Revving up for recovery: exploring the automotive market downturn

First and foremost, the automotive industry is in a period of adjustment to new economic realities rather than facing an imminent collapse. A rebound is on the horizon.

The current downturn in the automotive market is driven by several key factors:

Economic challenges

• High inflation cutting into buyers' disposable income
• Rising interest rates making auto loans more expensive and difficult to obtain
• Potential recession fears causing consumers to reduce spending on major purchases
• Pricing and affordability issues
• Elevated vehicle prices, with the average new vehicle price at $47,401 in January 2024
• High auto loan interest rates (7.18% for new cars, 11.93% for used cars)
• Negative equity from previous rapid price increases making it harder for consumers to upgrade

Supply chain disruptions

• Ongoing challenges in the supply chain, including chip shortages (still)
• Transition from tight inventory to improving supplies causing pricing and merchandising challenges for dealers

Market saturation and competition

• China's overproduction of vehicles, especially EVs, leading to increased competition and price wars
• Normalizing inventory levels are reducing reliance on product scarcity to drive sales

Declining sales and profitability

• Major automakers are experiencing significant drops in profits and sales
• Increased incentive spending (up 66.6%) to stimulate sales, impacting profit margins

These factors have created a complex environment where consumers are finding it more difficult to afford vehicles, while automakers and dealers struggle with declining sales, profit margins, and increased competition.

Throughout 2025, we will slowly see the industry's adaptation to these changing conditions and returning to normalcy.