In the ever-evolving landscape of the automotive industry, 2024 presents a unique set of challenges and opportunities. Let’s look at the car market going into 2024. As interest rates stay high, we are beginning to see pre pandemic inventory levels on dealer lots. However, prices on these lots remain high for a few reasons. Demand for new cars remains high and many automakers have changed their production processes to try and keep demand high. The Federal Reserve, the body of government that controls interest rates, has been inadvertently fighting against the rising price of cars. Their main fight is to get overall Inflation down to 2%. So, will prices crash? Or are we in for higher prices for longer?
Auto makers have not returned to pre-pandemic business practices. The days of overflowing dealer lots with pre-pandemic inventory are back, but prices remain resilient. Why? The answer lies in a deliberate shift towards a more demand-centric model. Automakers are sidestepping excess production, opting instead, for a made-to-order approach. This move not only keeps demand high but also helps sustain elevated prices. Used wholesale prices recorded a 7.7% year over year drop in November 2023 according to CNBC, reflecting the impact of higher interest rates on consumer decisions. It's a scenario shaped by the aftermath of soaring used car prices during the pandemic. Prompting many to opt for financing new cars at a slightly higher monthly cost.
New cars are in an interesting predicament, while demand is still high. New cars have lower interest rates, compared to new cars. And, with a seemingly longer driving life and dealer warranties new cars are far more enticing. As interest rates remain high over the next few cycles automakers will have to start offering incentives and clearing out old inventory. Outside of Tesla many EVs (Electric Vehicles) are priced too high for the current interest rates. Tesla slashing prices spring in 2023 helped counteract the impact of high monthly payments, from rising interest rates. Reflecting an extreme understanding of market dynamics.
Looking ahead, the crystal ball for new car prices remains clouded. While the era of market adjustments might be fading, automakers are armed with adaptive production processes. This shields them from overproduction pitfalls and the need to sell at a loss. If sales slow in the face of extended high interest rates, the industry can flex its muscles by adjusting prices on services or making internal cost cuts. Consumer loan borrowing costs might be the only wild card, but even here, incentives become the strategic lever. The road ahead promises challenges, yet the strategic shifts and smarter more informed consumers point to an industry poised not just to weather the storm, but to navigate it with finesse.
Comments