As we look back on Q3, the automotive market has revealed key trends that highlight the complexities of inventory management for auto retailers.

In Q2, dealers experienced a 10% sales increase for new vehicles despite challenges like the CDK Global cyber incident. However, this surge in sales coincided with rising inventory levels, leading to a 4-day increase in daily supply quarter-over-quarter (QoQ) and a 29-day rise year-over-year (YoY).

Q3 brought a renewed focus on managing inventory. While the overall daily supply for new vehicles climbed to 74 days — an increase of six days QoQ and 28 days YoY — the focus sharpened on managing aging inventory. Notably, Q3 saw a 3% decrease in aged inventory QoQ, although it remained 13% higher YoY. This improvement highlights the ongoing challenges dealers face as they balance supply and demand amidst evolving consumer preferences, particularly with the growing interest in electric vehicles (EVs) and hybrids.

As we focus on the trends that shaped vehicle inventory risk in the third quarter, it is essential to understand how these dynamics affect dealers’ strategies and profitability as they gear up for a competitive fourth quarter.

Electric and hybrid vehicles gain momentum

In Q3 2024, the momentum for electric vehicles (EVs) continued to build, although the growth trajectory showed some shifts compared to Q2. While Q2 data reported a nearly 30% surge in new EV sales, Q3 data revealed a more tempered yet significant increase.

New EV sales grew by approximately 11% year-over-year, reflecting ongoing consumer acceptance and expanding market share. Notably, EVs were the only engine type to see a decrease in daily supply among new vehicles, dropping by 11 days. Despite this reduction, the supply of EVs remains considerably higher than other segments, indicating potential for further market penetration.

In the used vehicle market, EV sales also experienced growth, rising by 7%, while hybrids followed closely with a 6% increase. Used EV day supply continued to decrease, falling by another 2 days quarter-over-quarter to 44 days, while hybrids and gas vehicle day supply remained steady. This trend underscores a growing consumer willingness to invest in electrified vehicles as they solidify their presence in both new and used vehicle segments. Brand-specific performance within the EV segment varied significantly; some manufacturers reported substantial year-over-year increases in EV sales, while others faced challenges in maintaining momentum amid rising competition and shifting consumer preference.

Inventory management challenges persist

The third quarter also saw mixed results in inventory management across brands. Based on inventory risk data, new-vehicle day supply increased by 6 days to 74 days, up 28 days year-over-year. This increase was partly due to the release of the new model year inventory but also highlights the ongoing challenge of balancing supply with demand, as some brands faced significant inventory hurdles.

New vehicles saw improvements in sales volume and ageing quarter-over-quarter. However, aging concerns were still very much present as aged inventory increased by 13% year-over-year. New aged ending inventory decreased by 3% quarter-over-quarter but increased by 13% year-over-year, indicating persistent aging concerns. For instance, Cadillac experienced a significant 25% increase in carryover inventory, driven by a 40% rise in LYRIQ inventory.

Luxury brands also experienced fluctuations in inventory levels. Some reported significant decreases in daily supply as sales rose, while others faced challenges with aging inventory that could impact future sales.

The used vehicle market held very steady quarter-over-quarter, with only slight changes in daily supply across different fuel types.

OEM performance varies widely

OEM performance in Q3 was markedly uneven. While some saw significant growth, others struggled with sales declines and inventory imbalances. Certain OEMs experienced notable surges in sales driven by effective marketing strategies and improved consumer engagement. Others faced challenges due to production constraints or shifts in consumer demand that affected their overall performance.

The luxury segment also exhibited mixed results. Some OEMs capitalized on strong demand for high-end vehicles, while others struggled with inventory management and pricing pressures that impacted their sales figures.

Pricing strategies and markdowns

Pricing strategies remained a crucial factor in Q3. While the magnitude and volume of markdowns remained steady, some OEMs made significant adjustments in response to market dynamics. For new vehicles, pricing strategies held steady with very minor changes to price or markdowns overall. For example, Volvo increased the number of units sold with markdowns on new vehicles by a market-high 11%, while Chrysler decreased theirs by 4%. These pricing strategies reflect broader trends in consumer behavior and competitive pressures within the market.

Additionally, some OEMs recorded substantial decreases in list prices as they adjusted their strategies to remain competitive amid changing market conditions.

Used-vehicle market trends

The used-vehicle market remained stable quarter-over-quarter, with only a slight decrease in daily supply. However, there were notable OEM-specific trends worth mentioning. Some brands reported significant drops in daily supply year-over-year, indicating effective management of older inventory. Conversely, certain manufacturers struggled with moving older stock, leading to higher daily supplies for used vehicles.

Overall pricing trends in the used vehicle market showed minimal fluctuations but highlighted the need for dealerships to remain vigilant about competitive pricing strategies to optimize sales. The stability in the used market, particularly for hybrids and gas-powered vehicles, underscores the importance of effective inventory management strategies that can adapt to changing consumer preferences and market conditions.

Adapting to future market changes

The insights from the Q3 report emphasize the importance of effective inventory management and pricing strategies in responding to shifting market dynamics. As the automotive industry continues to change, managing inventory levels and adapting to consumer demand will remain key to success.

By leveraging data-driven insights, auto dealers can better navigate these market fluctuations, optimize their inventory, and enhance their competitiveness. Proactive strategies that focus on inventory management, pricing, and customer engagement will be essential as the industry moves toward 2025.

Len Short is the executive chairman of Lotlinx, which offers an inventory platform that enables dealers to automatically adapt to market dynamics, mitigating inventory risk through VIN-specific strategies. For more information, visit www.lotlinx.com.