The real pulse of the car market

Hey, everyone. Here’s a wild stat to start your day: The U.S. automotive wrap films market is anticipated to reach $4.3 billion by 2028. That would mean a compound annual growth rate of almost 20% from 2021. Chalk it up to an increase in 1) spending on vehicle wraps as advertising and 2) our growing obsession with racing and race teams.

I smell a new niche industry to watch. 👀

—CDG

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Today’s Biggest News

The Pulse of the Car Industry

Normalizing electric vehicle demand. Shrinking profit margins for dealers. Soaring insurance premiums. High interest rates. With so many widely impactful stories driving the automotive industry, it can be difficult to know what really matters—what’s really going on.

That’s why I love asking all of you for your POVs. I recently asked dealers to share how their month(s) were going, and I got 220+ responses in under 24 hours. So today, I’m trying something new: sharing the findings with all of you. Got feedback on this market pulse check? Hit reply and tell me what you think. This is an imperfect experiment and will only get better.

Any way…here’s what I learned—the biggest forces driving the auto market, straight from the dealers running lots.

The general consensus? It’s a tale of two industries. Some areas reported strong sales and made a case for optimism. For example, gross at a Ford franchise in Texas is tracking better than it has for the last three months. And luxury and EV models are doing big numbers in Arkansas.

Other dealers, though, noted slow customer traffic, inventory issues, and economic headwinds that make optimism feel out of reach. Trade-ins are down and repos are up for some dealers in California, and one Nebraska Subaru dealer is navigating their worst month in five years.

Let’s break this down even further. A few learnings from the dealers who responded can tell us a lot about where the auto industry is headed.

Learning 1: “Tax refund season” has kicked off, and it’s influencing buyer activity. Car sales (especially for used models) often surge in the spring as weather improves and people receive their tax refunds. This year?

• $67 billion in refunds had been issued as of February 16.

• As of this week, tax refunds are seven processing days behind last year. Because of that, 25% fewer refunds have been issued compared to this time last year.

• But: The average refund, coming in at $3,207, is up 2% from a year ago.

Looking ahead: Q2 is often a strong quarter for consumer spending. This year is shaping up to continue the trend, according to the insights dealers shared with me, especially in the buy here, pay here segment. 

Learning 2: Inventory issues aren’t solved yet. Dealers told me it’s increasingly difficult to find affordable inventory for resale. In fact, inventory (along with pricing) is still a top concern for anyone in the used market.

Worth noting: Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) decreased 0.9% from January in the first 15 days of this month, according to Cox. Plus, the Manheim Used Vehicle Value Index dropped to 202.1, down 13.8% from the same time last year. That data could suggest that inventory trends are headed in a better direction than dealers might think.

Part of why inventory concerns are persistent, even if the stats paint a rosier picture? Fears that the lack of new vehicle supply in 2021 during the pandemic is now impacting the used market—no new vehicles 36 months ago means fewer lease maturities starting this year.

• At the beginning of this month, there were 2.3 million unsold used vehicles in the US, down from 2.4 million in January.

• And days supply of used models shrank from 58 at the start of the year to 49 this month.

Learning 3: The economy is still a major concern. Sure, the job market remains strong, the Fed expects to start cutting rates later this year, the stock market is up, and wages are outpacing inflation. But all of those economic indicators can’t change how people feel…and people feel iffy on the economy. About 6 in 10 people polled by CBS last month said they rated the economy as “fairly bad” or “very bad,” even as the University of Michigan consumer sentiment readings continue to edge higher.

And the insights dealers shared tell the same story. They told me, anecdotally, that negative equity and lower trade-in values are affecting new car sales (FYI, last year, drivers were underwater on their loans by the most since pre-Covid times).

So although there are plenty of economic indicators that suggest we’re in good shape at the macro level, the reality (at least for some dealers) is that consumers are managing concerns at the micro level that severely impact their ability to walk off a dealer lot with new keys—and that certainly includes affordability. 

The average cost of a new car in the U.S. is roughly $47,000 these days, up some $10K from pre-pandemic levels. And consider the below chart from the St. Louis Fed tracking the consumer price index for new cars in the US.

Bottom line: Potential buyers are easing back into the market as tax refunds hit bank accounts and vehicle prices drop. Dealers are doing their best to navigate an unprecedented environment marked by a lack of affordable used cars and tight financing conditions. And everyone’s waiting for interest rates to come down. After many months of fitting squarely into the “normalization” chapter of the post-Covid auto industry, it seems we’ve moved on to the next era…the “wait and see.”

This Week’s Episodes of the CDG Podcast

Can AI change the future of auto retailing? Devin Daly, CEO of Impel, has plenty to say on the matter…plus how dealerships can evolve using tech, where buyers are most frustrated in the retail process, and the biggest “oh sh*t” moments as an auto entrepreneur. This one is an all-timer.

Are you losing money because of a simple accounting mistake? It happens to dealers all the time. So I spoke with Frank O'Brien, a partner at Withum, to understand more about financial fraud in dealerships…plus finding and retaining top tech talent, zeroing in on untapped warranty reimbursements, and tons more. This one covers loads of insightful stuff.

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 Private Auto, Valvoline, Cars Commerce, CDK Global, and Withum for making this content possible.

Together with Valvoline

Sure, you recognize the name. But did you know Valvoline is so much more than just a lubricant supplier?

For its dealership customers, Valvoline is an integral part of their business. Valvoline supplies world-class products…but also provides hands-on training and expertise, service lane technology, service advisor sales training, marketing support and promotions, and a full portfolio of lubricants and preventive maintenance chemicals.

This means Valvoline provides more value than a typical supplier, allowing dealers to consolidate their fixed-ops vendors and suppliers and focus on moving their business forward.

Click here to get in touch with Valvoline.

Overheard at the Dealership

ICYMI — I spoke with a prominent dealer who made a bold statement:

“Stellantis (Chrysler, Jeep, Dodge, Ram) is now the Kia of 15 years ago.”

My POV on what that means: It’s going to be a sh*tshow for a while.

• Stellantis dealer sentiment is on the decline. Prices have increased ~50% since 2019.

• The vehicle assortment leaves a good deal to be desired.

• Stellantis was the only major automaker to post lower sales in 2023 versus 2022.

• As one of you put on X, Stellantis has a not-so-great reputation for both reliability and fuel efficiency.

And? Stellantis-owned Jeep just announced it’s lowering prices and adding models and features to its lineup in a bid to regain its lost US market share.

Highlights from the CDG Job Board

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.

• This is a cool one: Plug (an online auction that facilitates wholesale buying and selling of used EVs via a network of licensed dealers) is looking for a business development representative in LA.

• Southern Auto Finance is seeking relationship managers in LA, Oakland/the Bay Area, and Pompano Beach, FL.

• And if you want a remote job? SentiLink, which works in identity and risk solutions, is hiring a business recruiter.

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

The Backlot

• Apple is reportedly winding down its efforts to build an electric car, putting an end to a decade of R&D. (!!!)

• Plug-in hybrids were the fastest-growing light vehicle sold in the U.S. last year, rising 60% to 293,558 vehicles.

• Toyota is recalling 400,000+ Tacoma pickups globally thanks to a manufacturing defect that could cause a part to loosen and fall off.

• February started with 80 days of industry-wide new vehicle supply, the highest since June 2020.

• Lithia Motors has acquired Carousel Motor Group—a nine-store setup in the Midwest that Lithia estimates will add $900 million in annual revenue.

Thanks for reading. Last week, I asked whether you thought online car sales would meaningfully impact the dealership model in the near future. And 70% of you said yes. The main reasons why? Better prices for drivers and more convenient retailing setups. 

Thanks for sharing your thoughts with me—it means a ton. See you next week.

—Car Dealership Guy

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