Auto Market Weekly Summary

We are now seeing a downward trend in new daily COVID-19 cases. The pandemic risk remains at the highest level for much of the country, but conditions should improve in coming weeks.

The trailing data on jobless claims is tracking the rising COVID-19 case trend. Job losses for the week ending Jan. 9 were the highest since August. A consistent job recovery is not likely to happen until the pandemic risk is reduced from broad vaccinations.

Consumer sentiment volatile: Consumer sentiment was up and down last week but remained net unchanged. The initial January reading on Consumer Sentiment from the University of Michigan declined 1.9% to 79.2 from 80.7 in December. With the decline, the Michigan Sentiment Index is down 21.6% from February.

The underlying gauges of current conditions and future expectations both declined as the pandemic has worsened to reach new peaks. Consumers saw buying conditions for vehicles decline to the lowest level since April.

Buying conditions for houses also declined. The daily measure of consumer sentiment from Morning Consult has shown a slight improvement thus far in January, but the gains primarily occurred before Jan. 6, when the Capitol unrest occurred. Daily sentiment has been down in 7 of the last 10 days. That index is down by 23.1% compared to the end of February.

Car sales up, retail down: The strong performance in retail vehicle sales in December wasn’t enough to offset declines in other retail sales. Inflation is starting to rise but overall remains below normal.

Retail sales fell 0.7% in December, and the decline in spending was worse than the consensus expectation of no change. Auto sales performed better than spending on other goods as sales excluding motor vehicles and parts declined 1.4% while motor vehicles and parts were up 1.9%. Several categories besides auto saw gains such as gasoline, clothing, health and personal care, and building materials. The biggest monthly decliners were non-store (versus ecommerce) retailers, food service and drinking places and department stores. With the decline in December, retail sales are up 2.9% year over year. Categories with the largest year-over-year declines in December were department stores, restaurants, clothing stores, and gas stations.

Loan performance declines: Auto loan performance deteriorated again in December, but performance remains better than last year even after five-straight months of rising 60-day delinquencies. It’s also better than what has happened in typical recessions in the past. Equifax estimates that 2.8% of auto loans were under an accommodation as of Dec. 29, which was down from 3.1% on Nov. 30 but was 2.1 percentage points higher than February. That 2.1% represents more than 1.5 million auto loans that likely would have fallen into delinquency and possibly complete default by now.

In December, 1.40% of auto loans were severely delinquent, which was an increase from 1.31% in November. 5.03% of subprime loans were severely delinquent, which was an increase from 4.72%. Sixty-day delinquencies have increased in each of the last five months, but delinquencies were down 22% year over year in December.

Better than normal loan performance and strong vehicle values have helped auto credit access improve in recent months. Our Dealertrack Auto Credit Availability Index measured loosening of credit in September, October, November, and December, but credit remains tighter than February and a year ago.

Check back on Smoke on Cars for a video that will include updated data.