Cox Automotive Still Sheepishly Optimistic

Cox Automotive revised its outlook for car sales from the slight gain of its Jan. 8 forecast to a slightly better slight gain in its latest forecast.

The Atlanta-based analytics company on Thursday increased its forecast slightly for used car sales and said it expects more of new car sales to be sold through dealers than it did in its forecast released Jan. 8.

With supplies ample and prices softening, the continuing villain is lingering high interest rates, Chief Economist Jonathan Smoke said during a webcast Thursday.

The average interest rate for a new car was 9.70% in March, up from 8.92% a year earlier and still close to the 10% hit last fall – the highest new car rate in 24 years.

“Rates are indeed the biggest problem, not just for the auto industry, but for the economy as a whole,” Smoke said.

Finding a car should not be a problem. Senior Economist Charlie Chesbrough said the supply of new cars has been increasing since hitting a post-pandemic low in September 2021, and at current rates will reach pre-pandemic levels later this year.

Chesbrough and Smoke said those supplies are likely to continue to grow despite Tuesday’s collapse of Baltimore’s Francis Scott Key Bridge. The wreckage is expected to keep the Port of Baltimore shut for weeks until the Corps of Engineers can clear the channel of debris.

Chesbrough and Chief Economist Jonathan Smoke said the port is a major port for automobile imports and exports, especially with Europe, but “there are alternatives, and the impact on supply and resulting price trends is likely to be negligible,” Smoke said.

In the newest forecast, Cox Automotive continued to expect new car sales to rise 1.3% to 15.7 million vehicles in 2024, after rising 11.5% to 15.5 million last year. But excluding fleet sales, new cars sold through dealerships are expected to rise 1.6% to 12.9 million, down from last year’s 8.5% gain. In its Jan. 8 forecast it expected retail sales to be 12.7 million – unchanged from 2023.

Used cars are expected to rise 1.9% to 36.6 million vehicles this year after falling 1.1% last year. That’s an increase from 36.2 million in the Jan. 8 forecast. Used retail sales will rise 3.2% to 19.6 million vehicles in 2024 after falling 0.5% last year. That’s up from 19.2 million in the Jan. 8 forecast.

Used car sales have been rising for eight weeks in a row, and in March were about 9% higher than a year earlier.

Jeremy Robb, senior director of economic and industry insights, said one reason might be tax refunds, which he said are vital to used car sales because they are often used as down payments.

Nearly half of refunds were estimated to have been processed by mid-March, and the average refund is now $3,109, up 6% from a year earlier.

“We’re seeing that extra drive some consumers to shop and purchase retail vehicles,” Robb said.

Buyers seem healthy, Smoke said. Unemployment has been rising only slightly from historically low levels. Wages and disposable income have continued to outpace inflation.

At the same time, Chesbrough said greater supply has led dealers and manufacturers to offer more discounts and incentives. “And it brought the return of product selection for consumers, and they are choosing smaller and more affordable vehicles.”

“The rest of 2024 is expected to show more of the same: More supply, more discounts, more incentives, more EVs and more competition, all of which is expected to benefit vehicle buyers, and lead to slightly more vehicle sales,” Chesbrough said.