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Vehicle Sales Slow Down in Q2 2024

Summary

  • The automotive new vehicle market has slowed down in Q2 2024, defying predictions it would be one of the busiest times of the year, even as prices fluctuate on new vehicles
  • Multiple factors have affected, or could be affecting, this slowdown
  • Price uncertainty and rising costs are the two most prevalent factors
  • The uncertain political climate is another area of concern
  • The used market becoming more and more where consumers turn to get value-for-money is another factor
  • Overall, we think that the pricing uncertainty can be tied almost directly to the costs of business getting passed to the consumer, and that this was always going to happen. We just didn’t know when.

2024 is turning out to be “one of those years” where everything that is expected to happen, doesn’t. In 2023, manufacturers predicted EV sales would strengthen, but in fact, they have slowed to a crawl.

In the example presented today, manufacturers also predicted a strong Spring-Summer season based on Q1 2024 results. Yet, the truth of the matter is that sales are slowing, not insignificantly but also not too majorly, often in the range of about 8 to 14% compared to the best month of Q1 2024.

EU auto market stumbles
Even across the Atlantic, the EU is also seeing a market slowdown from Q1 to Q2 2024. Image via Energy Connects/Bloomberg

The biggest reasons for this slowdown are centered around pricing uncertainty, rising costs of business, an uneasy economy in a tumultuous political climate, and the used car market offering better value for money. We will analyze each of these points to determine what is truly going on.

Rising Costs & Pricing Uncertainty

One fact of the matter that the numbers show is that across the board, nearly every new vehicle has risen in price year-over-year compared to 2023. What is not as apparent, however, is that this has been an ongoing issue since the pandemic.

This covers every aspect of the vehicle buying experience, from costs at the factory, costs for shipping and delivery, utility and lease costs for the dealership property, and the like. This started in 2022, when the world was starting to recover from the pandemic while also dealing with a disrupted supply and delivery system, and the costs started to rise as everyone tried to recover their own individual economies.

This, consequently, has lead to pricing uncertainty. Manufacturers and dealerships both understand that to get people to buy their vehicles, they have to entice them somehow. The most prevalent way to do that is with pricing, yet prices are fluctuating almost monthly nowadays.

Take, for example, one of the best selling cars in the world, the Toyota Camry. In January 2024, the absolute base MSRP for the Camry Hybrid with no other options was $27,515. Fast forward to May 2024, and that price is now $28,855.

2024 Toyota Camry Hybrid
In just five months, the Camry Hybrid has jumped almost $1,350, leading to decreased sales and consumer uncertainty about pricing, and it’s not just centered on this one car. Image via Toyota USA

That is a difference of $1,340, or just about 4.9%. In past years, price fluctuations were measured in tens of dollars, sometimes mid-hundreds. Now, however, in 5 months, we’ve seen a price rise by over a thousand dollars. This has also caused a market differential in monthly sales, as the Camry peaked at 30,323 units sold in March 2024, but has fallen to 25,913 in May 2024, a loss of 14.3%.

This is not just isolated to Toyota either. The same type of pricing has hit many of the economy and mid-sized vehicles on the market, although companies such as Honda have kept their pricing steady and absorbing the rising cost through their other ventures such as powersports, racing, and marine departments.

This uncertainty also creates a feeling of missing out (FOMO) about getting a good price. However, the Summer season is also usually when the biggest sales happen to clear out previous year inventory to make space for next year’s vehicles, so many consumers might just be holding off on their purchase until such a sale arrives.

Political Climate

While it is not our place to argue politics on GoodCarBadCar as we remain objective on such matters, what does affect the automotive industry are the market decisions, interest rates, and other factors that are tied to the Federal Government.

With a coming election in November of 2024, the political climate has significantly impacted dealership business decisions. When polled, 36% of dealerships reported that political uncertainty have affected their decision-making process, which is up from 33% in Q1 2024, and up from 29% in Q2 2023.

Political climate in dealership decisions
While traditionally hovering around 25% to 29%, the contentious nature of the upcoming election has dealerships paying more attention to the political climate than normal in their decision-making process

The biggest factors forming those decisions are credit availability, relevant expenses, and new tariffs if they are an importer of vehicles, and that’s just for the franchised dealerships. For independent dealerships, the biggest add-on worry is inventory availability, as the bigger franchises usually drive more business and get the preferred allotment of vehicles over the “small guys.”

The Used Market

As we reported in our “Important Trends” article, the used car market is growing at an almost exponential rate. While it used to be true that consumers with disposable income often turned to new vehicles, with the economy and inflation as it is, many are turning to the used market to get a “nearly new” vehicle.

As we reported in that article, many people consider vehicles within about a 10 to 12 year range to be acceptable now, versus 7 to 9 years in 2019. As well, optional warranties on certified pre-owned vehicles from dealerships are also a major factor, as for just a couple of thousand more over the asking price, which will still be under the price of a new vehicle, a customer can buy 2, 3, even 5 year warranties on a used vehicle.

Used car dealership
Fast becoming the preferred place to buy, used car dealerships with “nearly new” cars are enjoying booming business, even as the new car market slows down. Image via Peak Business

As well, many see the used market as a measure of “true value.” Using the example from the trends article, even a decade old Honda Civic from 2014 to 2016 will still be listing for $10,000 or more, and more often than not selling very quickly, as they are known to be absolute workhorse vehicles.

The certified pre-owned market is still on course for 2024 to outpace new vehicle sales at nearly 3.5 to 1, and most of that is to do with getting value for money in an uncertain economy.

All Together

Not to present a situation as dire, but the bulk of the market slowdown has been around the uncertainty of how prices will fluctuate. As is the case with many things in an industrial ladder, the cost ultimately gets passed to the consumer at some point.

Some manufacturers are keeping their vehicles at stable prices and absorbing the costs (for now), while others are letting a little bit creep into the vehicle pricing at the moment. We think that it will be when the 2025 vehicles arrive, however, that we’ll likely see a major jump in vehicle prices to make up for the costs and pricing issues.

This isn’t altogether unexpected, however it is part of a boomerang effect of keeping vehicle prices low in 2023. Eventually, the market has to catch up, and once 2024 is over and done with, that equalization of pricing to market value is very likely.

The only way to see what actually happens, however, is to wait for August 2024 and compare prices then against the 2024 prices. Who knows, maybe some cars will stay the same and some might even lower prices after streamlining supply and production. Time will tell.