CLOUD THEORY "ON THE HORIZON: 2024 REVIEW AND 2025 OUTLOOK"

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Dec 12, 2024, 08:00 ET

New Car Pricing Remains High Throughout 2024 Despite a Significant Rise in Inventory; Manufacturers More Likely to Lean in On Incentives in 2025

GRAND RAPIDS, Mich., Dec. 12, 2024 /PRNewswire/ -- As new vehicle inventory continues to grow and new vehicle movement slows, manufacturers and dealers are likely to turn to higher incentives to keep cars and trucks moving off lots in 2025. The findings are part of Cloud Theory's report "On the Horizon: 2024 Review and 2025 Outlook" released today.

2024 Automotive Industry Trends and 2025 Outlook Report

New vehicle inventory reached 3.23 million units in November 2024, up from 2.49 million in November 2023. At the same time, days to move has jumped from 51 days to 71 days. Despite this shift in supply and demand dynamics, average marketed vehicle prices generally remained above $50,000 throughout the year (after surging from $38,276 in 2019). With expensive vehicles sitting on lots longer, manufacturers and dealers are likelier to turn to incentives to remain competitive.

High vehicle prices resulted from manufacturers' strategic decisions to move away from lower-priced models. In 2019, there were 72 models priced under $30,000. By 2024, that number has fallen to 22. Additionally, general inflationary pressure and a shift to a higher-priced and higher-contented trim mix have also kept prices elevated.

"With inventories already surging and vehicle sales growth and turn rates lagging behind, higher costs will put further pressure on manufacturers at a time when they are starting to become more reliant on discounts and incentives to move metal," said Rick Wainschel, Vice President of Data and Analytics for Cloud Theory. "At some point, OEMs will have to balance those competitive pressures with profitability, and it may be inevitable that they will have to cut into their bottom lines to stay competitive."

Higher interest rates are also contributing to increased consumer costs, and monthly payments have jumped. All of these factors contribute to a much more challenging buying environment, with significant "sticker shock" among those who have been out of the market for several years.

For example, a consumer who bought a $19,550 Ford Focus SE in 2019 with a 4.5% interest rate would have had loan payments of $367 per month. If they replaced that car with a similar model priced at $27,770 and an interest rate of 7.5%, the monthly payment would jump to $555. Though the vehicle price was 42% higher, the monthly payment increased by 51%. This is likely to keep entry-level buyers on the sidelines or push them in the direction of used vehicle choices.

2025 Outlook

The new administration coming into power early in the year is likely to roil the industry waters through the implementation of tariffs on fully produced vehicles as well as parts coming in from other countries. This has the potential to increase prices further as the cost of those tariffs are passed along to consumers in the form of elevated prices.
The new administration has also signaled a significant shift in electric vehicle policy, including the elimination of the federal tax subsidy. In the short-term, this is causing a surge in Electric Vehicle purchases – non-Tesla EV vehicle movement has surged by 23% since the election but will have longer-term detrimental effects on this market sector. If the incentive does go away, it will likely push potential EV customers to different vehicles, slowing overall EV adoption. This could have a positive short-term benefit for manufacturers and dealers however, as it could push customers to more profitable SUVs and pickup trucks.

Toyota Continues to Lead Inventory Efficiency Index Race

In 2024, Toyota Motor Company brands led the way on Cloud Theory's patent-pending Inventory Efficiency Index which provides a real-time view of market-relevant supply and demand for all makes and models and across all geographies.

The Inventory Efficiency Index determines scores for vehicle makes or models based on relative inventory and movement data compared to competitors.

A score of 100 means that an OEM's demand is in balance with its relative supply in the marketplace.
A score above 100 indicates that a make or model is selling its inventory more efficiently than average.
A score below 100 means that there are opportunities to bring demand into better alignment with supply (or vice versa).

The top five manufacturers in the 2024 Inventory Efficiency Index:

Toyota — 256.4

Lexus — 197.5

Honda — 168.5

Subaru — 157.2

Kia — 117.3

"Toyota continues to set the tone for Inventory Efficiency leadership," Wainschel said. "Toyota is likely to overcome its production challenges and reestablish its inventory positions. In doing so, its efficiency will likely come down a bit, but the inherent appeal of its brands will keep them high on our leadership list."

About Cloud Theory   

Cloud Theory is more than a concept. It is the eye of the storm, where cutting-edge data, software, and artificial intelligence meet deep industry knowledge and experience. Built for automotive manufacturers, agencies, and affiliates, Cloud Theory enables our customers to understand – in real time – the complex competitive world in which they do business and to make bold decisions that drive them forward. The combination of billions of data points, interactive tools, and expert consulting gives our clients the ability to weather any storm and find their way to clear blue skies. Learn more at cloudtheory.ai. To learn more about our entire portfolio of automotive brands, visit www.advancelocalautomotive.com.

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SOURCE Cloud Theory