Automotive
Trends Report

Sales Performance

Retail Vehicle Sales Continue to Move in a Positive Direction

Dealers, OEMs and automotive professionals have worked to quickly pivot in the face of extreme challenges nationwide, but the effort continues.  

Cost inflation is the most notable trend affecting both customers and dealers. Labor expenses increased domestically due to the new union regulations, and there is pressure to raise wages at import OEMs too. The cost of parts and labor, plus more advanced technology in cars is making them more expensive to build, sell and repair, and those increased costs will eventually trickle down to buyers. The key here is to be thoughtful about how this impacts your dealership and how it impacts your customers to find a balance between profitability and customer experience.

F&I and Front PVR

F&I PVR continues to see the impacts of high interest rates and affordability concerns from customers wary about the state of the economy. We saw lower PVR in 2023 compared to the year prior. However, when looking at pre-pandemic data, F&I PVR was higher last year than in 2019. This shows that certain areas of the automotive industry continue to rebound from the pandemic years, or even push past records we previously saw. We anticipate F&I will be a strong opportunity for dealers to reach more customers this year. 

F&I PVR

Although supply by brand varies, we’ve seen an overall increase in inventory, and a decrease in Front PVR. Like F&I PVR, this metric is still above 2019 levels. Even as the rumors of a recession become quieter, it is still crucial for dealers to adapt their selling strategies and business plans. Competition seems likely to increase this year as more OEMs cut prices or add extra buying incentives to entice customers back. Dealers should continue to find opportunities to maximize each sale by improving the customer experience to attract and retain buyers. Whether through leasing options, vehicle service contracts or finding competitive financing options and interest rates for buyers, this crucial area will remain a focus for many dealers this year. 

FRONT PVR

To position your dealership for success, we recommend having a full suite of F&I products available to your customers for all deal types to enable your business manager to personalize the customer experience and match products appropriately to the customer, increasing customer satisfaction and retention. As we look back at 2023 and prepare for 2024, it can be a good time for dealer teams to revisit your product strategy and realign pay plans. 

Vehicle Sales

Used Car Values Fluctuate in a High Interest Economy

In our mid-year 2023 report, we anticipated the value of used cars would continue to decline, and after a small peak in September, we saw a continued dip through the remainder of 2023. As compared to the Manheim Used Vehicle Value Index, they noted that valuations were down nearly 25 points in June 2023.

MANHEIM USED VEHICLE VALUE INDEX

January continues to be an interesting month to review data – as a new year begins, it is easy to look to immediate data as a source for the upcoming year. However, remembering that January comes after a heavy-sales month for many dealers because of the holidays, sales may ebb and flow during the first few weeks of a new year, especially with significant winter weather across much of the nation. 

If inventory continues to improve, we anticipate manufacturers will increase incentives and some dealers will feel the pressure to discount prices. With new cars being priced lower, we can expect used car valuations to continue to decrease as well in 2024. 

It's important to note that while today's consumer is still concerned with getting the best deal, they're also seeking the best customer experience. By prioritizing this, dealers can lead their market while also protecting profits and offering options to their customers.  

Used Car Days on Lot Sees Huge Swings in 2023 

At this time last year, we were seeing new cars parked on dealership lots around 43.4 days - a high that dipped significantly at the start of the year, then swung upward through December, ending slightly above January 2023. As new vehicle supply and incentives return, we can expect used car valuations to continue to dip, even as demand for used vehicles remains strong in the still-inflated market. 

USED CAR PRICES VS. DAYS ON LOT

New Car Costs Begin to Favor a Buyer’s Market  

Prices for new cars remain high, and we ended December as the most expensive average price ($48,899) we’ve seen in more than two years. The number of days on lot is also significant to note – from January 2022 to December 2023, dealers have mostly experienced a rise in the number of days that new cars remain unsold. We anticipate customers may get a reprieve as inventory continues to rebound and OEMs slash prices or add more incentives to compete with other manufacturers. Lower interest rates will also provide relief to consumers and help reduce monthly loan payments. 

Greater incentives will make this an attractive market for new car buyers, especially among those consumers who have been holding onto their aging vehicles and waiting to make their next vehicle purchase until interest rates and prices begin to drop.

With formerly hesitant buyers preparing to enter the market and a new influx of used vehicles about to become available, dealers should encourage ongoing sales training to keep their staff up to date with consumers’ changing needs. 

NEW CAR PRICES VS. DAYS ON LOT

Car Sales Decline Over the Past Year  

Overall, car sales fluctuated less in 2023 than the previous year, and December marked the first month of year-over-year volume, a welcome change for sales teams everywhere. Although December is typically a high-sales month for many dealers, if interest rates dip and manufacturers continue to offer attractive incentives, we could see this trend improve in 2024. 

CAR SALES

Vehicle Service Contracts and Products Per Deal Decrease Over Previous Year   

Vehicle service contract penetration remained lower than 2022 levels, though we ended the year with only a slight differentiation. As the industry continues to normalize and vehicle purchase prices regulate, we believe contract sales will rise to levels we’ve seen in former years. 

VSC

Products per deal also dropped slightly over the last year compared to 2022. With the rising cost of repairs and labor rates, there's an increased opportunity for business managers to reinforce the value of VSCs by educating consumers on the benefits of buying service contracts and avoiding the shock of unexpected repair costs in the future. Training your business managers in consumer experience and effective communication techniques can help your dealership effectively sell more F&I products to new and returning customers. 

PPD

GAP   

GAP product penetration trends are similar to VSC and PVR, trending lower than 2022. With economic uncertainty in 2023, higher interest rates and tightened loan parameters, consumers on average opted for higher down payments and shorter terms, decreasing the need for GAP. Consumers may also feel less risk or perceive GAP as less necessary when they write checks for larger down payments or benefit from record high used car values that result in positive equity on their trade-ins.  

GAP

Automotive Industry Updates 

New and Used Car Interest Rates Remain High   

As financing terms extend to help customers afford vehicles, we examined the average interest rate for new and used vehicles on a 72-month loan. From October 2022 to December 2023, interest rates for new car loans ranged from 7.0 - 8.3%. Despite a brief reprieve from April to July, rates continued their climb in the latter half of 2023 to historical highs. December 2023 saw a dip, but new and used car interest rates are still well above December 2022. 

AVERAGE 72-MONTH AUTO LOAN INTEREST RATE

For price-conscious consumers who worry about the risks of numerous repairs for used vehicles, financing new vehicles at lower interest rates can be more attractive than a car with miles on it. The intriguing incentives that OEMs are offering – and the flexibility with term lengths – are great examples of how manufacturers are meeting people in their buying journey in ways that still promote sales despite the current economic climate. Cash incentives have been increasing (with a few dips) since October of 2022, with significant jumps in recent months.  

NEW CAR AVERAGE PRICE VS. CASH INCENTIVES

Leasing Continues to Rise While Cash Deals Decrease in Volume

While finance deals remain a strong majority of sales, dealers would do well to keep an eye on lease and cash transactions, which are an attractive option to customers looking to avoid high interest payments. In the last 15 months, lease deals have jumped more than 4 points in the overall sales mix, which is a more than 50% increase in transactions, and cash deals are also holding strong, representing about a quarter of all vehicle sales.