Looking Ahead: What’s in Store for Dealers in 2024

“Finally, things are getting back to normal.” This could be the rallying cry for many industries this year, but none more so than the auto industry.  

The landscape is palpably different this year, filled with renewed optimism—a welcome shift from previous years of never-ending uncertainties. The resurgence of inventory levels, pent-up buyers, and returning incentives set a thrilling stage for the year ahead.

But make no mistake—this year won’t be without its hurdles. Thanks to continued high interest rates, a puzzling EV market, and declining used car values, retailers will still have their work cut out.  

Here are some key trends set to impact the auto industry in 2024 and what those mean for retailers.

The Great Normalization

At the dawn of 2020, no one could have predicted the seismic shifts that would redefine the automotive retail landscape. Nearly four years later, the industry is finally steering into a much-needed phase that many have aptly termed 'The Great Normalization.’ But what does this mean for retailers?

The Reign of Plenty is (Almost) Back: The days of vehicle scarcity are long gone, replaced by a refreshing abundance of inventory that has revived the buyer's market. This change in the industry's flow starkly contrasts the seller's market prevailing in early 2023.

Say Goodbye to Sky-High Profit Margins: As inventory levels return, say goodbye to sky-high profit margins. It’s signifying the fast-fading era of charging a premium for new vehicles, a practice now vanishing into the rearview mirrors of OEMs and dealers alike. Though seemingly counterintuitive, this price decline is steering the auto industry toward a more sustainable future. It’s forcing a recalibration, with pricing levels rebounding to foster a more competitive environment and spurring market growth.

Say Hello to Incentives: And the cherry on top? The great market reset is heralding the return of increased incentives. Driven to keep their sales momentum, dealers are refocusing efforts towards merchandising vehicles. They're rolling out a range of meticulously curated incentives to lure the savvy automotive shoppers of today. The road, however, is not without its bumps—persistent high interest rates and economic headwinds continue to weigh heavily on transactions.

Navigating the EV Puzzle

Let's chat about the evolving landscape of electric vehicles (EVs). While last year was ablaze with excitement around EVs, the flame of intrigue seems to have dimmed somewhat. EV sales are growing, true, but supply is increasing even faster, transforming the once straightforward transition to EVs into a more complex puzzle for dealerships. So, what does this mean for dealers?

There’s a Lot at Stake:  The pressure to promote and sell EVs in the face of rising inventories is building. Compounded by political influences during an election year, automotive players need to adapt their strategies accordingly. OEMs are responding by emphasizing unsold EVs and shaping attractive incentives to aid dealerships. Retailers are taking on the role of educators to enhance customer awareness about the merits of EVs to (hopefully) increase their sales.

The Dynamics are Shifting: Despite the continuing prevalence of traditional gasoline-powered vehicles, which retain a substantial 80% of the market share, the stage is set for a discernible shift towards a more balanced distribution between gas-powered cars and EVs. Some OEMs are offering bonuses to dealerships selling EVs, and the $7,500 tax credit (that may or may not stick around) is an added allure to eco-conscious shoppers. Looking at the numbers from 2023, which showed that hybrid, plug-in hybrid, and full EV cars made up 17% of industry sales, these incentives suggest a possible shift toward a more balanced future.

EVs are Here to Stay: There is no doubt that OEMs have heavily invested in their EV lines, leading to a wide range of available models. In addition, the continued subsidies and regulatory requirements from both state and federal governments further support the presence and growth of EVs.

Navigating the Dip in Used Car Value

Another noticeable trend that has caught many's attention is the decline in the value of used vehicles. While the used car market is anticipated to be less volatile in 2024 compared to 2023, there remains significant uncertainty regarding the duration and impact of this trend on the market. So, what does this mean for retailers?

The Declining Index: Right now, used vehicles are holding onto less of their worth than they did a year ago, and that’s not expected to turn around drastically this year. The fall is even more pronounced with EVs. There’s also a noticeable slump in EV residual values, making them more susceptible to these market fluctuations than their gas-guzzling counterparts.

The OEMs' Dilemma: The degrading values of used vehicles, especially EVs, pose important implications for OEMs. As used cars lose more value, it becomes more difficult for consumers to trade them in, increasing pressure on OEMs to rely on leasing options. Additionally, it throws a wrench in revising leasing options. Faced with this challenge, OEMs will be in a delicate balancing act of leasing EVs despite the mounting odds.

The Consumers and Dealers' Dilemma: With still near-record high vehicle prices and declining used vehicle valuation trends, consumers and dealers have a steep hill to climb. The recent fall in used car values offers some reprieve to potential used car shoppers, but there’s a caveat. Consumers who made hefty investments in vehicles over the past years now grapple with equity challenges when it’s time to trade in.

These are by no means all the trends in store for this year, but they’re a great place to start.

Don’t worry, we can help.

Steering into 2024 might seem a bit daunting, but rest assured, you don’t have to navigate this road alone. At Shift Digital, we have the expertise and experience to help retailers navigate the year ahead. Contact us today to learn more.