The Automotive Advisor Team

Automotive Market Update 5-16-2024: Deflationary Spiral and Automotive

Economic Automotive Outlook: Source  

Inflation numbers are out today and from this chart it is hard to avoid the conclusion that inflation is accelerating, driven by services. As we discussed last week, it looks to be a condition that will eventually cause a rapid deceleration in demand due to affordability which may lead to an inflationary spiral that will then lead to rate cuts to curb the impact. Most of which, IMO, simply states, that the Feds and this Admin had no clue what they are doing.

Cox Automotive’s Manheim Wholesales Market Source

Wholesale depreciation slowed this week and lane efficiency was flat or increasing. Newer model years are currently depreciating at a higher rate than older model years, indicating new car sales may be putting pressure on newer used vehicles. The current lane efficiency rate is higher than the same time in 2022 and 2023. Used and new retail sales continue to trend close to 2019 levels and days’ supply moved up at the beginning of the month.

  • Decelerating, the 3-year-old index depreciated 0.3% to 99.6%. Non-luxury depreciated 0.3% and luxury depreciated 0.5%.
    • Wholesale value depreciation higher for newer model years. Five and eight year-old vehicles increased week over week.
    • Sale prices below MMR (-1.36%).
  • Lane efficiency decreased some for 3-year-old models and increased for 6-year-old models. Both are currently running higher than the previous two years.

 

Black Book: Source

  • On a volume-weighted basis, the overall Car segment decreased -0.01%. For reference, in the previous week, cars decreased -0.06%.
  • The 0-to-2-year-old Car segments were up +0.03% and 8-to-16-year-old Cars increased +0.10%.
  • Three of the nine Car segments increased last week.

  • The volume-weighted, overall Truck segment decreased -0.14% compared to the decline seen the prior week of -0.10%.
  • The 0-to-2-year-old models declined -0.06% on average and the 8-to-16-year-olds decreased by -0.23% on average.
  • Five of the thirteen Truck segments increased last week.

Retail Trending: Source

  • In Q1 2024, new car transactions had a trade-in 49% of the time on average, while used had a trade-in 31% of the time on average.
  • In Q1 2024, the average trade-in age for new vehicles climbed to 6.1 years compared to 5.3 years in Q1 2022. The average trade-in age for used vehicles increased to 9.4 years in Q1 2024, compared to 7.9 years in Q1 2022.
  • The average transaction price for used cars retailed in Q1 was $27,113. While that’s down 4.5% year-over-year, it’s a whopping 33.9% above the reading in Q1 of 2019 when Edmunds pegged it at $20,247.
  • New car sales trending close to 2019 levels and days’ supply moved up to 76 at the beginning of the month.

  • Retail prices declined 0.2% for non-luxury and 0.4% for luxury. Luxury spreads stabilizing and six-week lagged non-luxury spreads now increasing due to recent wholesale values declining at a higher rate than retail values.
  • The used retail sales rate is trending similar to most previous years; days’ supply moved up to 43 days.

Summary: Source

Consumer Spending and Sentiment:

  • There has been a notable reacceleration in consumer spending this year, primarily driven by the services and travel sectors, whereas the goods and retail sectors showed weakness.
  • The Index of Consumer Sentiment from Morning Consult experienced a slight decline, dropping by 1.6% in April and further by 0.4% in May, indicating volatile consumer confidence levels.

Vehicle Sales Estimates:

  • Retail vehicle sales are on an uptrend, with new-vehicle sales up by 2% in the latest week and a 5% year-over-year increase. Similarly, used-vehicle sales have seen a 2% week-over-week increase and a 7% rise compared to the previous year.

Financing Trends:

  • The report highlights a dichotomy in financing rates where the average used auto loan rate has decreased to 13.98%, whereas the rates for new vehicles are slightly higher at 9.86%.

Supply and Demand:

  • Supply dynamics show a year-over-year increase in new vehicle supply by 23 days, though there was a 3% week-over-week decrease. Used vehicle supply saw a minor decrease both year over year and week over week.

Pricing Trends:

  • An important trend noted is the decrease in used-vehicle prices, with the average wholesale price for MY 2021 vehicles declining by 0.6% last week and retail prices also seeing a slight drop.

Tax Refund Season:

  • Despite a slower start to the tax refund season, total refunds issued are up by 1% compared to 2023, with the average refund amount increasing by 3%.

Leading Indicators:

  • The report provides insights into lead generation and service trends, noting variations across different platforms and services, including Autotrader, Kelley Blue Book, Dealer.com, Dealertrack, and Xtime. Overall, leads and unique credit applications per dealer showed mixed trends, while service appointments were down by 4% year over year.