Auto Market Weekly Summary

All of the new economic and market data reported last week covered February or January. The February metrics are positive – strong job creation, strong new and used retail sales – but reflect an economy and auto market before concerns about the coronavirus began mounting.

Stock, bonds volatile: Stock indices saw extreme volatility this week but ended slightly better than last week. Bond yields plumbed new lows for many tenors, with the 10-year ending at 0.78% and the 30-year at 1.31%.

Fed cuts rate: In dramatic fashion, the Fed cut rates by 50 basis points this week without a formal meeting for only the eighth time in history. The Fed has a scheduled meeting March 17-18 and is now widely expected to cut rates again at that meeting.

Despite the decline in Fed rate policy and in bond yields, we are not seeing lower rates on average in auto loans. Instead, risk spreads are rising. That too is the case in commercial credit as corporate high yield spreads have surged as markets predict business weakness ahead.

COVIC-19 outbreak: The coronavirus situation outside of China remains very fluid and uncertain. Reported cases are growing exponentially in the most impacted countries outside of China, but within China reported cases are slowing down rapidly.

In the U.S., cases are growing. Companies and organizations are taking measures to minimize the spread of the disease. Large employers like Amazon, Apple, Facebook, Google and Salesforce are encouraging their employees to work from home. SXSW 2020 has been canceled, and TED 2020, the source of the famous TED Talks, has been postponed and may be held online. Some universities are canceling in-person classes – including Columbia University, Stanford University and University of Washington – and are opting for online classes.

If the U.S. does not see a severe outbreak leading to U.S. travel restrictions, school closures, and quarantines, then the impact to the U.S. economy should be relatively modest but will result in the U.S. economy seeing less growth.

Strong vehicle sales: February vehicle sales again were strong and were unaffected by the virus, as we had strong sales of both new and used vehicles. New-vehicle sales increased 8.4% from last January with one more selling day compared to last year. The new light vehicle SAAR came in at 16.8 million, which was an increase from last year’s 16.5 million but down slightly from January’s 16.9.

February saw stronger sales into large fleet customers, driven by high commercial sales. Retail sales of new vehicles were even stronger, up 9.9% in February, leading to a retail SAAR of 13.4 million, up from 12.9 million last January but down from January’s 13.9 million. Average incentive spending came in at $3,890 per vehicle, up 8.9% from a year ago and up 1.4% from January. Total industry spend is up 14% over last year.

Reviewing loan applications from dealers across the U.S., last week saw a stable new-vehicle market and a big jump in used-vehicle sales of more than 30%, which is typical for when tax refunds reach critical mass.

Looking ahead: This week we will get February inflation data and Equifax data on auto loans and the first reading on March consumer sentiment. We reported Q1 dealer sentiment, and we will monitor for critical updates on the coronavirus and its impact on the financial markets and outlook. We will also assess our weekly sales index and price data to see if indeed the used car market enjoyed a tax-refund-induced jump.