What's Next for the Car Market?

Welcome to the first edition of the Car Dealership Guy Market Update brought to you by Edmunds.

From insider-only dealership insights to macroeconomic trends, my goal is to make you smarter and more informed about the state of our car market in less than an hour.

Today’s guests are Jessica Caldwell, Head of Insights at Edmunds, and Kevin Frye, eCommerce director at Jeff Wyler Automotive Family.

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(00:00) - Intro

(02:11) - Introducing Kevin and Jessica

(03:33) - The state of the market

(05:07) - Price trends

(09:22) - Auto financing

(11:09) - Leasing

(18:31) - Acquiring inventory

(20:43) - The affordability issue in new cars

(27:55) - Shopper behavior

(29:20) - Sales volumes

(33:49) - Brand performances

(39:40) - EVs

(41:07) - Dealer growth strategies

(42:26) - Outlook for the next 90 days

1. Shifts in new and used car prices.

After months of creeping higher and higher, new car prices are declining due to the return of inventory. As a result, used car prices are also normalizing, spurring demand for preowned models. However, while dealers and consumers hope for a return to normalcy, cars are still much more expensive than they used to be. Although incentives are helping to lower monthly payments, Jessica thinks it unlikely that prices will ever return to a $30,000 average. At present, new cars cost around $47,000 on average and used cars cost $37,000.

2. Affordability is key.

For dealers, affordability has become a key focus, with factors such as rebates and incentives playing a big role in spurring demand. Many consumers are opting for used vehicles in search of a better deal, which Kevin notes has sapped demand away from new cars. For most buyers, low monthly payments are the goal. This has led to an increase in the number of leases, presenting opportunities for manufacturers and dealers.

3. The focus on low payments.

On the financing side, buyers have shown more willingness to take on long-term loans so that they can continue to afford the vehicles they like. Jessica echoes Kevin’s point that leases have become more popular as low payments have taken priority over the full cost of ownership, although they still represent a minority of cases.

4. The impact of interest rates.

Interest rates are, by far, the biggest frustration for consumers. In the years leading up to the COVID-19 pandemic, people were incentivized to buy buy bigger cars such as SUVs and pickups due to low interest rates. Now that rates are high, consumers are unable to afford the models they were used to, leading to anger and bewilderment. This has made it challenging for buyers and dealers.

5. Used cars are getting more popular.

Many buyers are turning to the used car market in search of deals. Unfortunately, this presents a challenge for dealers: getting enough inventory to meet demand isn’t easy. However, Kevin notes that there are still many cost-effective opportunities for retailers to acquire preowned supply. Citing a study conducted by the Jeff Wyler group, Kevin notes that an overwhelming percentage of consumers prefer to sell their car to dealers due to a rapid increase in fraud and crime impacting private transactions.

6. The vanishing of the $20,000 car.

While in the past new vehicles priced at or under $20,000 represented a small but significant portion of sales, today virtually 0% of new cars retail at this price. While roughly 5% are still priced in the $25,000 range, the vast majority of buyers today are paying well over $30,000. This helps illustrate why so many shoppers are opting for preowned models.

7. How website usage is changing.

Kevin explains that the impact of affordability is visible in the way consumers engage with dealership websites. The number of credit pre-approvals are growing, with digital retailing tools seeing a sharp increase in usage. Kevin observes that many shoppers are using these tools just to see if they qualify for the vehicle they want. While he notes that leads are declining, he adds that leads can also be worked more aggressively, a perspective that has allowed his team to increase closing rates despite the market’s challenges.

8. AI leads to more sales.

Technology is proving to be a game changer. Kevin explains that live chats powered by artificial intelligence are not only helping consumers find answers faster but also driving more business to dealerships. AI platforms that can help shoppers set up appointments after-hours are especially helpful. Kevin believes the next major innovation in dealership AI will be a tool that can route a specific customer to the best possible dealership for their unique circumstances, rather than recommending a storefront based solely on location or availability.

9. Which brands and models are selling?

Toyota continues to be the strongest performer in terms of sales, with Honda coming in a close second. Two brands that are struggling in today’s market are Stellantis and Nissan, although their challenges come from different sources. Stellantis is cutting MSRPs on certain models in an effort to drive up sales, which have been shrinking for multiple quarters. Nissan, on the other hand, is largely struggling due to its aging product lineup. While electric vehicles are performing worse than most expected, hybrid demand is skyrocketing.

10. Looking ahead.

Whatever strategy they use, Kevin urges dealers to practice caution in the months ahead. While sales volumes are unlikely to rise, tactics that drive operational efficiency can be used to expand profit margins, especially when coupled with technology. Jessica expects to see more discounting in the future, which will help drive demand to new and used vehicles. Since interest rates are unlikely to change anytime soon, automakers will need to focus on incentives if they hope to move product.