Economic Update: Source
Sentiment reached its second-highest reading in 21 months and is now about 39% above the all-time historic low reached in June of 2022. While buying conditions for durables and expectations over living conditions both improved, the long-run economic outlook fell back about 12% this month but remains higher than just two months ago. Gas prices increased in July and have been rising in August as well but declined over the last week. According to AAA, the national average price for unleaded gas has increased 1.3% so far in August to $3.83 per gallon as of August 24, which was down 1.2% week over week and down just 1% year over year.
Bottom line, Consumers perceive that the rapid improvements in the economy from the past three months have moderated, particularly with inflation, and they are tentative about the outlook ahead.
- High mortgage rates caused mixed results for home sales.
- Jobless claims remained stable.
- Consumer sentiment fell. Gas prices and interest rates rose; stock prices dropped.
New and Used Sales Trends: Source
August’s sales volume is expected to show nearly a 19% gain over last year’s supply-limited market. In addition, new vehicle sales are expected to rise more than 3% from last month. Pent-up demand from consumers and businesses, especially in the form of rental fleet sales, continues to be fulfilled as new vehicle supply and pricing improve. As shown below, the used car sales are staying steady in the market leveling out at about 9% over last year’s sales numbers.
New and Used Supply Trends: Source
Zero-sum predicts that August’s end-of-month (EOM) new car inventory will reach 1,965,527. This is an increase from July 2023 EOM (1,881,960) and the highest level that new car inventory has reached since early in the pandemic.
The total supply of unsold used vehicles on dealer lots, both franchised dealers and independents, across the U.S. stood at 2.20 million units at the close of May. That was up from a revised 2.11 million at the end of April. Total days’ supply at the end of May stood at 49, compared with 46 at the start of the month. The days’ supply was unchanged from year-ago levels.
Wholesale Market’s Current State: Source
The wholesale market for the 2020 year model is shifting back towards an appreciation curve that could accelerate extensively over the next few weeks depending on the outcome of the UAW strike. For 2019 and older vehicles, they are showing a different response cycle in the Black Book index but remember those are pre-pandemic used vehicles. Everything after 2019 is behaving in a manner shown below. Understanding the market dynamics and how it can change in the next few weeks as well as how to segment pre and post-pandemic vehicles for profit and volume goals will help you adjust to the market and stay ahead.
Wholesale / Retail Spread PVR
The whole index for our most desirable inventory, the 2 and 3-year-old vehicles, is showing a margin erosion due to wholesale price increases with the continued softening in retail prices. The results in overall PVR was $3038 this week vs. $3212 last week for a drop of $174 this week added to the drop of $198 last week totaling a $272 total loss. For Non-Luxury, the PVR was $3279 last week vs. $3472 this week for a loss of $193 this week vs. $223 last week totaling a $416 total loss. For Luxury Vehicles we saw a PVR erosion of $93 last week plus $108 this week totaling a $201 total loss. These trends have implications for a dealer’s chosen sales strategy, age strategy, and profit expectations and show that surgical precision is needed in this acquisition market.
It looks like we could be headed for another late-model market wholesale valuation change. If the UAW strike happens or lingers until the deadline, we could even see another used car appreciation environment. If that happens, we have a lot to consider in our acquisitions, retail, service (recon), and disposal strategies. The strike doesn’t have to happen for the market to flip it just has to stay in limbo with no resolution in sight to make the key players nervous.
Our Acquisitions Optimization program specifically tracks these market trends and sets a dealer’s acquisition plan, and channel plan, to match their sales goal. More importantly, our program tracks actual sales rates weekly, matched to channel profitably, in order to ensure our dealer partners stay on track throughout the month. Reach out to me (firstname.lastname@example.org) for more information on a demo of our program.