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Home»Automotive»Automotive & Fleet Outlook: Cautious Optimism to Start 2024 – Operations
Automotive

Automotive & Fleet Outlook: Cautious Optimism to Start 2024 – Operations

Chris BrownBy Chris BrownDecember 18, 2023No Comments7 Mins Read
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Vehicle prices, residual values, inflation rates, and fuel prices are trending down — barely — while inventories, incentives, SAAR, and fleet sales are trending up.

Photo: Automotive Fleet

With a recession that never materialized in 2023, the economy actually outperformed expectations. What’s in store for 2024, and the way will all of it affect fleets? 

Automotive Industry and Economy Indicators

Here’s a compendium of recent indicators from various sectors of the automotive industry and the economy usually, followed by some color from the prognosticators. 

  • Interest Rates: It looks like relief is coming regarding the high cost of cash, considered one of the most important growth inhibitors in 2023. Based on the Federal Reserve’s Dec. 13 meeting, expect three rate cuts in 2024. From today’s 5.25-5.5% policy rate, the median projection for the tip of 2024 is projected to dip to 4.6%, with further adjustments downward for 2025 and 2026. Auto loan and mortgage rates are declining. 
  • GDP: In line with the Fed, gross domestic product (GDP) is now expected to grow at a 2.6% annualized pace in 2023, a half percentage point increase from the last update. In a Nov. 15 report, Goldman Sachs predicts income growth will slow from its strong 2023 pace but will still expand 2.1% in 2024. 
  • Inflation: The Fed’s revised forecasts also suggest a more moderated inflation outlook in the following two years from its previous update in September. However it is determined by sector: Fuel prices are declining, while grocery, insurance, and services prices are holding regular. 
  • Recession Probability: Goldman Sachs researchers peg the probability of a U.S. recession at just 15% for 2024. Other financial institutions are predicting a “mild” recession. 

Turning to automotive and fleet-specific outlooks: 

  • Fuel Prices: The U.S. Energy Information Administration cut its price forecast for the annual average U.S. retail gasoline price from greater than $3.50 per gallon this yr to lower than $3.40 gallon in 2024.
  • SAAR: Yes, vehicle supply is indeed easing. While Cox Automotive had initially forecast a 14.1-million-unit seasonally adjusted annual rate (SAAR) for 2023, the revised data calls for a rise to fifteen.3 million units for this yr. 
  • Fleet Sales: In line with data Bobit collects, light-duty fleet sales across rental, business, and government fleets are up 29% year-to-date through November to 1.98m total units. That represents a marked recovery from the pandemic years but continues to be 23% fewer units than 2019 (2.57m) over the identical period. 
  • Residual Values: On an annual basis, depreciation is anticipated to stay elevated in 2024, in response to Black Book, although on a decreasing trend. Black Book is forecasting a mean depreciation rate of 18% for 2024 for light-duty vehicles, in response to data supplied to Automotive Fleet. That’s higher than the depreciation rate of 20% for 2023, but still greater than the pre-pandemic depreciation average of 14%. The decline of lease returns will contribute to sustained high levels of wholesale prices, while more new-vehicle inventory will exert downward pressure on wholesale prices coming off their historic highs. 
  • Industrial Truck Sales: In line with data from NTEA, The Work Truck Association, sales of Class 2 to eight business truck chassis within the U.S. and Mexico grew barely within the third quarter in comparison with the identical period in 2022, but those numbers cooled considerably from the 5% growth within the second quarter of this yr. Sales declines in cutaways and low-cab-over-engine trucks drove these declines. 
  • Vehicle Pricing: Recent vehicle prices are on a three-month downward trend comparing this yr to last. In line with a Dec. 11 Kelley Blue Book report, the U.S. new-vehicle average transaction price in November 2023 was $48,247, a rise of lower than 1% month over month and down yr over yr by 1.5%. Used vehicle prices are also falling from their peak in March 2023: The common used vehicle listing price to begin December was $26,091, down month over month and down from December 2022, in response to Cox. 
  • Vehicle Incentives: KBB also reported that new-vehicle sales incentives surpassed 5% of the common transaction price (ATP) for the primary time since September 2021. Recent-vehicle sales incentives were up 136% yr over yr in November, indicating the new-vehicle market is shifting to a buyer’s market.
  • Days’ Supply: In line with Cox Automotive’s Dec. 14 tracking, days’ supply climbed to 71 at the beginning of December — the primary time in two years — up from 60 at the beginning of October and 69 for November. The entire U.S. supply of obtainable unsold latest vehicles is up 57% from the start of December 2022. Used days’ supply is a distinct story — at 52 to begin December — which is down 7% yr over yr. 
  • EV Supply & Incentives: EV inventory is even higher, at 114 days at the tip of November. Charging infrastructure, range, and resale values are primary concerns for EV buyers. EV incentives are only south of 10% whereas the general industry level stays below 5%, in response to Kelley Blue Book. 

Experts Weigh In

“The revised third-quarter GDP data was positive news for the business vehicle industry,” wrote Steve Latin-Kasper, NTEA’s market data and research senior director, in his December monthly outlook. “Nonetheless, expectations for continued growth in fourth-quarter 2023 and first-half 2024 remain low.”

Latin-Kasper believes the impact on business vehicle and truck equipment sales will likely be minimal, citing lack of chassis and labor availability outweighing other aspects. “Sales are expected to proceed growing next yr. Growth may decelerate in the primary half of the yr and pick up again within the second,” he wrote. 

Alex Yurchenko of Black Book weighed in on the outlook for residual values of light-duty vehicles in 2024: “We anticipate a shift back towards a more standard pattern of seasonality, with strong wholesale prices throughout the first half of the yr and a subsequent higher depreciation within the second half,” he wrote in a note to Automotive Fleet. “The spring market is projected to increase longer, starting sooner than within the years prior to the pandemic.”

Regarding the brand new UAW labor agreement, “Labor costs will rise for all automakers, whatever the UAW’s union-drive efforts within the south,” wrote Brian Finkelmeyer, senior director of recent automobile solutions at Cox Automotive. “Wall Street is worried that the automakers will likely be unable to pass this added labor cost onto consumers or find $900 price of efficiencies to offset it. The online result will likely be lower margins moving forward. This issue creates one other level of headache for the legacy OEMs constructing EVs because they lose a big sum of money on each unit they sell.”

Finally, in his 2024 Trends Forecast, Jonathan Smoke, chief economist at Cox Automotive, wrote to expect sales growth to be constrained and weak in 2024, but a bit more normal in comparison with the chaos of the past three years. 

“As an economist, headline-making swings in economic trends are all the time interesting to see and analyze, but such turbulence is never excellent news for business over the long term,” he wrote, referencing the economic, political, and social turbulence of the previous few years. “… From our vantage today — and barring any latest black swan events — the forecast is for a reasonably normal automotive market in 2024. Which may not make headlines, nevertheless it needs to be a welcome relief for everybody involved.”

This Article First Appeared At www.automotive-fleet.com

Automotive cautious Fleet Operations Optimism outlook start
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