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Top 5 stories of the week: Interest rates stall, new car supply grows, used EV deals heat up

All the industry insights in under 3 minutes

June 15, 2024

Hey, everyone. Ford Motor Company scrapped its EV certification program this week. This means its dealers no longer need to get “certified” to sell EVs. The program had been in the works for a few years and required dealerships to invest big $$$ in their facilities — over $1M per dealership in some cases.

How are you feeling out there Ford dealers? Reply to this email and give me your unfiltered thoughts/reactions.

—CDG

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Car Dealership Guy Week-in-Review

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. New vehicle inventory is slowly creeping up to the 3 million mark

New car supply rose in May as inventory continues to recuperate, but pre-pandemic levels are still a little ways off. 

Driving the news: At the start of June, new car supply reached 2.89 million units. This was 50,000 more than at the start of May, according to new data from Cox Auto. 

  • Year-over-year, inventory is up by nearly 1 million vehicles. 

  • Fueled by a strong close to May (Memorial Day is typically a big selling day for dealers), the industry average of days’ supply declined 4 days month-over-month to 74.

Why it matters: Model year 2025 vehicles are starting to fill up dealer lots, yet a good chunk of 2023s are still outstaying their welcome. Incentives and discounts are likely to stay and may even increase.

These more generous incentives from OEMs are giving some dealers the boost they need to move aging metal by driving down average listing prices.

2. High inventory continues to push new car prices down

Big picture: Although statistically unchanged from April ($48,368) the Average Transaction Price (ATP) for May was $48,389, down 0.9%, year-over-year. 

What’s more: An increase in incentives also made new cars more affordable in May.

  • Last month incentives made up 6.7% or $3,200 of the ATP, says Kelley Blue Book. 

  • This is an increase from April and the highest level since May 2021. Last year, discounts were only 4% of the ATP. 

Yet, EV incentives outpace the overall market by nearly double. The average discount for an EV was 12.4% ATP, 5.7% higher than the industry average. And it's driving prices down at a more accelerated rate. Industry-wide EV prices last month declined year over year by 4.1% to $56,648.

Why it matters: The return of inventory and incentives are giving car buyers a wider breadth of more affordable options. Yes, new cars are still transacting at high prices, but there are still plenty of lower-priced cars out that are within reach for many consumers. Dealers, on the other hand, have an opportunity to increase their sales volume under these conditions. 

This is especially true given the Fed’s latest (and widely expected) decision to leave interest rates unchanged.

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3. Average new and used car loan rates move in opposite directions in May

By the numbers:

  • Average new car loan rates ended May at 7.3%, a 0.1% increase from April but below the high of 7.6% in October 2023. New vehicle loan rates have steadily risen since the start of the year. 

  • Used car loan rates fell 0.1% from April to May and are now at 11.5%, the lowest level since January 2024.

Why it matters: The Federal Reserve's attempts to curb inflation haven't been as effective as hoped. Interest rates are at multi-decade highs, and while inflation slowed in April to 3.4%, consumer spending was weaker than anticipated.

Bottom line: The overall cost of owning a car is climbing steadily, squeezing household budgets. 

  • The average buyer will now pay an additional $4,250 in interest over the life of their loan compared to 2021, according to Edmunds. 

  • With interest rates hardly budging, car loan payments could continue to strain car buyer wallets for the foreseeable future, despite prices dropping. 

But there’s a bright spot for budget-conscious consumers: Used EVs.

4. Why used EVs are some of the best deals in the auto industry

Used EVs are now 8.3% cheaper on average than used gas-powered cars, reflecting the impact of price cuts and intensifying competition in the fledgling segment.

Why this matters: Used EVs are now one of the cheapest options for car buyers, with price declines showing little likelihood of stalling. Conversely, ICE vehicle prices have largely stabilized despite the increase in demand, possibly making them a less competitive option in a market where affordability is key.

Why are used EV prices falling so fast?

Tesla’s strategy of slashing prices to spur demand is likely the primary driver of depreciation in the used EV market. While not alone in this tactic, the brand’s 50%-plus control of the electrified segment magnifies the impact of its decisions.

Bottom line: While it may seem possible that used EV price declines stem from a demand shortfall, that doesn’t make sense given that sales of preowned electric cars have been skyrocketing. In fact, Cox Automotive’s wholesale platform, Manheim, expects to auction off three times the number of EVs it sold in 2023 by the end of this year.

But a recent study indicates that more than 40% of EV buyers in the U.S. will purchase a gas vehicle the next time they shop for a car.

What our readers say:

5. New research challenges the narrative on EV buyer satisfaction

McKinsey & Co, a global management consulting firm, published its consumer study focused on EV buyers.

Here are the main takeaways:

  • Forty-six percent of EV drivers in the U.S. plan on buying an ICE vehicle for their next car purchase.

  • That number drops to 29% on a global scale.

  • The number of current ICE car owners who plan on buying an EV or hybrid rose to 38%, up slightly from 37% two years ago.

Why this matters: This study conflicts with other research focusing on EV buyer satisfaction, which typically suggests that most electric car drivers have no plans to return to an ICE vehicle. This raises questions on both sides about the EV owner experience, underlining the need for more research.

Bottom line: While the results of McKinsey’s research are surprising, it is still important to note that a majority (54%) of the firm’s respondents were still open to the idea of buying another electric car. However, the exact ratio of happy and disillusioned EV owners is up for debate.

What our readers say:

That’s all for now – make sure you’re following along on X, LinkedIn and IG/FB for more real-time updates. Enjoy your weekend!

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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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