The US auto market has become uncertain for dealers due to rising costs and changing market dynamics. The market outlook index, which measures dealer expectations for the next three months, has declined, indicating that dealers anticipate a further weakening of the auto market.
Franchised dealers, typically more optimistic, have also shown a concerning trend with their outlook dipping below 50. Independent dealers have fared worse, with their market outlook score falling. The rising costs of running dealerships are a significant concern, as reflected in the Cox Automotive cost index, which reached a record high. Profitability for dealers has been on a downward trajectory for three consecutive years, particularly affecting independent dealers.
Despite the challenges faced by traditional car sales, electric vehicle (EV) sales in the US have shown signs of growth. In September 2024, new EV sales surpassed 100,000 units for the sixth consecutive month, with a notable year-over-year increase. The EV share of new vehicle sales reached 9%, the highest monthly level recorded. This growth is attributed to a narrowing price gap between electric and fossil-fueled vehicles, making EVs more accessible to a broader consumer base, bolstered by strong incentives such as the $7,500 federal tax credit. However, there was a month-over-month decline in September, indicating a need for caution despite the overall positive trend. Used EV sales also experienced steady growth, maintaining a small market share.
The current sentiment among US auto dealers is heavily influenced by declining sales of conventional vehicles and rising operational costs. Many dealers are more focused on these immediate challenges rather than the accelerating shift towards electric vehicles. The high prices of both new and used cars have led consumers to hold onto their existing vehicles longer, further impacting sales. While a drop in interest rates could provide some relief, the return of affordable vehicles remains a distant prospect.
The average transaction price for new EVs in September was largely unchanged from the previous year. The average incentive package for new EVs exceeded the industry average, suggesting that while EV sales are on the rise, the market is still heavily reliant on incentives to drive consumer interest.
As manufacturers increase production and government incentives continue, the outlook for EV adoption appears promising. However, dealers remain concerned about the declining sales of conventional cars and trucks, adding to the uncertainty surrounding the future of the automotive industry in the US. In summary, while the electric vehicle market is growing, the broader automotive landscape is facing challenges. Dealers are navigating a complex environment characterized by rising costs, shifting consumer preferences, and a cautious outlook for traditional vehicle sales. The interplay between these factors will be crucial in shaping the future of the auto industry as it adapts to changing market conditions.