Cox: Car Buyers Might Wait for Election

Automotive sales will be up this year, but only slightly as many consumers sit out the second half to wait for results from the election, analysts at Cox Automotive said Tuesday.

For new cars, Cox Automotive forecast 15.7 million cars will be sold this year, including 12.8 million through dealers. While the total is unchanged from Cox Automotive’s March forecast, retail sales fell from an expected 12.9 million in March.

For used cars, Cox Automotive forecast 36.8 million cars sold this year, including 19.6 million through dealers. Cox Automotive raised its overall sales forecast from 36.6 million from March, but retail sales were unchanged.

Chief Economist Jonathan Smoke said dealers believe high interest rates are “Enemy No. 1” for sales. Last year, the Fed had been expected to start cutting rates by May, but instead it has continued to hold off, hoping for surer signs inflation is receding to its 2% target. Smoke said the market expects two cuts across the Fed’s four remaining meetings and the one in December is the one that’s most likely.

“Cuts won’t help much if the Fed waits too long to start,” Smoke said during Cox Automotive’s “Mid-Year Review” webinar Tuesday.

The Fed funds rate stopped moving higher after July last year, but is at the highest level since 2000. Interest rates for new cars are above 10% in June — a 24-year high, he said.

Cox Automotive analysts said their newest concern is about the uncertainty surrounding the 2024 election. Smoke said consumers believe things will get better after the election, which is making them more hesitant to buy a car.

“It’s not just about rates, but on that front the majority of consumers think rates will change because of the election,” Smoke said. “As an economist, I don’t necessarily believe that is a rational belief, but if enough people believe it, it could change demand as people elect to wait until the winners are inaugurated.”

Erin Keating, an executive analyst, said Cox Automotive’s survey of dealers shows they rank the political climate fourth in their concerns behind interest rates, the economy and market conditions. However, she said, “It is the only measure outside of interest rates that has steadily risen over the last three quarters and since 2022.”

Consumers are hesitant to buy because cars are less affordable. While prices have fallen in the past year, they are well above pre-pandemic levels. And higher prices are compounded by high interest rates.

“The crazy thing here that we saw in the data is that most dealers and consumers believe the election will impact interest rates even though the president actually holds no official power to change them,” Keating said. “This is quite understandable though as the overall economic conditions are often attributed to the specific policies of any administration, and we do have a candidate [Donald Trump] that’s out there mentioning he could take control of the Fed.”

Senior Economist Charlie Chesbrough said he expects new vehicles will sell at a seasonally adjusted annual rate of 16 million vehicles in June, up about 1% from a year earlier.

First-half new cars will sell at a 15.6 million SAAR, up 3% from 2023’s first half.

“But we are concerned (whether) the second half of the year can maintain the growth we’ve seen so far with uncertainty around the economy and interest rate policies and the upcoming election. It seems very possible that vehicle buyers may pause,” Chesbrough said.

“We still expect 2024 to finish a little bit better than 2023 supported by more discounting and better prices, but fighting an uncertain economic outlook,” he said.

But the forecast is not as good for credit unions and others who depend on retail sales for loans. Chesbrough said what little growth will occur this year will come from sales to fleets, rental car companies and leases.