The Automotive Advisor Team

Automotive Market Update 5-10-2024: Inflation or Deflation?

 

Economic Automotive Outlook: Source  

  1. The Q1 2024 Cox Automotive Dealer Sentiment Index shows an overall increase in current market sentiment, but the profitability index dropped to nearly an all-time low.
  2. With the new-vehicle inventory index hitting an all-time high in the first quarter, most franchised dealers see their inventory growing, not declining.
  3. Interest rates, the economy, and market conditions remain the top concerns for U.S. auto dealers but improved compared to Q4 2023.
  4. A deflationary spiral occurs when consumers delay purchases with expectations of lower prices, which reduces demand, builds up supply, and leads to the lower prices they were expecting. This outcome, in turn, produces more hesitancy. Simultaneously, consumers also expect lower rates to happen eventually.
  5. The Fed will communicate updated forecasts and rate projections at the meeting in June. Hopefully, by then, they will see better inflation progress. But they will also likely see more evidence of slowing in the economy, like is happening in durable goods. If so, we could see cuts before the end of the year.

 

Cox Automotive’s Manheim Wholesales Market Source

The Spring wholesale market continues to soften, but not at an alarming rate as lane efficiency increased some week over week. Used and new retail sales continue to trend close to 2019 levels and days’ supply moved down at the end of the month.

  • The 3-year-old index depreciated 0.5% to 99.9%. Both non-luxury and luxury depreciated 0.5%.
    • Wholesale values depreciated for most model years.
    • Sale prices below MMR (-1.19%).
  • Lane efficiency increased some week over week.

 

Black Book: Source

Could the spring bump be concluding? Indications suggest it might be, as the overall market has reported its first drop in seven weeks, but it is too early to say for certain. Nevertheless, this decline aligns with seasonal trends observed before the pandemic.

 

 

  • On a volume-weighted basis, the overall Car segment decreased -0.06%. For reference, in the previous week, cars increased +0.04%.
  • The 0-to-2-year-old Car segments were down -0.05% and 8-to-16-year-old Cars increased +0.06%.
  • Three of the nine Car segments increased last week.

  • The volume-weighted, overall Truck segment decreased -0.10% compared to the gain seen the prior week of +0.01%.
  • The 0-to-2-year-old models declined -0.03% on average and the 8-to-16-year-olds decreased by -0.09% on average.
  • Three of the thirteen Truck segments increased last week.

Retail Trending: Source

  • Retail prices declined 0.1% for non-luxury and 0.4% for luxury. Luxury spreads stabilizing and six-week lagged non-luxury spreads still decreasing some due to increasing wholesale values several weeks back compared to relatively flat or declining retail values.
  • The used retail sales rate is trending similar to most previous years; days’ supply down to 39 days.
  • New car sales trending close to 2019 levels and days’ supply moved down to 60 days.

Summary: Source

  • Job growth for April decelerated, falling short of expectations and adjusting down previous estimates, contributing to a broader discussion on labor market trends and economic indicators.
  • The Federal Reserve left rate policy unchanged at the conclusion of their meeting last week and acknowledged a lack of progress in achieving their 2% inflation target.
  • The automotive sector presents a mixed picture, with new-vehicle sales slowing and new-vehicle prices ticking upward in April. Fleet sales deteriorated further relative to the overall market.