New car market shakeup

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Q2 results are in, and industry-wide sales were up less than 1% year-over-year, held back by unforgiving interest rates and the last-minute CDK Global cyberattack.

But, as always, there’s more to this car market than meets the eye. If you paid close attention, you’ll have noticed that big changes are on the way…

1: Traditional profit drivers are losing ground

Typically, big cars = more money. According to Reuters, General Motors stands to make more than $10,000 in profit for every truck and SUV it sells over the next ten years.

Why is that the case?

• For one, these vehicles have lots of advantages that other, smaller cars lack: towing power, roomy cabins, and off-roading capabilities…

• For pickups, federal policies like the so-called “chicken tax,” a decades-old 25% tariff on imported trucks, means that domestic brands face almost zero competition from foreign manufacturers – allowing them to set prices however they want to.

• Big vehicles can also carry tons of extra technology and added features, fattening up the price tag even more.

Long story short, there’s lots of incentive to get these vehicles into the hands of buyers, who, until recently, have eagerly accepted.

But times are changing. In years past, low interest rates and a healthy dose of manufacturer incentives meant that consumers could afford these bigger vehicles.

Today’s market is far less forgiving, and buyers are starting to lose interest. To get a clearer picture of this, let’s look at two segments: full-size pickups and SUVs.

Full-size pickup sales shrank about 1.7% in Q2, hitting 580,316 units, which is almost the same year-over-year decline that we saw in Q1 (-1.6%). Without context that might not sound like a big deal, but if you look back just one year ago, things were VERY different.

• In Q2 of 2023, sales were up 10.7% year-over-year in the first six months.

Some of the past biggest winners in the segment were this year’s biggest losers. F-Series sales dropped about 8% in Q2 (down 10% in the first six months of 2024), while Ram pickup sales plummeted roughly 23%.

Full-size SUVs fared slightly better, with sales up about 1.13%. But, much like pickups, many of the mainstream entries gave a sub-par performance in Q2. Chevrolet models performed the worst, with the Tahoe falling 14% and the Suburban falling 29%. Meanwhile, the Nissan Armada undersold last year’s sales by roughly 18%.

But while big vehicles are seeing a smaller and smaller piece of the pie, there’s another, even more noteworthy trend taking place. That brings us to the second point -

Billions of dollars in the auto industry vanish each year thanks to a booming crime:

Synthetic identity fraud.

According to the Federal Reserve, it’s the fastest-growing financial crime in the U.S. Here’s how it works: fraudsters cook up fake identities, build credit profiles using real and fake information, and then finance a vehicle with zero plans to pay. A few months of payments keep them under the radar, but soon, they're gone with the vehicle, leaving dealers and lenders holding the bag.

Don't be fooled by outdated fraud protection. The crooks are getting smarter, their schemes more high-tech. Experian Automotive can help you outsmart them, predict and prevent fraud before it strikes, and save your bottom line.

2: Smaller vehicles are making a comeback

Demand for small, mid-size, compact and subcompact cars is flooding back into the market. No matter where you look, success stories are everywhere.

Let’s take a quick look at the heavy hitters:

Compact and mid-size pickups: Sales of the Chevy Colorado and GMC Canyon skyrocketed in Q2, jumping 35% and 69%, respectively. The Ford Maverick, on the other hand, jumped 81%. One follower on Instagram summed it up perfectly:

Mid-size cars: Toyota Camry sales have been exploding this year. Sales were up 318% in Q2, blowing basically every other model out of the water in terms of growth.

Subcompact SUVs: Chevy’s smaller Trax SUV recorded a huge 153% surge in sales over Q2 2023, pushing its year-to-date sales up 230%. Ford’s SUV lineup is also having a stellar year. According to its Q2 report, the Blue Oval brand sold more SUVs between January and June than at any point in its history, beating the previous record set in 2017.

Compact cars: Compacts are seeing an unprecedented comeback. Nissan sedans like the Sentra and Versa jumped more than 40% in Q2. The Honda Civic came close behind at 38%, while the Toyota Corolla rose 25%.

Why is this happening and what does it mean?

The obvious answer here is affordability. Interest rates are brutal, monthly payments are high and insurance premiums are unaffordable. And as many of my followers have noticed, there’s a disconnect between what today’s buyers can afford and what automakers are charging for full-size trucks:

Based on Q2 sales data, I assume consumers are changing their buying habits to offset other financial burdens, which means shopping for smaller, cheaper vehicles.

But here’s the thing: this isn’t the first time the industry has seen something like this happen. Coming off the 2008 recession, automakers realized buyers were struggling to afford the big cars they’d been making for the last decade. So they switched gears and started putting out small, cheap-to-make, cheap-to-buy cars. How did dealers survive this shift back then?

1. Marketing: The end of the recession saw dealers begin to use data more effectively, allowing them to find the right kinds of buyers for their inventory. Not only could they generate leads, they could direct these leads to the exact model they were looking for. Nowadays, marketing technology is far more advanced. If retailers want to continue driving sales, they’ll need to carefully revisit their strategies to make sure they’re keeping up the shift to smaller cars.
   

2. Back-end profit: The 2008 recession, despite exposing plenty of weaknesses did uncover one strength: the resilience of fixed-ops. While front-end profits have been on the decline for several years, back-end profits, earned through operations like service and F&I, have been steadily climbing. Dealership groups reported about $4 billion in combined parts and service revenue for Q1, up 4.5% year-over-year. And price-conscious buyers who opt for a smaller vehicle might have more room in their budget for a vehicle service contract and comprehensive insurance plan than someone splurging on a gas-guzzler.

Dealers have a track record of surviving everything the market has thrown at them, whether that be low demand or tighter profit margins. But the landscape is shifting, and the tides are turning from the big trucks and SUVs to more budget-friendly rides.

The big question: Should dealers double down on compact cars, or is this just a temporary blip that will see car buyers reverting back to old spending habits at the first whiff of interest rate cuts?

Thanks for reading. See you on the next edition…

—Car Dealership Guy

The auction visionary: Selling 1.3 million cars a year- In this episode, Car Dealership Guy is joined by visionary Shiv Dutt, senior vice president of OPENLANE, a digital wholesale platform serving dealers across the U.S. Shiv discusses the importance of incorporating digital technology into the car business and takes us on tour through the latest automotive trends, from pricing to dealership management.

Dealership data wiz: Beating the algorithm to sell cars - Jeremy Nowling, sales, digital retailing, and implementation Director for the Rohrman Auto Group, joins Car Dealership Guy to share his secrets for sales excellence. In this episode, Jeremy discusses staying with Rohrman for over 25 years, beating the algorithm to sell more cars, how to "sell to zero,” adapting to catastrophe, and where A.I. is adding value, plus much more.

Listen to the episodes here, and subscribe to the CDG Podcast on Apple, Spotify, or wherever else you get your podcasts. And thank you to Uber for Business, Cars Commerce, Auto Hauler Exchange, Private Auto, and CDK Global for making these episodes possible.

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.

• Are you an experienced team leader looking to put your sales knowledge to good use? Ron Marhofer Auto Family is looking for a General Sales Manager in Ohio.

• Know the ins and outs of auto insurance? Toyota is searching for a Vehicle Parts & Labor Claims Customer Advocate in Texas.

• Have a passion for automotive marketing? AutoNation is looking for a Parts Marketing Manager to join its team Fort Lauderdale.

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

• Honda expects to outpace U.S. rivals in 2024.

• Mercedes-Benz and Starbucks to join forces on EV charging.

• Upcoming change to tighten regulation on Chinese-made car software.

• Stellantis EV buyers get choice of free charger or $600 credit.

• Toyota faces controversy over promoting hydrogen-fueled Mirai at Olympics.

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