Hope on the Horizon: CarGurus Q1 2024 Report Reveals Inventory and Demand are Rebounding as Prices Improve

Rhea-AI Summary

CarGurus (CARG) reports a year-over-year rise in sales driven by pent-up shopper demand for more affordable vehicle options. The Quarterly Review for Q1 2024 highlights rebounding inventory and moderating prices, fueling sales growth for both new and used vehicles.

Insights

Market Research Analyst

As the automotive industry grapples with the aftermath of the pandemic, the current rise in sales, despite high interest rates, points to a significant consumer behavior shift. Buyers are showing resilience and are adapting to the new market conditions by seeking more affordable options. This trend suggests a shift in the value proposition of vehicles, where cost-effectiveness is becoming a key driver of purchase decisions.

From a market perspective, the increase in demand could provide a boost to automotive stocks, particularly those involved in the production and sale of budget-friendly models. However, investors should monitor inventory levels and the potential for a price correction as supply chains stabilize. The room for price declines might lead to reduced margins for dealers and manufacturers, which could impact earnings in the short term. Long-term implications could include a recalibration of the industry's pricing strategies to align more closely with consumer expectations post-pandemic.

Financial Analyst

The report by CarGurus highlights a situation where sales are outperforming the previous year's figures, which is a positive indicator for the automotive sector's recovery. This performance is likely to be reflected in the financial results of companies within this space, potentially leading to upward revisions in sales forecasts and earnings estimates for the year.

Investors should be aware that the current trend may also affect the valuations of automotive stocks. As companies navigate the balance between demand and pricing strategies, stock prices may experience volatility. It's essential to consider the sustainability of this demand surge, especially in the face of ongoing economic pressures such as high inflation and interest rates. Companies that can successfully manage their pricing power while maintaining sales momentum are likely to emerge as attractive investment opportunities.

Economist

The data from CarGurus serves as a microcosm of the broader economic environment, where consumer confidence, despite inflationary pressures, appears to be translating into tangible market activity. This resilience in the automotive sector is a positive sign for the economy, indicating that consumers are willing to engage in larger financial commitments.

However, it's important to note that the automotive industry is sensitive to macroeconomic factors such as interest rates and consumer spending power. The current environment of high interest rates typically dampens demand for financed purchases like cars. Yet, the observed trend contradicts this norm, suggesting that other factors, such as the desire to secure personal transportation amidst public health concerns, may be at play. This could signal a more robust economic recovery than anticipated, which would have widespread implications for various sectors beyond automotive.

Pent-up shopper demand contributing to year-over-year rise in sales, with buyers increasingly searching for more affordable options

CAMBRIDGE, Mass., April 08, 2024 (GLOBE NEWSWIRE) -- CarGurus (Nasdaq: CARG), the No. 1 visited digital auto platform for shopping, buying, and selling new and used vehicles¹, today released its Quarterly Review for Q1 2024, giving buyers, sellers, and dealers a view into the key trends influencing pricing, inventory, and demand for new and used vehicles so far this year.

“Rebounding inventory and moderating prices are fueling pent-up demand in spite of high interest rates. Our research shows sales for both new and used vehicles are, so far, outpacing last year’s levels,” said Kevin Roberts, Director of Industry Insights & Analytics at CarGurus. “While it’s still challenging to find that elusive affordable car, there’s hope for additional price declines as prices normalize closer to inflation-adjusted levels. We won’t see a return to pre-COVID pricing, but data indicates there is room for average prices to decline by about 14% for used models and 7% for new, with the potential to drive further consumer demand.”

While car prices are moderating, the report finds that the challenge of finding an affordable vehicle persists. Data shows that the number of new cars priced under $20,000 fell by 95% since March 2020, and the number of used cars under $10,000 is down 46% over the same period.

Consumers are undeterred, though, and are using tools like CarGurus.com to uncover more affordable options—with searches for used cars under $10,000 up 20.5% year-over-year on the site, and new car searches under $30,000 up 33.3%. This reflects findings from CarGurus’ recently released Consumer Insights Report, in which shoppers reported that budget and expected costs are among the top factors influencing what to buy, increasing from the prior year.

Additional highlights from the Q1 report include:

• Buyers searching for an upgrade benefit from a large selection: Not all buyers were on the hunt for more affordable vehicles in Q1. New car searches over $50,000 increased by 13.4% year-over-year, reflecting a dichotomy in consumer demand. Unlike inventory trends for more affordable options, shoppers in this segment have access to a 133% increase in inventory compared to Q1 2020.
• Inventory is improving, but finding late model year used vehicles is getting harder: New car availability has rebounded by 270% from the low point of November 2021. However, the hangover of the semiconductor shortage is lingering for used vehicles. There has been a 19% decrease in used inventory under two years old compared to Q1 2020, and a 10% decline in vehicles between three and four years old. On the other hand, inventory aged five years or older is up 19%.
• Consumer interest in green vehicles is on the rise: Shopper search activity indicates a growing interest in electric vehicles (EVs) and hybrids. The percentage of combined views for hybrids and EVs as a share of total views for new vehicles increased by 7.4% year-over-year. Views of used hybrids and EVs increased by 28.8% over the same period, with recent price cuts on used EVs likely contributing to the boost in interest.
• Interest in more unique models – like the Tesla Cybertruck – is increasing: While Tesla continues to dominate the list of top viewed EV models, the Cybertruck has generated a whole new wave of buzz after the first resales entered the market in Q1 2024 - garnering 17x more views as a ratio to inventory compared to other used Tesla models in March alone.

“Looking ahead, the future of interest rates and new inventory production will play a key role in influencing demand for the rest of the year,” added Roberts. “Time will tell how much longer shoppers will tolerate a high rate environment. And questions remain on whether current new inventory—which is about three-quarters of the way back to pre-COVID levels—will end up at a peak, or a plateau, as automakers have been vocal about avoiding a return to a high inventory environment.”

The complete CarGurus Quarterly Review - Q1 2024 is available here.

About CarGurus, Inc.
CarGurus (Nasdaq: CARG) is a multinational, online automotive platform for buying and selling vehicles that is building upon its industry-leading listings marketplace with both digital retail solutions and the CarOffer online wholesale platform. The CarGurus platform gives consumers the confidence to purchase and/or sell a vehicle either online or in-person, and it gives dealerships the power to accurately price, effectively market, instantly acquire, and quickly sell vehicles, all with a nationwide reach. The company uses proprietary technology, search algorithms, and data analytics to bring trust, transparency, and competitive pricing to the automotive shopping experience. CarGurus is the most visited automotive shopping site in the U.S. ¹

CarGurus also operates online marketplaces under the CarGurus brand in Canada and the U.K. In the U.S. and the U.K., CarGurus also operates the Autolist and PistonHeads online marketplaces, respectively, as independent brands.

To learn more about CarGurus, visit www.cargurus.com, and for more information about CarOffer, visit www.caroffer.com.

CarGurus^® is a registered trademark of CarGurus, Inc., and CarOffer^® is a registered trademark of CarOffer, LLC. All other product names, trademarks and registered trademarks are the property of their respective owners.

¹Similarweb: Traffic Insights, Q4 2023, U.S.

Media Contact:
Maggie Meluzio
Director, Public Relations & External Communications
pr@cargurus.com

Investor Contact:
Kirndeep Singh
Vice President, Head of Investor Relations
investors@cargurus.com

FAQ

What did CarGurus report in their Quarterly Review for Q1 2024?

CarGurus released their Quarterly Review for Q1 2024, highlighting key trends in pricing, inventory, and demand for new and used vehicles.

What is fueling the rise in sales for CarGurus?

Pent-up shopper demand for more affordable vehicle options is driving the year-over-year increase in sales for CarGurus.

Who commented on the sales trends at CarGurus?

Kevin Roberts, the Director of Industry Insights & Analytics at CarGurus, mentioned that sales for both new and used vehicles are outpacing last year's levels.

What does the research by CarGurus indicate about pricing trends?

The research suggests that prices for new and used vehicles are moderating, with potential for further declines closer to inflation-adjusted levels.