Economic Auto Market Update: Source
Wage growth has been outpacing inflation since May and that’s a strong indication that consumers have the money, they need to pay off debt and balance out the adjusted cost of living that’s been in the negative from January to April.
At the beginning of the year inflation, measured by the consumer price index, was up almost 7% and is now down to approximately 4% in September. Certainly, moving in the right direction.
3% of small businesses consider inflation the number one hindrance to their growth and success, these are good numbers moving into the last quarter of the year and the first part of 2024.
Retail Sales Trending Source
New Vehicle October 2022. Retail sales of new vehicles this month are expected to reach 1,012,800 units, a 6.9% increase from October 2022 when selling day adjusted.
“Used-vehicle prices have experienced a modest drop from the previous year but remain relatively close to their historical peak levels. The average trade-in equity for October is trending towards $8,956, down $378 from a year ago. It’s worth noting that trade-in equity this month remains at double the amount of pre-pandemic levels.
As seen below in the lot links data the new retail sales week-over-week sales growth was down 13.2% while the used sales growth was down 16.9%. Source
Retail Supply Trending
New retail inventory levels in October are expected to finish around 1.5 million units, a 5.5% increase from last month and a 41.2% increase compared with October 2022, but still well below pre-pandemic levels.
Used Retail Prices are more accessible than in years past, due to the proliferation of ‘no-haggle pricing’ for used-vehicle retailing. Transparent pricing upfront makes the car buying process more enjoyable for customers and allows Black Book to accurately measure retail market trends. The graph below shows the used Retail Active Listing Volume Index currently sits at 1.03 points.
Just below you can see the stocking levels of used inventory this year in blue and last year in green show a pretty steady increase at the same rate as the prior year and up 8.3%.
As new inventory and sales volumes improve, the average new-vehicle retail transaction price is declining modestly, trending down $451—or 1%—from October 2022 to $45,65
The average new-vehicle retail transaction price in October is expected to reach $45,651, down $451 from October 2022. The previous high for any month—$47,362—was set in December 2022.
Used vehicle prices have experienced a modest drop from the previous year but remain relatively close to their historical peak levels.
Wholesale Market Trends: Source
According to Black Book, after six weeks, the United Auto Workers (UAW) reached a tentative agreement with Ford, Stellantis, and General Motors. Last week, the market experienced larger declines, particularly in the Truck segments seen below, declining -0.63% compared with only -0.20% the week prior. The expectation is that once the strike is officially over, the market will return to consistent depreciation through the end of the year.
The two to six-year-old set of used inventory in the market is still staying flat in their depreciation trending however just below the three-year old model 2020 vehicles in the market are seeing significant depreciation losses in the wholesale channel and it’s aged inventory on your lot. The assumption is this is the least affordable inventory in the market and harder inventory to retail
Below you see the option activity by geography period to the left the green and dark green represent active auctions with high sales rates and the red and pink show the opposite, low activity and low sales rates. The map to the right shows MMR retention of price strength by auction and the green and dark green show strong price strength, which is better for buyers, while the pink and red show weakening price which is better for buyers.
Retail Margin Trends:
Just below you can see the spread between the auto-suggested retail price in orange and the MMR price in blue is continuing to widen which suggests larger per-vehicle profits available on the market today. To the right, the smaller graph shows the difference between nonluxury and luxury PVR spreads. Remember these numbers do not include transportation fees, buy fees, or reconditioning All are incurred while bringing the car to the frontline.
Even though the top graph shows significant spreads in the market growing wider which is an optimistic outlook, this graph shows that we have to turn our inventory quickly or we can lose that spread in very short order and sit on ATM and Tory just appreciating and value pretty quickly again.
Electric Vehicles Tends: Source
EV retail share reached an all-time high of 9.0% in September, up from 6.8% a year ago. But in terms of upper-funnel sales activity, the percentage of new-vehicle shoppers who are ‘very likely’ to consider buying or leasing an EV is at 26%, the same as in August. So, while EVs account for a larger piece of the consideration pie, the consideration pie itself isn’t getting proportionally bigger. Shoppers still have concerns about charging anxiety, price, and product availability.
“In the J.D. Power EV Index, the availability factor has a score of 40 (on a 100-point scale), meaning a viable EV product is available to four in ten new-vehicle shoppers in the United States. While the score has improved by 10 points from a year ago, it is expected to decline soon because of challenges in key segments. For example, market dynamics are compelling GM to partially delay production of Chevrolet Silverado EV and GMC Sierra EV, while Ford has constrained production of F-150 Lightning.”
The total retailer profit per unit—which includes grosses, finance, and insurance income—is expected to reach $3,182 in October. While this is 28.9% lower than a year ago, it is still more than double the amount in October 2019. Truck/SUVs will account for 79% of new-vehicle retail sales in October.
“The average trade-in equity for October is trending towards $8,956, down $378 from a year ago. It’s worth noting that trade-in equity this month remains at double the pre-pandemic levels.
I have resisted a recession thus far, while the auto market has benefitted from pent-up demand. A strong labor market has enabled real wage gains for consumers over the last several months as inflation has come down from troublesome levels last year. With lower prices on new vehicles and depreciation returning to used vehicles, affordability has modestly improved despite higher rates.
However, if we do see rates rise by another 0.5-1% caused in part by continued QT, the Fed risks sending the U.S. economy into recession, resulting in job losses. Next year’s auto market depends more on that than on short-term rate policy. Source