearing post-pandemic hurdles. On this episode of Inside Automotive, host Jim Fitzpatrick is joined by Patrick Manzi, the chief economist for the National Automobile Dealers Association, to offer more insights into the car industry’s performance and where this may lead in the coming months.
The auto market has seen steady growth throughout the year, surprising analysts who expected economic headwinds to suppress demand well into the future. Instead, a steady stream of car buyers has pushed year-to-date sales up 13%, rising 20% year-over-year in June alone. Manzi comments that this has been an excellent start to 2023, acknowledging it was “a little better than we all were expecting.” Furthermore, the U.S. has seen significant growth in the alternative fuel space, which now comprises roughly 15% of all new vehicle sales. Electric vehicles are also closing in on 7% of the car market, with manufacturers and dealers selling a combined total of 550,000 units in the first six months of the year. Manzi notes that franchised dealers accounted for 36% of all EV sales, making them more competitive with direct sellers such as Tesla.
The auto market has also benefited from the recovering supply chain, which has allowed car manufacturers to produce more vehicles. On average, dealer inventories held enough cars for 36 days, with 1.9 million units on the ground and in transit at the end of June. This is a significant improvement over the previous year when low factory output hindered sales well into the winter. Still, the industry’s problems are not over yet. “We’re only about half the level we were before the pandemic,” Manzi remarks. While manufacturers are pushing out more models than at any point since COVID, availability varies greatly between brands and segments. For example, Manzi reports that pickups averaged a days’ supply of 59 days while only accounting for 18% of overall sales. On the other hand, crossovers saw a 30-day supply on dealership lots, despite comprising 46% of the total market.
Rates are another obstacle the auto market will need to address before it can return to its pre-pandemic state. Interest rates have grown steadily, while loans and credit have become more difficult for car buyers to attain. Manzi notes that average term lengths are closing in on 72 months, while rates for new and used cars typically cost 7% and 10.5%, respectively. “Still, I’ve been pleasantly surprised by just how well sales have been going despite the pressure of higher rates,” he adds. Although inflation is still on the rise, the Federal Reserve has hinted that it may begin to de-escalate its battle against rising costs, pausing or possibly reversing its series of rate hikes. If the implication is sincere, Manzi believes rates will stabilize in the latter half of the year before depressurizing in 2024.
2023 is also proving to be a strong year for fleet deliveries. Customers in this segment suffered the most from low inventories during the COVID pandemic. Now that manufacturers have returned to making new vehicles, the release of pent-up demand in the fleet market has helped push overall sales ahead of 2022. As Manzi notes, “They really need the inventory.” Sales in the segment rose 45% in the first six months of the year and comprised 18% of the auto market in June.