With the 2024 tax season winding down, the data that is emerging shows some significant opportunity for the industry. We're looking into how these dynamics are influencing consumer behavior and what it might mean for retail auto sales this spring.
🏛️ ‘Tis the Season 🏛️
Refund Projections: Economists expect tax returns to exceed $303B by the end of June, marking a 2.8% increase from 2023, and promising more disposable income for potential car buyers.
Not So Fast: This year's tax refund processing is seven days behind last year’s schedule, signaling a slower start to the season. However, with 62% of likely refunds already issued, the season is heading toward the home-stretch.
Refund Reality: As of April 5th, a total of $201B has been refunded – a slight 1% increase YOY. The average refund amount has increased to $3,011 – up 5% from last year.
💸 Where is All That Money Going? 💸
Season Dynamics: While the current pace suggests larger refunds earlier in the season, this might be balanced by smaller refunds later.
Income Brackets: Data through March 31st shows that customers earning less than $50K have experienced a more significant increase in tax refunds compared to those in higher income brackets. This is primarily attributed to increases in the Earned Income Tax Credit (EITC), which benefits lower to moderate-income households.
Burning a Hole: According to recent survey data, while the majority of people still plan to pay debts or save their refunds, those intentions have slightly decreased year-over-year. In contrast, the intent to spend on shopping has nearly doubled compared to 2023, indicating a renewed interest in discretionary spending.
The market is experiencing its usual bout of Spring Fever this tax season resulting in a bump in sales of new and used vehicles and reducing the days' supply.
🌼 Seasonal Sales Boost 🌼
Reduced Days' Supply: The start of April saw a slight decrease in used-vehicle days' supply to 44, down from 46 in March—a 4% drop, which indicates a brisk pace in vehicle sales. This level matches the days' supply from the same time last year, showing a consistent seasonal pattern.
Robust Sales: Cox Automotive reports that the days’ supply metric is calculated from the daily retail sales rate over the most recent 30-day period, with sales reaching 1.50 million units. This period marked a significant increase, with used-vehicle sales climbing over 5% year-over-year, driven partly by tax refund season.
Used Pricing: While the average listing price for used vehicles saw a modest rise to $25,540 in April from $25,121 in March, it remains 4% lower than the previous year. This pricing dynamic offers potential buyers a more affordable option compared to last year, aligning well with increased buying activity during the spring season.
Constrained Supply: Used cars priced under $15K are significantly harder to come by, with a days' supply of only 33. That's 25% lower than other price ranges, further highlighting affordability challenges.
Market Leaders: The top five selling brands—Ford, Chevrolet, Toyota, Honda, and Nissan—dominated the market, accounting for 49% of all used vehicle sales at an average price of $23,089, notably 9% below the average price across all vehicles.
🌟 Opportunity for Dealers 🌟
Enhance Your Online Presence: As tax refunds begin to hit bank accounts, it's crucial for dealerships to ramp up their digital marketing efforts. This includes updating websites with new promotions, increasing social media engagement, and using targeted online ads to reach consumers when they have the most disposable income. Highlighting deals or financing options that coincide with the arrival of tax refunds can draw in buyers looking to make the most of their extra funds.
Focus on Affordability: With data showing that used cars priced under $15,000 are in high demand and short supply, dealers should focus on stocking and promoting these more affordable vehicles. Tailoring inventory to include a higher proportion of these vehicles can meet the growing demand and attract buyers seeking budget-friendly options.
Targeted Marketing: With the increase in tax refunds, particularly among consumers earning less than $50K a year, dealerships may want to consider developing special promotions to draw this particular group. Options could include better trade-in values, reduced down payments, or special financing rates to enhance the accessibility and appeal of ownership.
Holiday Opportunities: As we move into May, properly preparing for Memorial Day's historically strong sales period is going to be clutch. Be sure you're ready for some key sales weekends and prepare for an influx of eager shoppers.