EV lease gamble? Repos rise, and sales struggle from software outages

Hey, everyone. A whopping 9 out of 10 people are leasing their new Audi, BMW, or Mercedes EV, according to J.D. Power data. Why?

The blame falls partly on the recently changed federal tax credit for EVs. Since most German EVs don't qualify under these stricter regulations for outright purchases, dealers are using the “leasing loophole” to save consumers a hefty chuck of change.

It’s a win-win. Luxury car buyers can get their hands on the latest and greatest tech, while dealerships keep sales humming.

—CDG

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Each week, I curate the top 5 automotive industry headlines based on the topics CDG readers engaged with the most on social media. Let’s get started.

1. Tesla Cybertruck races past F-150 Lightning in Q2

Tesla’s Cybertruck has officially outsold its rival, the F-150 Lightning, leaving the Ford pickup in a close second at the end of Q2.

Why is this important? Truck buyers and Tesla buyers have typically operated on opposite ends of the spectrum, approaching the market with totally different perspectives and needs. Yet, if electric pickups continue increasing in popularity, we may start to see the lines become more blurred.

By the numbers:

• Tesla sold an estimated 8,755 Cybertrucks during the second quarter according to Cox Automotive, placing it ahead of the F-150 Lightning by about 853 units.

• Despite losing its spot at the head of the pack, Ford still saw a marked improvement in sales, placing second in the electric pickup segment with 7,902 units, up 77% year-over-year.

• On a year-to-date basis, the F-150 Lightning remains ahead of Tesla by nearly 4,100 units, but that gap will likely close if Tesla continues delivering at this pace.

Note: Tesla’s reporting methods make it difficult to get an accurate sales number but a strong approximation can be found in registration data.

Not even strong lease incentives could pull the Lightning ahead last quarter. But that might not be an entirely bad thing. Some analysts say the surge in leasing could come back to bite automakers and undermine their revenue…

2. Automakers playing dangerous games on EV leases, warn experts

Car manufacturers have been relying on lease discounts and other incentives to drive electric vehicle adoption in the U.S., but analysts are warning this strategy may be dangerous in the long run.

What they are saying: “We’ve become increasingly concerned about the profitability of notably aggressive lease offerings and believe that OEMs [Original Equipment Manufacturers] are effectively delaying EV losses with some of the new schemes,” commented Barclays Senior Equity Research Analyst Dan Levy.

So far, this strategy does seem to be driving EV adoption rates. Roughly 35% of all electric cars financed during Q1 were leased, according to Experian’s State of the Automotive Finance Market Report, triple the number seen in early 2023.

Everyone loves a summer sales event, and OPENLANE is cranking up the volume this month with DealerFest 2024, a week of deals, prizes and more in its digital wholesale marketplace.

OPENLANE is already known for offering exclusive inventory, lower fees, simple transactions and better outcomes. Now, they are headlining DealerFest by offering dealers 50% off all buy fees from July 22 - 28.

Want to learn more about DealerFest 2024 and the exciting line-up of offers? Head to openlane.com/dealerfest2024 for all of the details.

New to OPENLANE? Sign up now and receive:

• $350 buy fee credit

• Pay no sell fees until August 31

How’s that for an opening act?

On the other hand, lease deals typically make all sorts of cars more affordable. Keeping monthly payments low is vital for car buyers now, especially given how many consumers can’t seem to keep up with their loans…

3. Vehicle repossessions jump 23% over the past year

An uptick in auto loan payments delinquencies is leading to a widespread surge in vehicle repossessions. 

According to data from Cox Automotive (reported by Bloomberg), repossessions have increased a staggering 23% so far in 2024 and are up 14% compared to before the pandemic. 

Behind the surge: Even though inflation is slowing down, the overall cost of cars is elevated because interest rates are higher.

• The average interest rate for a new car is now 7.3%, and for a used car, it's 11.5%, leading to average monthly payments of $739 (new), and $549 (used).

• 4.4% of auto loans are 90+ days past due (up 13.4% year-over-year and 32.83% over a decade).

• Skyrocketing MSRPs during the pandemic meant that savings from lower interest rates at that time were offset by elevated vehicle prices.

Bottom line: The automotive industry finds itself in a perfect storm for repossessions. Between high prices and burdensome interest rates, people are struggling to make ends meet.

Yet, relief could be on the horizon as trends in affordability improve. Dealers, however, still face the fallout from widespread software outages…

4. Car sales take a hit from CDK outages, rebound expected in July

Setting the stage: After suffering a ransomware attack that left nearly 15,000 stores partially or fully disabled for roughly 2 weeks, dealers and OEMs had to adapt quickly to the sub-par conditions, including less aggressive pricing strategies according to Cox Automotive. 

Despite this, several new car affordability factors moved in favor of consumers:

• Year-over-year, income growth showed a 3.7% improvement helping to offset the increase in monthly payments.

• The average number of weeks of income to purchase the average new car rose to 37.2 weeks, up from 37.1 weeks in May.

But, the ripple effects of the software outages have impacted reporting for the new and used car markets.

Key quote: “While reporting was more disrupted than actual sales, we estimate a decline in used retail sales for June compared to May. However, much like a weather event, we believe any lost sales in June will be recovered in July,” said Scott Vanner, senior analyst of Economic and Industry Insights at Cox Automotive. 

The big picture: CDK's outages undeniably pumped the brakes on new and used car sales, but analysts say it's a short detour. Dealerships are now in overdrive trying to make up for lost sales during the cyberattack.

Not only have sales been affected, but inventory numbers are behaving strangely too…

5. New car days' supply shoots up due to sales disruptions

Driving the news: At the start of July, the total supply of available unsold new vehicles was 2.91 million units – a meaningful increase of over 1 million units from the previous year and up 52%, according to Cox Automotive.

The intrigue: Although, month-over-month, inventory dropped by 200,000 units, the average day’s supply at the beginning of July was up 110% to 116 days. This is not typical for the industry at all and is one of the highest levels recorded, after April 2020.

Due to the disruptions caused by CDK software outages, sales noticeably dropped after mid-June and continued into early July. Cox Automotive’s 30-day new-vehicle sales trend fell by 30% month-over-month during this period. This explains why inventory, measured by days’ supply, was so high at the beginning of July.

Zooming out: While it’s hard to determine what’s going on accurately right now in the new car market, trends are expected to normalize somewhat in July and August – providing a clearer picture for the rest of 2024. 

Car industry has been putting up with a lot lately —

Major CDK outages disabled around half of dealerships for over two weeks. On top of that, Hurricane Beryl blew through Houston, one of the country’s biggest auto markets. And yesterday…

CrowdStrike bungled a Microsoft update that brought down the New York DMV and left many dealer vendors scrambling.

Hoping for a quick resolution for all who were impacted.

That’s a wrap for now – make sure you’re following along on X, LinkedIn and IG for more real-time updates.

We’ve got tons of great jobs hitting the CDG Job Board right now. Here are some standouts for anyone looking for their next move.

• Want to take your auto sales experience to the next level? Ron Marhofer Auto Family is looking for a general sales manager near Akron, OH.

• Have a knack for helping businesses grow? OPENLANE is seeking 10 market sales managers all across the country.

• Have a passion for working on cars? Braman Miami is looking for an experienced auto technician to work on Hyundai models alongside coveted luxury vehicles, including Bentley, BMW, Bugatti, Cadillac, Genesis, MINI, and Rolls-Royce.

Looking to hire? Add your roles today—it’s 100% free.

Thanks for reading. Hit reply and let me know if you found this week-in-review valuable or have any feedback. I’ll see you next weekend.

—CDG

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