The Automotive Advisor Team

Economy  Source


The economy grew 5.9% in 2021 and slowed to 2.1% growth in 2022 with declines in real GDP in the first two quarters followed by 3.2% and 2.6% annualized growth in the final two quarters. Growth slowed to 2.0% in Q1 2023. Consumer consumption had been slowing but accelerated in the first quarter, which caused inventories to decline while residential investment also fell. The economy was more substantial than expected in Q1, but growth did slow modestly as the quarter progressed.

The consumer sentiment index from Morning Consult increased by 0.1% w/w today. It declined 1.8% in May, increased 4.4% in June, and is up 0.1% so far in July. Consumer views of the future have been the highest since August 2021. As of today, sentiment is up 20.5% y/y. The average price of unleaded gasoline declined 0.2% w/w as of Thursday to $3.54 per gallon, which was down 26% y/y.

New Car Outlook


The average transaction price of a new vehicle in June was up 0.3% from May at an initial estimate of $48,808 and the average price gained a little ground but remained below the average MSRP. The average price was up 1.6% y/y while the average MSRP increased 0.3% in June from May and was up 3.8% y/y. The average incentive spend from manufacturers increased 5.2% to $2,048, which was up 85% y/y. Incentives as a percentage of average transaction price increased to 4.2%, which was the highest level since October 2021. The average price relative to the invoice was steady at 11.7%, down 3.0 percentage points y/y. Pricing power has declined but remains strong relative to pre-pandemic comparisons.


Used Car Outlook:


Days of supply is 47, unchanged from two weeks ago. DS has been holding at this level for most of the spring. DS is now 11% below last year. The available supply is 2.22 million, up 18K from two weeks ago. Supply is 10% below last year. Sold last 30 Days is 1.43 million, up 37K from two weeks ago. Sales are now 1% higher than this week last year. The average Listing Price is $27,147, down $37 from two weeks ago. Prices are holding steady down slightly from last year, but following “normal” patterns – down 3% from last year this week.


Wholesale Outlook:

The 3-year-old index depreciated 0.8% to 97 .9%. Non-luxury decreased 1.0% and luxury decreased 0.6%. All model years depreciated week over week. Sale prices continue to run further below MMR (-2.39%). Lane efficiency dropped during the holiday week for both 3 and 6-year-old models. Three-year-old efficiency dipped below 2022 levels.


Retail Margin Outlook:

The retail margin spread has shown a positive separation this week. The average spread is consistent for most model years.

  • The 1-Year-Old (2022 MY) spread % is at 9.0% vs 8.8% last week.
  • The 3-Year-Old (2020 MY) spread % is at 8.8% vs 8.1% last week.
  • The 5-Year-Old (2018 MY) spread % is at 17.6% vs 17.0 last week.


Summary: We are hearing a lot about the rapid decline in used car costs and what it says about the future of the used car market. We have to remember there are two demand-driven metrics in the auto market. One is dealer-driven demand and the other is consumer-driven demand. They are not the same. Dealer demand drives acquisition price, which is what everyone is writing about. The acquisition cost of cars has dropped significantly with dealers on average pulling back with the softening of the market. This is where we a calculated dealer can take market share As seen in the retail price, consumer demand is still there and supplies are low. Market supply impacts retail price more than the acquisition price and that is not being accounted for correctly in many of these posts and articles.


Acquisition price gives us one view of the market, true or not, and retail price gives us another. We have been using that data and logic since the pandemic to surgically define the market outlook and it has helped our clients calculated courage to stay aggressive.

Happy Selling,

John Ellis, Founder & CEO

The Automotive Advisor Team