Automotive Industry: United States

[Magaly]

Q3 2024 Auto Market Insights

New Car Market

Developments:

• New car sales declined by 4.7% quarter-over-quarter (Q/Q) and 2.1% year-over-year (Y/Y). Year-to-date (YTD) sales are up slightly by 0.6% Y/Y.
• Sales, measured in seasonally adjusted annual rate (SAAR), dipped 0.3% both Q/Q and Y/Y, but YTD they show a modest increase of 0.6% Y/Y.
• Volkswagen (VW) sales fell 2.3% Q/Q and 0.3% Y/Y, though YTD sales have risen by 4.5% Y/Y.
• Cox Automotive is forecasting that new-vehicle sales will reach 15.7 million units in 2024. The forecast has not changed from earlier in the year.

• Currently, supply is 2.9 million, up 40% from last year’s levels, but still below 2019 levels.
• 77 days of supply. up 26% from last year, in line already with 70-80 days supply in 2019.

• Average transaction price of new car in September 2024 was 48,397, is basically flat for the quarter, and only lower year over year by 0.4.
• Incentives continue to rise to 7.3% of ATP, however, remain below pre-pandemic levels of 10-11%
• A shift in consumer preferences is noticeable, with some of the more affordable vehicles driving sales growth YTD. So sales mix is also impacting transaction prices and profitability.

• Affordability continues to increase, the number of median weeks of income needed to purchase the average new vehicle declined to 36.1 weeks from a downwardly revised 36.8 weeks in July, reaching the lowest level since May 2021.
• The typical payment in August declined 1.6% to $737, the lowest in two years.

[Magaly]

The Average Amount Owed on Upside-Down Car Loans Hit an All-Time High in Q3 2024, According to Edmunds

24.2% of trade-ins toward new vehicle purchases had negative equity, up from 23.9% in Q2 2024 and 18.5% in Q3 2023.

• 22% of vehicle owners with negative equity owed $10,000+ on their car loans, and 7.5% of vehicle owners with negative equity owed $15,000+.
• Negative equity is prevalent across all vehicle types being traded in. For example, in Q3 2024, midsize SUVs, compact SUVs and large trucks made up 19.5%, 17.3% and 10.3%, respectively, of all vehicles traded in with negative equity.

“Consumers owing a grand or two more than their cars are worth isn’t the end of the world, but seeing such a notable share of individuals affected at the $10,000 or even $15,000 level is nothing short of alarming. A combination of uncontrollable market factors and misguided consumer financial decisions are contributing to the rise of this troubling trend,”

[Magaly]

Auto Financing Conditions Continue to Squeeze New-Vehicle Buyers in Q3 2024, According to Edmunds Experts

• The average new-vehicle APR in Q3 2024 remained elevated at 7.1%, which was the same as in Q2 2024.
• 0% finance deals remain nearly impossible to find (or qualify for)
• 69% of new-vehicle loans had terms over 60 months in Q3 2024, similar to a share of 70% in Q2 and 69% in Q1. Edmunds analysts note that 84-month auto loan terms are on the rise, accounting for 18.1% of new-vehicle loans in Q3 2024, compared to 17.3% in Q2 and 15.8% in Q1.
• The share of consumers taking on loans with new-vehicle monthly payments of $1,000 or more was 17.4% in Q3 2024, marking the sixth consecutive quarter that the share of $1,000+ monthly payments was above 17%.
• In a survey of consumer planning on purchasing a vehicle in the next 12 months, 62% of the respondents stated that they have held off on buying a new vehicle because of high interest rates.

“Longer loan terms might make monthly payments more palatable for consumers, but the harsh reality is that most Americans don’t want to keep their vehicle for seven years,” said Ivan Drury, Edmunds’ director of insights. “Simply put, longer loan terms put car owners at greater risk of rolling negative equity into their next auto loan.”

[Magaly]

COX Q4 2024 Summary and Forecasts for 2025

Q4 2024 saw a 5.1% q/q jump in sales (16.4 SAAR), helping end the year at 15.8 million (2.2% Y/Y) vs the forecast of 15.7 million

• There could be a pull-forward of demand due to the anticipation of tariffs
• Consumers are shifting towards smaller and more affordable options. However, this trend may reverse as interest rates decline further.
• Due to affordability constraints, retail consumers are increasingly opting for leasing instead of outright purchasing vehicles.
• Days supply is back to pre-COVID levels, leading to higher discounts and incentives.

Estimated Q4 EV sales volume up 12%, driving total EV sales to 1.3 million and capturing an 8% market share.

• Used EV market volume up 52% year over year.
• Hybrids gaining the most market share in 2024
• The days supply between EVs and ICE is narrowing, but the premium of EVs remains over $10k.

2025 Forecast

Their assumptions:

• The economy is projected to grow at 2.6% in 2025, with a stabilizing labor market and no additional rise in unemployment.
• Consumer and business sentiment are improving.
• Concerns over inflation and tariffs could pull demand forward.
• Affordability improving but remains the industry’s biggest challenge: higher incomes, lower used car prices, more new vehicle incentives, and better loan access.
• Risks of rising tariffs and interest rates are not negligible anymore
• Policy risks include the removal of IRA credits, weaker fuel efficiency standards, immigration changes, and new tariffs.
• Fiscal policies may take time to impact but could boost short-term demand due to pull forward of demand.
• Tariffs, if enacted as proposed, could disrupt the auto market. No assumptions made yet.

Cox is expecting new vehicle sales will grow by 2.8% in 2025 to reach 16.3 million

• Used car prices will return to the historical average increase per year
• EVs are expected to reach 10% market share from 8% in 2024, due to new models, improved charging infrastructure, advancements in battery tech