Eventual Interest Rate Cuts Could Bring Long-Awaited Relief to the Car Market

• But consumers still have a long while to wait: The Federal Reserve will not cut rates until September at the earliest. Even then, it will take some time for the effects to trickle through the market
• In the meantime, as sales slow and dealers face concerningly high levels of new vehicle supply, they will turn more to financing incentives to entice consumers in the short term
• As incentives ramp up on electric vehicles and high-inventory gas-powered cars, July sales for both actually outpaced those of hybrids

Chicago, IL – August 6, 2024 – Persistently high interest rates have sidelined many consumers out of the new car market, where prices also still remain near record highs, with the average new car listed at $49,544, according to the latest data and analysis from leading AI car shopping app CoPilot. The unaffordability in the market is slowing down sales, with new car inventory up 38% in the past year, and Ford, GM, Stellantis, and Tesla among the major automakers reporting disappointing Q2 earnings as a result.

Dodges and Jeeps – both Stellantis brands that have traditionally marketed themselves to consumers as more aspirational – are stark examples of this trend. Compared to other domestic brands, both Dodges and Jeeps have seen the biggest price increases since before the COVID-19 pandemic: Dodges are 48% more expensive than they were in March 2020, while Jeeps are priced 43% higher. Perhaps unsurprisingly, with new car inventory rebounding from pandemic-era shortages and competition intensifying, both brands now have staggeringly high levels of inventory lingering on dealer lots, with Jeeps at 122 market days supply and 115 market days supply for Dodges. 

While the Federal Reserve has indicated that it may be open to finally lowering interest rates in September, even if it does so, lenders will want confidence that lower rates are persisting before they start writing lower loans. As a result, it will take some time for consumers to reap the benefits of lower rates. In the meantime, automakers and dealers will need to step in to offer interest rate-based incentives in order to move the needle in a meaningful way for car shoppers. Therefore, in the short term, CoPilot expects that incentives will be most concentrated among makes and models with inventory that is above 72 market days supply, the average for new cars. Some examples include:

“Financing incentives are the main lever that dealers and manufacturers will need to pull in order to jumpstart sales,” said CoPilot CEO and Founder Pat Ryan. “Both prices and interest rates have been way too high, for way too long, and it’s sidelining many consumers and having a cooling effect on sales. The good news is that some makes and models with interest rate-based incentives available have already seen sales ramp up in the short term. With the Fed indicating they will not lower interest rates until at least the fall, automakers and dealers will need to step up and provide consumers with relief in the short-term.”

EVs continue to pose a major challenge to automakers and dealers. Expensive EV development pushes are hurting manufacturers’ bottom line, with GM and Ford, among others saying their disappointing earnings were in part attributable to their significant EV investments that they have yet to recoup in the form of sales. As a result, incentives have become a significant tool to move EVs off dealer lots, with EVs like the Kia EV9 currently offering 0% financing for 48 months on select models. Likely as a result, in the past month alone, dealer supply of EV9s has dropped by 10%.

More broadly, the short-term results of EV incentives have also been encouraging: EV market days supply fell by 15% in July, reversing much of the inventory glut it had accumulated to date this year (between January and early July, EV supply was up by a whopping 59%). Still, dealers and manufacturers will need to continue to offer generous incentives in order to override lingering consumer concerns about EVs, including their high price point and issues with charging and batteries.

Hybrids remain the most popular fuel type among consumers: Their 61 market days supply is 15% less than the average dealer inventory of gas-powered cars (70 market days supply) and 73% less than that of EVs (106 market days supply). Automakers, like Hyundai, that bet big and early on hybrids are reaping the benefits now as they are among the few car companies that reported favorable earnings in Q2 (which were driven in part by strong hybrid sales). 

However, as incentives ramp up among higher-inventory gas-powered and electric cars, these fuel types are actually selling faster than hybrids in the short term. Gas-powered car inventory fell by 15% in July and electric vehicle inventory dropped by 18%, compared to 12% for hybrids. This is a potential indication that generous incentives could help move the needle for consumers who have been sidelined because of high interest rates or concern about some of the pain points around EV ownership.

“Incentives will be the name of the game for EVs and higher-inventory gas-powered cars like Dodges and Jeeps,” Ryan said. “If manufacturers and dealers are able to continue to provide consumers relief on financing costs, combined with the federal tax incentives that come with many EV purchases, they may be able to make up some of the ground they’ve lost to hybrids. Still, hybrids are 11% less than expensive than EVs, and combined with the fact that drivers don’t have to worry about charging and other issues, they still represent more of a feasible option to many mainstream consumers.”

About CoPilot

CoPilot is the leading AI-assisted car shopping app that provides consumers with an expert partner for high-consideration purchases, starting with car buying and ownership. The platform combines massive real-time data with a winning combination of human expertise and AI-powered search to introduce transparency to the shopping, purchasing and ownership journey. The mobile application takes the time, frustration, and guesswork out of the process, empowering people to easily navigate the risks of shopping for high-value items, and to buy with confidence at the right price and the right time.

Media Contact:

Kerry Close

kclose@groupgordon.com

732-609-2644