It’s that time of year again – the time when we like to reflect on the previous 12 months and look ahead to the coming year. Last January, I wrote about our expectations for 2023, and they could be condensed into three predictions: sales would grow, fleet would account for a larger share of the market, and transaction prices would start to modestly decline. All three predictions represented a regression to the mean, which admittedly meant that none of the prognostications were outlandish.

Still, all three predictions proved to be broadly accurate, with some caveats. Fuelled by improved inventory levels, sales did grow in 2023 and surpassed our expectations, largely due to the much-discussed recession never materialising. Fleet sales did indeed increase as a percentage of total sales, to an estimated 18.5% for the year. Meanwhile, average transaction prices declined to US$46,207 by December 2023, a fall of 2.4% YoY. Incentives increased to US$2,633 in December, up by 104.3% YoY. However, prices are certainly still elevated compared to historical levels. The resolution of the UAW contract negotiations should provide more stability for the industry in 2024, although automakers’ labour costs have sharply increased as a result.

So, will we get back to normal in 2024? In terms of total sales, we should point out that at 15.6 million units, 2023 was in line with the mean annual average for this century. However, the median average over that period is 16.5 million units, and perhaps that is why there is a sense that the industry has not fully recovered. In 2024, we expect the US LV market to grow, but we think the rate of increase will moderate. We see total 2024 sales at 16.1 million units, up by 3.7% YoY, compared to the 12.9% expansion in 2023.

Even though many economists are now envisaging a “soft landing” scenario, in which inflation falls while a recession is avoided, GDP growth is still expected to be relatively weak. The other headwind for the auto market is the fact that much of the low-hanging fruit has already been plucked, as consumers who were motivated to buy a vehicle and held back only by a lack of inventory have now largely had their needs met. Pricing still feels like an area that has not yet seen a return to normality, but there should be more deals available for savvy buyers in 2024 than there have been in recent years. Overall, dealers are likely going to have to work harder to make sales in 2024 than they have for several years.

Fortunately, the industry does still have some levers that it can pull to stimulate sales. While incentives are on the rise, there is still plenty of ground to make up before we see a return to “normal” pre-pandemic levels. So, look out for heavier discounting during 2024, particularly among brands that are seeing the days’ supply metric creep up as production exceeds demand.

Another trend to follow in 2024 could be an uptick in lease sales as a percentage of total sales. Before the pandemic, leasing was becoming an increasingly common acquisition method, accounting for around 30% of purchases in early 2020. However, when inventory levels crashed and interest rates rose, leasing lost its cost advantage over traditional financing, and it fell out of favour with both OEMs and consumers. By October 2022, leases represented just 16% of sales, according to JD Power data. That percentage has since crept up to over 20%, and OEMs could choose to push lease deals more aggressively in 2024, especially if interest rates start to be cut and there is more stability in long-term pricing expectations. An increase in the leasing of imported models can also be attributed to the industry working around the EV tax credit qualification criteria under the Inflation Reduction Act. On the other hand, given how much leasing decreased in the second half of 2021, and many leases last for three years, there will be fewer lease returns in H2 2024. Therefore, dealers may need to persuade buyers who have never previously leased to do so if this method is to get back on to the growth trajectory that it was on pre-pandemic.

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Finally, despite plenty of negative headlines around faltering demand for BEVs, we expect the trend towards electrification to continue at a good pace in 2024. While certain models may be seeing days’ supply pile up as supply has exceeded demand, the bigger picture is that more BEVs are entering the market, and in general, there are enough willing buyers to see BEV share continue to grow. Our forecast sees around 1.63 million BEVs being sold in 2024, which would be a 36.2% YoY increase. In market share terms, BEVs are set to account for 10.1% of the total market in 2024, up from an estimated 7.8% in 2023. While BEV adoption may be progressing more slowly than some would like, and there is the possibility of more delayed or stuttering product launches in 2024, there is no need to panic.

One of the enjoyable aspects of being a forecaster in the automotive industry is that no two years are quite alike. The rise of electrified vehicles is one example of a seemingly permanent, yet gradual shift. However, in many other respects – pricing, incentives, inventory, labour relations and sales volumes being among them – 2024 could herald a return to more normal conditions, which I suspect would be welcomed by many in the industry.

David Oakley, Manager, Americas Vehicle Sales Forecasts, GlobalData

This article was first published on GlobalData’s dedicated research platform, the Automotive Intelligence Center