The U.S. auto industry is entering a “new normal” where automakers and dealers will labor harder to maintain profits, a report by Dave Cantin Group and Kaiser Associates says.
During the COVID-19 pandemic, supplies of vehicles on dealer lots fell. That meant higher vehicle prices and increased margins for automakers and dealers.
That is likely to shift this year, according to the report.
“The U.S. automotive industry has had an exceptional last few years,” the report said. “Indeed over the past 3+ years it seems like everyone won – everyone, that is, except the consumer (who has paid higher prices for fewer choices, longer lead times and more competition to get a vehicle at all.)”
In 2024, industry’s new normal “won’t look quite as attractive as it did in 2023, but better than it did (for manufacturers and dealerships) in 2019,” the report said.
Dave Cantin Group and Kaiser conducted interviews with industry analysts and executives as well as surveying more than 1,000 consumers.
Among the factors cited by the report as having an impact on the industry:
—“The economic climate in the U.S. is healthier than predicted going into 2024 – but a positive macro economic climate increases the complexity facing the industry.”
Interest rates may begin to decline later this year after efforts by the Federal Reserve to curb inflation. In turn, dealers may need to boost inventory and increase advertising spending, according to the report.
“Dealerships should expect to work harder to maintain profitability in 2024,” the report said.
At the same time, declining interest rates “are likely to unlock pent-up demand, resulting in greater vehicle sales.”
—Consumers surveyed are more likely than ever to buy SUVs. Of respondents, 44% said they want an SUV for their next vehicle.
“Consumers may be moving toward SUVs because of reliability, versatility, and safety, despite higher price tags,” the report said. “This shift may also align with brand preference: some of the brands consumers are most likely to buy are primarily known for SUVs.”
Automakers, including General Motors Co., Ford Motor Co., Toyota Motor Corp. and Nissan Motor Co. have retired car models over the past several years. Ford, for example, said in an April 2018 earnings announcement, that 90% of its North American vehicle fleet would be trucks, SUVs and commercial vehicles by 2020.
The report said increased SUV deliveries will mean higher revenues and profits, according to the report.
—International situations such as U.S.-China tensions and Middle East conflicts could still disrupt the industry. “Geopolitical conflicts could drive a U-turn on consumer sentiment” and lower the willingness of automakers “to make strategic investments,” the report said.
Article by Bill Koenig published by Forbes https://www.forbes.com/sites/billkoenig/2024/02/26/study-expects-auto-industry-to-work-harder-to-maintain-profits-in-2024/?sh=15255fcb433f
