2024 Kerrigan OEM Survey finds OEMs expect sales to increase and earnings to normalize at higher levels over the next 12 months, despite high interest rates and affordability challenges; majority of OEMs developing ICE production contingency plans as electric vehicle (“EV”) demand softens and EV sales expectations wane
Automotive OEMs are generally optimistic about the health of the automotive industry over the next 12 months, with the vast majority expecting new vehicle sales to increase or remain the same versus 2023, according to the just-released 2024 Kerrigan OEM Survey.
The survey, gathered from Kerrigan Advisors’ annual survey of automotive OEM executives in conjunction with the issuance of The Blue Sky Report®, is designed to gauge OEM executives’ perspectives on the franchise system, dealer profitability and electric vehicle sales. The 2024 results indicate that despite high interest rates and consumer affordability challenges, the industry is amid a normalization period, in which dealership sales, profits and inventories are moderating, likely at more attractive levels than the pre-pandemic period. Strikingly, the survey reveals significant challenges with the industry’s transition to EVs, with 81% of OEMs expecting the transition to be slower than originally forecast.
Dealership Profits, Sales, Margins and Inventories Reflect Improving Outlook
Only 54% of OEM executives surveyed expect dealership profitability to decline in the next 12 months, compared with 69% in 2023. Consistent with this improved outlook, 41% of OEMs expect profits to remain the same over the next 12 months, versus just 24% who had that expectation last year. As with 2023, a slim minority project dealership earnings to increase in the near-term. These results are an indication that auto retail profits are beginning to normalize for many franchises.
Despite high interest rates and consumer affordability challenges, 44% of OEMs expect new vehicle sales to increase over the next 12 months, while 48% project sales will remain at 2023 levels, only 8% expect a decline. This sales optimism is likely a byproduct of rising new vehicle inventory expectations, with 70% projecting days’ supply to normalize between 60 and 90 days, up from 38% in 2023.
“We are in the midst of auto retail’s great normalization. After years of historically high dealership profits, new vehicle inventories are rebounding and gross profit margins are on the decline,” continued Erin Kerrigan. “That said, we are pleased to see the majority of OEM executives do not expect a return to pre-pandemic gross profit margins. In fact, an increasing number of executives predict dealership earnings will flatten in 2024 – an indication OEMs do not intend to return to a period of overproduction and excess inventories.”
EV Transition Remains Slow, Impacting OEM Decisions
In addition to the vast majority who anticipate a slower transition to EVs, over two-thirds of OEMs surveyed project that they will not meet their proposed EV sales goals, with 86% reporting they are developing contingency ICE production plans if EVs do not penetrate the market as successfully as expected. These results are consistent with the declining sales growth in EVs – through June 2024, EV sales growth is down 84% compared to 2023.
The failure of OEMs to meet their projected EV sales is also driving substantial modifications to their expected changes to the auto retail model: over half of OEM respondents do not expect the agency model to be introduced in the US in the next five years, a dramatic shift from the only 24% who were skeptical in 2023. The survey also reveals a major change related to anticipated increases in facility requirements, with 60% expecting no increase in requirements over the next five years, and only 18% projecting an increase, compared to 32% in 2023.
Additionally, while OEMs are more supportive of the dealership legacy sales model, a rising number expect to take a leading role in the customer relationship and data ownership. The majority (67%) expect the customer relationship and data will be shared by OEMs and dealers in the future, though 19% (a 16% increase from 2023) believe the OEM will exclusively own the customer relationship and data. Just 14% of respondents project the legacy model, in which the dealer is the primary owner of the customer relationship, will remain. These results demonstrate the OEMs’ continued desire to have more direct management of the customer relationship.
“As our survey makes clear, the industry’s transition to EVs will be much slower than originally projected and OEMs are preparing necessary contingency plans for increased ICE and hybrid production to meet consumer demand,” said Ryan Kerrigan, Managing Director of Kerrigan Advisors. “This has also led to a pullback in OEMs’ changes to the retail sales model and facility requirements, with some, such as Ford, abandoning their plans to take a more active role in retailing and recognizing the dealer network is the most economic and efficient sales model. That being said, as our survey indicates, executives still believe the customer relationship and data is squarely in their future domain. The 2024 Kerrigan OEM Survey cements the industry’s expectation that change is the only constant.”
Key OEM Survey Data
- 46% project profits will stay the same or increase in the next 12 months, while 54% expect a decline in the next 12 months an improvement from 69% in 2023.
- 62% expect new car margins to normalize above 2019 levels, while only 38% believe they will return to 2019 levels.
- 44% say new vehicle sales will increase over the next 12 months, 48% project sales will remain at 2023’s levels and 8% expect a decline.
- Days’ supply of new vehicles is expected to normalize at 60-90 days in the next 12 months say 70% of respondents, up from 38% in 2023. 22% project days’ supply to remain within 30-60 days in the next 12 months, down from 59% in 2023.
- 81% of OEM executives believe the transition to EVs will be slower than originally planned.
- 64% do not expect to meet their EV sales goals, prompting 86% of respondents to reveal their organizations are developing contingency ICE production plans if EVs do not penetrate the market as expected.
- 67% expect customer relationship/data will be shared by OEMs and dealers in the future, although 19% (a 16% increase from 2023) believe OEMs will exclusively own the data. 14% of respondents say the dealer will be the primary owner.
- Only 18% of respondents projected an increase in facility requirements over the next 5 years, while 60% believe they will remain the same, and 22% anticipate a decline.
