The Automotive Advisor Team

Economy:

Consumer sentiment is up to 91.4%, the highest it has been since December 2021. Jobs are up, wages are up and inflation is softening to 2.4% and is expected to reach 2% in August. Spending is up in most categories except department stores, gas stations, repair shops, and sporting goods. Another good week of indicators for our economy and our retail business.

 

New & Used Car:

As new sales dip down .5% week over week, supply is growing 17 days year over year. The opposite is happening with used cars as sales are up week over week by .5% and supply is down 6 days year over year.

Wholesale:

Depreciation decelerated for the 3-year-old index, down 0.6% to 95.3%. Non-luxury and luxury both decreased by 0.7%. All model years depreciated week over week. Sale prices continue to run below MMR but improving (-1.62%). Lane efficiency increased slightly for both 3-year-olds and 6-year-olds.

 

  • Retail Spread
    • The wholesale value continued to decline for all model year vehicles with older models declining less.

  • The 1-Year-Old (2022 MY) spread % is at 9.5%, the same as last week.
  • The 3-Year-Old (2020 MY) spread % is at 11.4% vs 10.8% last week.
  • The 5-Year-Old (2018 MY) spread % is at 18.7% vs 18.6 last week.

 

F&I Outlook:

There’s a shift happening with cash pay growing and long-term lengths shrinking. That may indicate yeah necessity of buyers trading in their vehicle and buying down to reduce monthly payments as a result of reduced interest rates and higher down payments.

 

Banks and captives are still trending above credit unions but with banks as high as they are and credit unions continuing to stay strong that gives the false impression in the market that cash pay is higher for dealers. Cash pay does not always mean cash pay. Our advice to clients is to make sure and be transparent with the consumer that the deal they’re coming in on is the best in the market, but financing is part of that deal as well. Matching the current rate is not as difficult as it was a few months back and the points will help complete the full deal and create profitability for the dealer in each transaction. We have to make this a priority.

 

Summary:

This week we see some good news with consumer sentiment is the highest it’s been since December of 2021. Consumers are seeing light at the end of the tunnel and acting accordingly. We also saw this week that the average age of inventory in the market is above 13 years and that has implications for our reconditioning costs, our service cash pay opportunities, and our ability to acquire inventory from our captive fixed OPS department.

We also see in the wholesale section that the steep devaluations of inventory acquisition costs have started to soften. For the first time in many weeks, the difference between the retail drop in price and the wholesale drop in price is only 2%. That tells us we’re getting back to a manageable acquisition, retail, and disposal market that requires fundamental efficiencies to continue profitability. Reach out to The Team for deep dive into your second-half of-the-year strategy.