Are Recession Fears Unwarranted? A Mid-year Automotive Recap & June Market Snapshot
In the June 2023 Market Snapshot, Kevin Roberts, Director of Industry Analytics at CarGurus, provides a comprehensive mid-year review and recap of the inventory and pricing trends observed in the last month. Despite initial recession fears, the US economy has significantly outperformed expectations, displaying a strong labor market and a noteworthy decline in inflation numbers by the end of June.
The growth of electric vehicles (EVs) has also been remarkable, with more EVs on dealer lots and higher sales compared to previous years. Additionally, retail prices have begun to fall, indicating a shift towards a decreasing environment throughout the rest of the calendar year.
In this market snapshot episode, Kevin Roberts discusses three key points that are shaping the automotive market. Firstly, the U.S. economy has exceeded expectations, showing robust performance and improved labor market conditions, hinting at the possibility of a soft landing. In addition, the electric vehicle (EV) market is experiencing rapid growth, with more EVs available on dealer lots and increased sales. Dealers need to be prepared for this ongoing trend. Finally, retail prices are on the decline, impacting both new and used vehicles. Dealers must strategically source inventory to maximize profitability during this period of decreasing prices.
“Hi. I’m Kevin Roberts, Director of Industry Insights here with a mid-year review and recap of inventory and pricing trends we saw last month.
So, it’s been a really interesting first half of the year. Obviously, the performance of the U.S. economy has been way surpassing any expectations. I think going into the year, the thought was probably we were going to see the recession, or word was out there. But we’ve seen a really, really strong labor market. And at the end of June, we actually saw inflation numbers come down quite significantly. So, it’s looking more and more like we have a chance for a soft landing. And so the U.S. economy definitely outperformed expectations.
Secondly, we continue to see EV growth in the marketplace. So, we’re seeing more EVs on lots than ever before, and we’re seeing more EVs leaving dealer lots than before. Again, coming from a really kind of small here. So these percentages look quite large. Everything’s kind of relative than a percentage point there, but we are seeing a lot of EV growth in the market.
So, in June, we’re seeing a couple major things take place. One is prices are falling again. So, retail prices started to head down. We had been anticipating this. Wholesale prices have been declining for a couple months now. And so retail prices have started to come down.
And when we kind of look ahead to the rest year, the expectation is that prices are likely to continue to fall throughout the rest of the calendar year now.
So that is definitely a change. There was a little bit of kind of a welcome increase in prices during the spring selling season, but that’s shifting now. It looks like we’re kind of moving into a decreasing environment again. Additionally, we continue to see increasing inventory both on the new and used side. So, new inventories increasing in coming out of the semiconductor shortage. We’re continuing to see more vehicle production and more kind of new inventory getting on to dealer lots from that point of view. And then you side when prices were increasing, you know, we saw really low inventory levels to end the first quarter.
Increasing prices help to kind of increase some of that use inventory levels out there as well. One thing we’re kind of watching is what’s going to happen with used inventory levels.
Now that we’re starting to see retail prices start to decline again, could there be a little bit of a shift on that front?
So, as we’re just kind of discussing retail prices are starting to decline, so it’s really important on sourcing the right inventory for your market.
Ideally, want to get a vehicle that is going to turn in a month or less time, to really kind of maximize profitability in a declining price environment, give you anything that’s going to move at a slower pace, put you at more risk on that front.
You know, revisiting your pricing strategy. Again, we’re seeing prices are still at or near historic highs. Interest rates are up. There’s still a lot of concern consumers out in the economic environment.
So, making sure, you know, revisiting your pricing strategy, make sure you’re getting the right price vehicle lots and figuring out how you’re going to be able to move those vehicles in a timely fashion is going to very important. And really kind of maximizing your margin. And also keeping an eye on F and I strategy, especially in the declining price environment F and I strategies can be really, really key to maximize profitability in the second half of the year. To learn more about what’s what happened in the first half of the year and in June, scroll down and see more of the highlights that we’ve identified and read the full report.”
Article written by Cara Schildmeyer.