This week, the National Automobile Dealers Association will hold its annual conference in Las Vegas, showcasing the latest thinking and innovation from across the auto industry. Dealers are always interested in hearing the latest thinking from their respective OEM executives at manufacturer conferences. I think the message from OEMs will be very different from the past few years.
In 2019, General Motors CEO Mary Barra made headlines when she said, “Over the next five years, we will see more changes than we have seen in the past 50 years.” Shortly thereafter, the global coronavirus disease (COVID-19) pandemic hit, and the pace of change in the industry was so fast that Mary seemed to have the foresight to do so.
By 2021, demand for new cars far exceeded supply for any time in memory, and car buyers were willing to pay full price. Car companies argued that they had learned valuable lessons from their past sins of overproduction, high vehicle numbers, and high incentives. At this very moment, many automakers began spending billions of dollars to build large-scale new electric vehicle (EV) production facilities. The future will be 100% electric cars. It was only a matter of time. And finally, we argued that online car retailers like Carvana will rapidly emerge and eventually displace brick-and-mortar car dealerships.
The message from this week’s NADA convention is likely to be that disciplined manufacturing, the rise of EVs, and online retail are all small evolutions rather than big changes for the industry.
The gravity of industry standards will become fully evident in 2024.
Last year, new vehicle inventories increased by 56%, with total industry sales reaching 15.6 million vehicles, very close to pre-pandemic levels. His fleet has increased by 30% and is returning to historical standards. Incentives increased from his 2% of average trading price (ATP) to over his 5%. This is still well below the norm, but is increasing rapidly. These are all signs that automakers’ grand plans to maintain tight inventories aren’t working out as promised. Cox Automotive reported that the daily supply of new cars at the end of December was 70, which is also very close to historical norms.
EV sales hit a record high in 2023 with a market share of 7.6%, exceeding 1 million units sold for the first time, but EVs may not revolutionize the industry in the short term as many expected. It’s becoming clear. The increase in EV sales has been driven by unprecedented discounts, with EV market leader Tesla cutting prices of popular models by more than 25% in 2023. If Tesla’s price cut were treated like an incentive, the incentive as a percentage of ATP would be 35%. – 7x the industry average.
Meanwhile, traditional car companies looking to enter the EV market face the cruel reality of growing EV inventories, declining consumer demand, and horrendous profit margins. Analysts estimate that Ford lost $36,000 per EV sold in the third quarter of 2023. The Chief Financial Officer (CFO) of the Mercedes-Benz Group is Harald Wilhelm recently commented that “it is almost impossible to imagine that the current situation is completely sustainable for anyone.” Ford and other companies are rolling back their EV ambitions and starting to shift their strategies to ICEs and hybrids.
Online retailers like Carvana and Vroom have been pioneers in changing the way Americans buy cars. The company’s sales and stock price have skyrocketed like a rocket during the pandemic. In response, publicly traded auto retailers such as Lithia and AutoNation have developed unique online retail experiences. Despite major investments and efforts to support online transactions, which some consumers appreciate, the latest Cox Automotive Car Buyer Journey Report shows that consumption 93% of people purchase a vehicle in a showroom, and most are satisfied with the “old-school” showroom experience. A new car buyer’s sales experience at a dealership reached a near all-time high of 79% in 2023, whereas in 2018 he was 64% very satisfied.
Last week, online retailer Vroom announced it was going out of business. In October 2023, online retailer Shift Technologies suffered the same fate. These are further examples of industry gravity pulling things back to historical norms. Interestingly, emerging EV companies like Fisker and VinFast joined NADA this week and are working to establish their own brick-and-mortar dealer networks.
Bill Gates once commented, “We always overestimate the pace of change over the next two years and underestimate the pace of change over the next 10 years.” This sentiment perfectly captures the current state of the auto industry.car businessDespite the never-ending waves of disruption, innovation, and new ownership concepts, the fundamentals of are intact. Car companies that focus on developing the best products their customers want and franchised dealers that provide exceptional service will be the winning formula in the near future.
In full hindsight, Mary Barra might have said,The next five years are going to be tough, but things won’t change as much as you think. ”
brian finkelmeyer
Senior Director of New Vehicle Solutions
As Cox Automotive’s Senior Director of New Vehicle Solutions, Brian Finkelmeyer is responsible for vAuto/Cox Automotive’s new vehicle strategy, including vAuto’s Conquest inventory management solution and Cox Automotive’s rates and incentives business. Finkelmeyer works across Cox Automotive’s various businesses, developing new data insights that enable his OEM and dealer partners to maximize market opportunities.