Ladies & Gentlemen, Start Your Engines!

To many Americans, cars embody the values of independence, freedom, and control.

They represent the liberty to explore, pursue opportunities, and attain personal independence. Additionally, cars symbolize mobility and progress, being an integral part of American life, from the bustling freeways of Los Angeles to the vibrant streets of New York City. Car ownership is linked to pride and success, resonating across generations.

This ideal changed drastically back in 2020 when the pandemic wreaked havoc on automakers' supply chains, leading to critical parts shortages that crippled vehicle production.? During the 2020-2022 period, automakers produced 8.1 million fewer new vehicles compared to the 2017-2019 timeframe due to supply chain disruptions and pandemic-related challenges.

For years, consumers had grown accustomed to the convenience of driving home a new car with minimal wait times. But the global semiconductor shortage upended this long-standing auto retail model, forcing buyers to wait months for their desired vehicles.

As a result, dealership lots were largely empty for much of 2021 and 2022, This resulted in depleted dealership inventories and delayed purchases for many consumers. However, the supply chain crisis appears to be easing, with new vehicle inventories up 68% compared to September 2022.

Industry forecasts predict vehicle inventory will return to pre-pandemic levels this year. While recent years have seen higher prices and interest rates price some consumers out of the market, the supply chain recovery is expected to bring down vehicle costs. This should allow automakers to capitalize on pent-up consumer demand and see constrained but steady growth.

For marketing and advertising leaders in the automotive industry, the key to maximizing this opportunity will be to deeply understand their target audiences' behaviors, preferences, and perspectives, and to adapt their strategies accordingly.

While 66% of consumers express interest in purchasing a vehicle within the next three years, affordability remains a top concern as prices and interest rates stay high. However, this does not mean consumers are unwilling to invest in new vehicles. In fact, the majority of in-market consumers intend to purchase a new car, representing a notable shift from previous years.

To effectively earn consumer dollars, advertisers must understand what their specific audience truly cares about. Millennials, in particular, present a significant opportunity as the largest demographic group in the US who are also demonstrating heightened interest in vehicle purchases in the near future.

As pent-up demand drives increased purchases throughout 2024, auto marketers should focus their efforts on nurturing brand loyalty, addressing growing consumer interest in electric vehicles, and maximizing digital advertising opportunities to engage audiences where they spend the most time.

In a crowded marketplace, where consumers have a wide array of options, dealers and brands must carefully consider how to cut through the noise and cultivate brand loyalty. Today's consumers, particularly Gen Z and millennials, want to support brands that align with their values and are making a positive impact.

Leading with brand values, such as sustainability, can be an effective differentiator. Nearly half of consumers favor eco-conscious companies. However, brands must be cautious to avoid coming across as inauthentic.? Consumers have a keen radar for insincere messaging, so it's essential that brand values are reflected in the company's actions as well as its marketing.

The demand for hybrid and electric vehicles (EVs) is surging among environmentally conscious consumers. Revenue for EVs is projected to rise 18% this year compared to 2023, and almost fifty percent of consumers believe EVs are the future of transportation, according to a recent survey. While gas-powered vehicles still dominate the market, the majority of in-market consumers are now willing to consider fully electric or hybrid models, and EV adoption is poised to grow in the coming years as these vehicles become more affordable.

This clamor for EVs is fueled by skyrocketing gas prices and heightened consumer awareness around sustainability. Regulatory factors are also driving the shift, with California and New York mandating that all new car and light truck sales be EV or emissions-free by 2035, and a new federal regulation aiming to ensure most new passenger vehicles sold in the US are all-electric or hybrid by 2032. Advancements in battery technology are further bolstering the future of electric mobility.

Automakers and dealers are preparing for this EV-driven future, with major players already mass-producing electric models and investing heavily in marketing these offerings. However, the road ahead is not without obstacles, such as insufficient charging infrastructure and raw material shortages for battery production. As a result, the rise of EVs may develop at a more moderate pace, as evidenced by the recent dip in year-over-year EV sales compared to a 62% surge in hybrid vehicle sales this February.

To navigate this evolving landscape, marketers must focus on building greater awareness and educating consumers about the benefits of electric vehicles, while emphasizing their brands' commitment to sustainability. Automakers and dealers must also find ways to integrate EVs into their marketing strategies without alienating the still-critical traditional gas-powered vehicle buyer.

Looking back to 2020, motor vehicles experienced some of the most pronounced and persistent price increases during the pandemic's inflationary period, largely because supply chain issues and chip shortages limited production. This resulted in ever larger auto loan balances. The average auto loan origination amount had crept up slowly between 2015 and 2020, rising under 1% per year and reaching around $18,000 by early 2020. However, when car prices soared in 2021 and 2022, the average amount of newly originated auto loans jumped precipitously, increasing by 11% through 2021 and another 10% in 2022. By the end of 2022, the average auto loan origination amount had reached nearly $24,000. Since then, both prices and average auto loan origination amounts have started to decline.

After reaching historic lows in 2021, delinquency rates for auto loans and credit cards have been on the rise as pandemic-era policy supports fade. This trend is particularly pronounced in the auto loan market, where delinquency transition rates have surpassed pre-pandemic levels, indicating a broad-based deterioration in loan performance. Examining delinquency rates across different borrower characteristics reveals intriguing insights. When analyzing delinquency by birth generation, it becomes evident that delinquency tends to decrease with age. Interestingly, younger generations exhibit slightly higher delinquency rates compared to their predecessors.

Over the past two years, all generations have experienced a significant rise in delinquency transition rates, with Millennials and Baby Boomers now surpassing their pre-pandemic levels. Notably, average monthly payments remain fairly consistent across income brackets in nominal terms, except for the highest-income quartile. All income brackets have witnessed substantial increases in monthly payments for auto loans originated since 2019.?

However, the spike in monthly payments for loans initiated in the lowest-income quartile presents a much heavier financial burden compared to the highest-income group. It's worth mentioning that the trend for origination amounts by area income follows a similar pattern to average payments. Nevertheless, the recent decline in the average origination balance hasn't been reflected in the average scheduled payments. This is due to the surge in interest rates on auto loans over the past year.

Loans originated in 2022 and 2023 appear to be faring worse than those from earlier years, potentially due to the higher car prices and increased borrowing needs faced by buyers during this period. This worsening credit quality merits close monitoring, especially given the amplified distress shown by borrowers in lower-income areas.

The Rise Of The Certified Pre Owned Vehicle:

In response to the current challenges posed by prices and interest rates, many consumers are turning to the used car market as a solution. Certified pre-owned (CPO) vehicles are increasingly becoming a more financially viable option compared to brand new cars. This is largely due to the fact that CPO vehicles have already experienced significant depreciation, resulting in a lower selling price.

In fact, the global institutional retail market for Certified Pre Owned vehicles is already generating over One Trillion Dollars in revenue annually.

In essence, CPO vehicles provide excellent value for the astute consumer. These vehicles are typically previously leased or newer trade-ins, and while they are priced higher than average used cars, they are sold at a lower markup compared to new vehicles. Despite the higher initial cost, CPO vehicles often come with factory-backed warranties and peace of mind that comes with purchasing from a reputable dealership. According to recent data from Consumer Reports, CPO vehicles consistently exhibit fewer mechanical issues than other used options, making the higher initial investment worthwhile in the long run.

When considering the purchase of a CPO vehicle, it’s important to carefully review the extended warranty coverage. This usually includes a limited powertrain warranty that covers the engine, transmission, and drivetrain, as well as a limited bumper-to-bumper warranty for the vehicle's body and interior components. It’s essential to check the warranty duration and any exclusions, such as tires or electrical components that may require frequent maintenance and replacement.

Opting for a certified pre-owned vehicle often yields better long-term value compared to buying a standard used car. This is because CPO cars undergo thorough inspections by the dealership and are accompanied by a warranty, ultimately leading to lower overall ownership costs over time. With a certified pre-owned car, there is less concern about potential future mechanical problems or unexpected repair expenses, allowing for a focus on enjoying the vehicle itself without worrying about hidden issues.

The Advantages Of Choosing A CPO Vehicle Include:

Cost: CPO vehicles are typically thousands of dollars less expensive than their new counterparts, as new cars can lose up to 20% of their value in the first year.

Warranties: CPO vehicles frequently come with factory-backed warranties, providing peace of mind and protection against mechanical issues.

Extras: CPO vehicles may include additional perks such as roadside assistance, scheduled maintenance, or extended warranties - benefits that can add hundreds of dollars of value if purchased separately.

Financing: CPO loans are often easier to obtain than financing for new or other used vehicles, particularly beneficial for consumers with good credit who are seeking a more affordable option.

Inventory: The CPO market has been growing in 2023 as the supply of used cars has improved, allowing dealers more time to thoroughly inspect and certify these vehicles.

In Summary...

The automobile has become an iconic symbol of American life since the post-war era. Advancements in transportation and the construction of new highways during this period fueled the automobile's surge in popularity.

In America, the car became a symbol of personal freedom and social mobility, allowing people to travel to new places, meet new people, and take family vacations to previously inaccessible destinations. It also gave rise to new job opportunities and industries for people who supported their families by driving for a living. ?

This newfound freedom facilitated connections between urban and rural areas, enabling rural residents to shop in cities and urban dwellers to experience the countryside. Furthermore, the rise of leisure activities and industries like travel and hospitality were closely tied to the growing prominence of the automobile in American society and industry.

In fact, these innovations persist to this very day as ride hailing services such as Lyft and Uber simultaneously change the way we drive and influence the vehicles that we purchase.? ?

The revolutionary influence of the automobile on American life in the twentieth century, and beyond, has been truly amazing.? I’m often left to wonder how Henry Ford would view the lasting impact of his vision to make vehicles affordable for the average American family.? In my opinion that vision, and affordable freedom, matters today more than ever!?

Thank you for taking the time to read my Newsletter! I look forward to reading your comments and suggestions. If you would like to schedule an appointment please click on this message which will direct you to contact me through my website.