Automotive & Fleet Outlook: Cautious Optimism to Start 2024

With a recession that never materialized in 2023, the economy actually outperformed expectations. What’s in store for 2024, and how will it all affect fleets? 

Automotive Industry and Economy Indicators

Here’s a compendium of recent indicators from various sectors of the automotive industry and the economy in general, followed by some color from the prognosticators. 

• Interest Rates: It looks like relief is coming regarding the high cost of money, one of the biggest growth inhibitors in 2023. Based on the Federal Reserve’s Dec. 13 meeting, expect three rate cuts in 2024. From today’s 5.25-5.5% policy rate, the median projection for the end of 2024 is projected to dip to 4.6%, with further adjustments downward for 2025 and 2026. Auto loan and mortgage rates are declining. 
• GDP: According to the Fed, gross domestic product (GDP) is now expected to grow at a 2.6% annualized pace in 2023, a half percentage point increase from the last update. In a Nov. 15 report, Goldman Sachs predicts income growth will slow from its strong 2023 pace but will still expand 2.1% in 2024. 
• Inflation: The Fed’s revised forecasts also suggest a more moderated inflation outlook in the next two years from its previous update in September. But it depends on sector: Fuel prices are declining, while grocery, insurance, and services prices are holding steady. 
• Recession Probability: Goldman Sachs researchers peg the probability of a U.S. recession at just 15% for 2024. Other financial institutions are predicting a “mild” recession. 

Turning to automotive and fleet-specific outlooks: 

• Fuel Prices: The U.S. Energy Information Administration cut its price forecast for the annual average U.S. retail gasoline price from more than $3.50 per gallon this year to less than $3.40 gallon in 2024.
• SAAR: Yes, vehicle supply is indeed easing. While Cox Automotive had initially forecast a 14.1-million-unit seasonally adjusted annual rate (SAAR) for 2023, the revised data calls for an increase to 15.3 million units for this year. 
• Fleet Sales: According to data Bobit collects, light-duty fleet sales across rental, commercial, and government fleets are up 29% year-to-date through November to 1.98m total units. That represents a marked recovery from the pandemic years but is still 23% fewer units than 2019 (2.57m) over the same period. 
• Residual Values: On an annual basis, depreciation is expected to remain elevated in 2024, according to Black Book, although on a decreasing trend. Black Book is forecasting an average depreciation rate of 18% for 2024 for light-duty vehicles, according to data supplied to Automotive Fleet. That’s better than the depreciation rate of 20% for 2023, but still greater than the pre-pandemic depreciation average of 14%. The decline of lease returns will contribute to sustained high levels of wholesale prices, while more new-vehicle inventory will exert downward pressure on wholesale prices coming off their historic highs. 
• Commercial Truck Sales: According to data from NTEA, The Work Truck Association, sales of Class 2 to 8 commercial truck chassis in the U.S. and Mexico grew slightly in the third quarter compared to the same period in 2022, but those numbers cooled considerably from the 5% growth in the second quarter of this year. Sales declines in cutaways and low-cab-over-engine trucks drove these declines. 
• Vehicle Pricing: New vehicle prices are on a three-month downward trend comparing this year to last. According to a Dec. 11 Kelley Blue Book report, the U.S. new-vehicle average transaction price in November 2023 was $48,247, an increase of less than 1% month over month and down year over year by 1.5%. Used vehicle prices are also falling from their peak in March 2023: The average used vehicle listing price to start December was $26,091, down month over month and down from December 2022, according to Cox. 
• Vehicle Incentives: KBB also reported that new-vehicle sales incentives surpassed 5% of the average transaction price (ATP) for the first time since September 2021. New-vehicle sales incentives were up 136% year over year in November, indicating the new-vehicle market is shifting to a buyer’s market.
• Days’ Supply: According to Cox Automotive’s Dec. 14 tracking, days’ supply climbed to 71 at the start of December — the first time in two years — up from 60 at the start of October and 69 for November. The total U.S. supply of available unsold new vehicles is up 57% from the beginning of December 2022. Used days’ supply is a different story — at 52 to start December — which is down 7% year over year. 
• EV Supply & Incentives: EV inventory is even higher, at 114 days at the end of November. Charging infrastructure, range, and resale values are primary concerns for EV buyers. EV incentives are just south of 10% whereas the overall industry level remains below 5%, according to Kelley Blue Book. 

Experts Weigh In

“The revised third-quarter GDP data was positive news for the commercial vehicle industry,” wrote Steve Latin-Kasper, NTEA’s market data and research senior director, in his December monthly outlook. “However, expectations for continued growth in fourth-quarter 2023 and first-half 2024 remain low.”

Latin-Kasper believes the impact on commercial vehicle and truck equipment sales will be minimal, citing lack of chassis and labor availability outweighing other factors. “Sales are expected to continue growing next year. Growth may decelerate in the first half of the year and pick up again in the second,” he wrote. 

Alex Yurchenko of Black Book weighed in on the outlook for residual values of light-duty vehicles in 2024: “We anticipate a shift back towards a more standard pattern of seasonality, with strong wholesale prices during the first half of the year and a subsequent higher depreciation in the second half,” he wrote in a note to Automotive Fleet. “The spring market is projected to extend longer, starting earlier than in the years prior to the pandemic.”

Regarding the new UAW labor agreement, “Labor costs will rise for all automakers, regardless of the UAW’s union-drive efforts in the south,” wrote Brian Finkelmeyer, senior director of new car solutions at Cox Automotive. “Wall Street is concerned that the automakers will be unable to pass this added labor cost onto consumers or find $900 worth of efficiencies to offset it. The net result will be lower margins moving forward. This issue creates another level of headache for the legacy OEMs building EVs because they lose a significant amount of money on each unit they sell.”

Finally, in his 2024 Trends Forecast, Jonathan Smoke, chief economist at Cox Automotive, wrote to expect sales growth to be constrained and weak in 2024, but a bit more normal compared to the chaos of the past three years. 

“As an economist, headline-making swings in economic trends are always interesting to see and analyze, but such turbulence is rarely good news for business over the longer term,” he wrote, referencing the economic, political, and social turbulence of the last few years. “… From our vantage today — and barring any new black swan events — the forecast is for a fairly normal automotive market in 2024. That might not make headlines, but it should be a welcome relief for everyone involved.”