- Year-over-year inflation hits the highest level in 40 years.
- Wholesale used-vehicle prices hold steady with some models declining in price.
- Credit eased for auto loans; delinquency rates returning to normal.
COVID-19 cases continue to fall rapidly. Daily cases numbers are back to late December levels. Even with cases down, consumer sentiment, according to the University of Michigan, declined again in the initial February reading.
Inflation picked up again in January to record the highest level of year-over-year inflation in 40 years.
Wholesale used-car prices did not increase in January as most vehicles saw declining prices, but trends varied by age of vehicle and segment. The youngest vehicles, which appreciated the most last year, saw the largest declines.
Consumer credit grew at a substantially slower pace in December compared to November. Auto loan performance has normalized with the severe delinquency rate back to what it was before the pandemic began. Even so, credit eased again in January for auto loans.
Inflation soars: Inflation increased again at an elevated pace in January and pushed year-over-year inflation to the highest level in 40 years. The headline aggregate measure increased 0.6% on a seasonally adjusted basis, which was unchanged from an upwardly revised December reading. The core CPI, which excludes Food and Energy, also increased 0.6%, unchanged from December.
Categories with the largest January increases in prices were electricity (+4.2%), educational books and supplies (+2.7%), sporting goods (+2.5%), furniture and bedding (+2.4), and tools, hardware, and outdoor equipment (+2.2%). Rent growth accelerated to a 0.5% monthly increase.
On a year-over-year basis, the core CPI accelerated to 6.0% from 5.5% in December to reach the highest year-to-year increase since August 1982. The overall CPI accelerated to 7.5% from an upwardly revised 7.1% in December to reach the highest year-over-year increase since February 1982. The categories with the largest year-to-year increases in January were used cars (+41%), gasoline (+40%), car rental (+29%), and lodging (+24%).
Used-vehicle sales fall: We estimate that total used-vehicle sales were down 1% from a year ago in January. Compared to 2019, total used-vehicle sales were also down 1%. The January used SAAR was 39.0 million, which was down 1% from 39.3 million last year and up from 36.2 million in December. The January used retail SAAR estimate was 20.6 million, up 0.1% from 20.5 million last year and up from 18.9 million in December. CPO sales declined 17% year over year in January and were down 11% month to month.
Used prices steady: Wholesale used-vehicle values, according to the Manheim Index, were essentially unchanged in January compared to December. The Manheim Used Vehicle Value Index increased slightly to 236.3, which was a 45.0% increase from a year ago. The non-adjusted price change in January was a decline of 0.9% compared to December, leaving the unadjusted average price up 40.8% year over year.
Manheim Market Report (MMR) values saw weekly price decreases in January that accelerated slightly in the final full week of the month. Most vehicles showed price depreciation at auction in January. However, price patterns in the month varied by vehicle age and segment. Older vehicles were more likely to see price stability, while younger vehicles tended to see larger declines.
Credit expands: The Federal Reserve reported that Consumer Credit excluding housing-related debt grew by $18.9 billion in December, which represented a substantial deceleration of credit growth from November.
Revolving credit (credit card balances) increased by $2.1 billion, which was down substantially from the $19.3 billion increase in November. Non-revolving debt (auto loans and student loans) increased by $16.8 billion, which was down from $19.5 billion in December.
Auto loan performance deteriorates: Auto loan performance deteriorated again in January as the abnormally strong credit performance for much of the pandemic has returned to more normal patterns of delinquencies.
Loans that were 60-day+ delinquent increased in January for the eighth month in a row and were up 2.9% from a year ago. In January, 1.51% of auto loans were severely delinquent, which was an increase from 1.45% in December and the highest severe delinquency rate since February 2020. Compared to a year ago, the severe delinquency rate was 7 basis points higher.
In January, 5.74% of subprime loans were severely delinquent, which was an increase from 5.48% in December and the highest severe delinquency rate since January 2020. The subprime severe delinquency rate was 53 basis points higher than a year ago.
Higher delinquencies are not leading to pre-pandemic levels of defaults yet. Loan defaults declined 7% in January from December and were down 5.7% from a year ago.
Auto credit access expanded in January. Our Dealertrack Credit Availability Index measured auto credit as looser in January compared to any month since November 2018.
Consumer confidence drops: The initial February reading on Consumer Sentiment from the University of Michigan declined 8.2% to 61.7 from 67.2 in January. Consumers’ views of current conditions and future expectations both declined, with expectations declining the most. The expected inflation rate increased. Consumers saw buying conditions for vehicles decline to the lowest level registered by the survey back to 1978. Buying conditions for homes declined to the lowest level in three months.
The next Auto Market Report video will be published on Smoke on Cars on Tuesday, February 15.
Save the date: The Q1 2022 Cox Automotive Sales Forecast call will be held on Monday, March 28, 1 p.m. EDT. More details to come.
Jonathan Smoke is the chief economist at Cox Automotive.