Economic Update: SOURCE
It’s easy to think it is all doom and gloom out there but if you peel back the onion, you can see that it is better than it seems and with the again used car VIO, the retail demand should stay steady into 2024. Here are just a few examples of that fact.
- Home Mortgage Refinancing – According to Redfin, 62% of mortgages are below 4%, and 24% are below 3%. The massive amount of refinancing in 2021 and 2022 has freed up additional disposable income for many households. For example, a homeowner with a $600,000 mortgage at 5.25% who refinanced to 3.25% generated $700 monthly in extra cash flow.
- Wage Growth – While American households enjoy lower mortgage payments, their incomes grow. Wages are up 10.2% since 2019, equating to an additional $854 per month for families earning $100,000 annually.
- The New-to-Used Value Proposition Changed – In 2019, the average retail price for a new vehicle was $36,620 vs. the average 1-year-old used vehicle price of $23,595. That’s a $13,025 difference or 55% premium for buying new vs. used. Today, the variance is much smaller: The average retail price for new is $47,481 vs. $41,167 for 1-year-old used, $6,314 difference – a much smaller 15% price walk to New. Many consumers were able to rationalize spending the extra money to have the full warranty and the new car smell.
- Pent-Up Demand – During 2020-2022, Automakers produced 8.1 million fewer new vehicles vs. prior years. For much of 2021 and 2022, dealership lots were practically empty, so many consumers had no choice but to postpone their purchases. Supply chain challenges have subsided, and new vehicle inventories are up 68% vs. September ’22. Increased availability has been crucial to driving sales gains.
- Consumer Spending – Consumer spending was up 17% in September with Transportation and services leading the way.
But there are still red flags to watch. A senior Ford executive said Thursday the automaker is “at the limit” of what it can spend on higher wages and benefits for the United Auto Workers, and warned the union’s strike at the company’s most profitable factory could harm workers and slash profits. You can read more on that HERE.
Retail Sales: Source
These retail sales for both new and used have picked up over the last few weeks but are now starting to plateau and soften in the last few days. However, as you can see below we are up over 30% in New and 6% in used YoY.
Day Supply: Source: Cox Automotive Data
With the softening of retail sales in both new and used day supply up 7% in new car and 3% in used car supply. This supply picture could change dramatically over the next few weeks with the UAW strike continuing to build momentum. You can read more about that HERE.
Used pricing has continued to soften 1% down from last week’s acquisition costs and ½% down in retail price.
Wholesale Market Trends: Source: Cox Automotive Data
All segments lost ground last week except for the truck segment which is up almost 1% year over year.
MMR trends show a continuing softening in the three-year-old model year index while the resale dollar value is $27,523.
The Manheim wholesale regional performance outlook below shows that some auctions in the green are still very active while those in the red and dark pink are slowing.
The wholesale conversion rate at the auction is sitting between 2022 and 2021 numbers this year and 55.1%.
The day supply in the wholesale market is down to 26 days. 3 days lower than this time last year 5 days lower than 2019.
Acquisition Market Trends:
Margin compression seems to be releasing a little in the acquisition cost versus the wholesale price but finding the inventory is the struggle for most dealers right now.
Don’t forget to leverage your vendor partners and your industry tools to stay ahead of the trends and take advantage of the market. YOu can also reach out to us here for assistance and listen to automotive industry roundtables like “All Things Used Cars’ with the most recent playback found HERE.