Predictions for 2024: High prices drive more buyers to used cars (2024)

Last updated on December 29, 2023

What do you think 2024 will bring? Hopefully next year will be less exciting than the past few years. This decade has already seen a pandemic that sent car sales into freefall, followed by a severe supply shortage that sent prices soaring, after which car prices stabilized at a new, much higher normal. Will car prices fall in 2024? Is there relief in sight for buyers facing high interest rates and limited supply? CarEdge co-founder Ray Shefska shares his four decades of insight into the automotive industry and his predictions for the auto market by 2024. Let's find out.

High prices will continue in 2024

As much as we'd like to be wrong, it's very likely that prices for both new and used cars will remain high into 2024.CarEdge co-founder Ray Shefskarecently shared his thoughts on the most likely short-term scenarios.

All things considered, Ray says continued high prices are virtually guaranteed. When automakers see an opportunity for "price adjustments," they don't want to miss it.

“I do not foresee better prices in the short term because several factors play a role. For example, the ongoing UAW strike is driving up labor costs, despite the fact that they represent only five percent of total vehicle production costs. This increase will inevitably lead manufacturers to adjust their MSRPs, which provides a convenient excuse to do so.”

Several factors come together to produce this line of thought.

For new cars, it's fair to blame manufacturers for the high prices. Despite consumer demand for more affordable options, OEMs continue to produce overpriced SUVs and trucks.Gone are the $30,000 base models.

Manufacturers' continued production of high-margin vehicles, whose price is generally beyond the reach of the average consumer, is, in our view, a losing strategy. Nevertheless, this is the path we're on, with $100,000 trucks and glamorous SUVs from both American and foreign automakers.

“I am skeptical that the auto industry will have a great year in 2024 as a significant percentage of consumers feel they cannot afford new cars. Manufacturers are increasingly relying on fewer buyers paying higher prices to make money. The average buyer is not. take advantage of this situation,” said Ray.

This is all on top of the expensive electric cars out therereplenishment of dealer lots.

This is where things get interesting.The continued production of high-margin cars is primarily motivated by manufacturers' need to finance their ventures and investments in the electric vehicle (EV) market. Unlike Tesla, companies like GM, Ford and Stellantis are still figuring out how to make mainstream electric cars that can turn a profit.

These are not just rumors. INFord's earnings reportExecutives noted the continued profitability of its combustion engine offerings, but also the financial woes of its EV division. Ford expects thatlosing $4.5 billion in electric carsby the end of 2023, despite an increase in overall profits. The 'Blue Oval' owes $100,000 trucks for that.

Interest rates will remain high

Cash will remain king in 2024. As of October 2023, the average APR for new car loans will be above 9%. Used car loans are even more expensive with an average APR of 14%.View the latest monthly payment statistics here.

Federal Reservehas declaredthat interest rates will remain close to current levels at least through the first half of 2024. That said, auto loan interest rates are expected to remain high through 2024.

The combination of rising prices and stiff interest rates creates a scenario where affordability takes a significant hit. The sad truth is that this will price some buyers out of the market.

The lowest auto loan rates will still be found with manufacturer incentives.The number of new cars has been steadily increasing, which has led to low APR offers from some automakers. Zero percent financing is still possible when you shop for deals, and APRs under 3% are quite common.

Check out this month's producer incentives with the lowest APR offers.

Used car forecast: a tight market remains

Looking into the automotive industry's crystal ball over the coming year, there seems to be a rather nasty trend: the significant shortage in the used car market is expected to continue into 2024.

When it comes to used car prices, supply and demand determine the market.In 2023 and 2024, it will be the reduced supply of used cars that will keep prices high. Used car pricesincreased 36%in 2021, before falling 7% the following year. As 2023 draws to a close, it looks like used car prices will end the year where they started twelve months ago.

The roots of the used car shortage can be traced back to the supply chain problems in 2021-2022. New car production slowed and sales dropped like a stone.Fewer cars sold in 2021-2022 resulted in fewer trade-ins and subsequently a tighter supply of used cars.With approximately 15 million new cars planned for production worldwide that never saw the light of day, the ripple effect has led to a permanent shortage of used cars.

This is not a short-term problem. Industry insiders like Ray predict that the scarcity of used vehicles will likely continue this decade.

Ray highlighted the connection between the current new car market and the used car shortage he expects to continue to see into 2024. “Manufacturers are not motivated to produce vehicles under $30,000 because they need high margins to support their EV initiatives. vehicles at a margin, not affordable models and equipment. The problem is that these expensive new cars are only available to a small portion of buyers. Ultimately, more buyers will turn to the used car market at prices they can afford, no matter how high the used car values ​​may be.”

Consumers in the used car market need to understand that higher prices and limited options will continue for a while. Check out the latest used car pricing date from Black Book:

Used Car Price Trends for 2023 (Updated Weekly)

Tesla will still dominate the electric car space

Older car manufacturers have investedwell over half a trillion dollarsin electrifying their lineups. The sad reality is that none of them are even close to the Tesla iEV market share.

At last check, 60% of electric vehicles sold in the US were Tesla models.

In 2024, we expect Tesla to continue to dominate. Even if Tesla EV market share drops to 40-50%, that's still dominance by anyone's standards. Tesla has invested so much in mastering low-cost manufacturing that it will continue to have an advantage over Ford, GM and the rest of the gang.

Tesla's dominance in electric vehicles is increasingly putting older manufacturers such as Ford, General Motors and Stellantis in a precarious position. This will become much clearer in 2024. How? There will be some big, long-awaited electric cars from older brands arriving. Here are just a few…

• Chevrolet Equinox EV
• Chevrolet Silverado EV
• Ram 1500 REV
• Honda prologue
• Let's go EV9

If the aforementioned electric models fail to attract a large number of buyers, it will become abundantly clear that legacy automakers have a MAJOR EV problem on their hands.

Traditional automakers are preparing for a turbulent period ahead as they grapple with the twin headwinds of rising production costs and their struggling electric car divisions. By the end of 2024, we will have learned a lot about the long-term prospects of older electric cars. It's possible that Tesla, once the laughing stock of Detroit executives, may actually have the last laugh.

Wildcard-scenario's...

In 2024, the automotive industry will face a confluence of challenges, some of which are still unknown. In addition to the variables discussed here, there are other wildcard scenarios that have the potential to disrupt market dynamics.

The UAW strike

The UAW strike is over, but the negotiated deal could push up new car prices as OEMs spend more on production costs. As CarEdge's Ray Shefska has pointed out, labor costs are a small portion of total production costs. However, that hasn't stopped automakers from using employee raises as an excuse for MSRP increases.

The Detroit 'Big Three', General Motors, Ford and Stellantis are already at a disadvantage in the growing electric market. Rising labor costs and faltering supply chains threaten to reverse the progress made.

The global economy

An even more important unknown is the health of the global economy in 2024. Most experts agree that there is only a slim chance of an economic recession, but that chance is not zero.

Here's how the economic recession is affecting car prices.

This economic uncertainty is exacerbated by conflict abroad and a looming election year at home. There are dozens of situations worldwide that could theoretically spill over to the car market. To start with, there is the unstable situation in the Middle East, the simmering tensions in Ukraine and the precarious situation surrounding Taiwan. Each of these geopolitical hotspots has the potential to inject uncertainty into global markets, creating ripple effects that could inevitably impact the auto industry.

Policy changes in the future

Furthermore, with 2024 being an election year in the US, the industry is preparing for potential political shifts and market reactions that often accompany election cycles, adding another layer of unpredictability to an already uncertain landscape. These combined factors make predicting the auto industry's prospects in 2024 extremely difficult.

There is free help with buying a car!

Ready to outsmart the dealers? Download your100% free car buying cheat sheetToday. From negotiating a deal to smart car leasing: it's all available for instant download.Get your cheat sheets today!