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Smoke on Cars

Auto Market Weekly Summary

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Article Highlights

  1. Inflation accelerated to the highest year-over-year level in 40 years.
  2. Tax refund season has started slowly, postponing the spring bounce of used-vehicle sales.
  3. Consumer credit grew but at a slower pace as auto loan performance normalized.

COVID-19 cases continue to fall and are back to July levels. Even with cases down, consumer sentiment, according to the University of Michigan, declined again in the initial March reading as consumers are impacted by rising gas prices and unsettled by the conflict in Ukraine.

Inflation picked up again in February to record the highest year-over-year level in 40 years.

Wholesale used car prices declined in February as most vehicles saw declining prices. The weekly price declines decelerated as the month progressed.

Consumer credit grew at a substantially slower pace in January compared to December, which saw slower growth than 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 February for auto loans.

Tax refund season has started slowly this year. Through March 4, only 29% of projected refunds for the year have been issued, when in 2019 53% had been disbursed by now. However, the average refund is up 13% vs. 2019 and up 14% from a year ago to the highest refund ever recorded at this stage of tax refund season.

Inflation soars: Inflation accelerated in February with spiking gas prices pushing year-over-year inflation to the highest level in 40 years. The headline aggregate measure increased 0.8% on a seasonally adjusted basis, which was up from 0.6% in January. The core CPI, which excludes Food and Energy, decelerated to an increase of 0.5% from a 0.6% increase in January.

Categories with the largest February increases in prices were motor fuel (+6.7%), fuel oil (+6.5%), airline fares (+5.2%), and car and truck rental (+3.5). Rent growth accelerated to a 0.6% monthly increase. Lodging jumped to a 2.5% gain from a 4.2% decline in January. On a year-over-year basis, the core CPI accelerated to 6.4% from 6.0% in January to reach the highest year-to-year increase since August 1982. The overall CPI accelerated to 7.9% from 7.5% in January to reach the highest year-over-year increase since February 1982.

The categories with the largest year-over-year increases in February were used cars (+41%), motor fuel (+38%), fuel oil (+33%), lodging (+29%), and car rental (+24%)

Spring bounce awaits: We estimate that used-vehicle retail sales increased 3% in February from January but failed to show the typical seasonal increase driven by tax refund season. The Dealertrack estimates indicate that used retail sales were down 7% year over year. Certified pre-owned sales were down 9% in February from a year ago but increased 15% from the previous month.

Wholesale prices slip: Wholesale used vehicle values, according to the Manheim Used Vehicle Value Index, declined 2.1% in February on a seasonally adjusted basis. The decline left the Index at 231.3, which was a 36.7% increase from a year ago. The non-adjusted price change in February was a decline of 2.2% compared to January, leaving the unadjusted average price up 32.4% year over year.

Manheim Market Report (MMR) values saw weekly price decreases in February that decelerated each week. Over the last four weeks, the Three-Year-Old Index declined a net 2.6%. All major market segments saw seasonally adjusted prices that were higher year over year in February. Vans had the largest year-over-year performance, followed by compact cars, while pickups, luxury cars, and sports cars lagged the overall market. On a month-over-month basis, all major segments saw price declines.

Credit expands: The Federal Reserve reported that Consumer Credit excluding housing-related debt grew by $6.84 billion in January, which represented a substantial deceleration of credit growth from December. Revolving credit (credit card balances) declined by $0.2 billion, which was down substantially from the $4.3 billion increase in December and the $21.0 billion increase in November. Non-revolving debt (auto loans and student loans) increased by $7.1 billion, which was down from $18.1 billion in January and the smallest monthly increase since October 2020.

Loan performance worsens: Auto loan performance deteriorated again in February as the abnormally strong credit performance for much of the pandemic has returned to more normal patterns of delinquencies. The 60-day-plus delinquencies increased in February for the ninth month in a row and were up 10.4% from a year ago.

In February, 1.58% of auto loans were severely delinquent, which was an increase from 1.51% in January and the highest severe delinquency rate since December 2019. Compared to a year ago, the severe delinquency rate was 16 basis points higher.

In January, 5.99% of subprime loans were severely delinquent, which was an increase from 5.74% in January and the highest severe delinquency rate in the data series back to 2006.

The subprime severe delinquency rate was 85 basis points higher than a year ago. Higher delinquencies are not leading to pre-pandemic levels of defaults yet. Loan defaults increased 17.4% in February from January and were up 9.1% from a year ago.

Auto credit access expanded in February. Our Dealertrack Credit Availability Index in February was the highest recorded in the data series going back to January 2015.

Sentiment falls: The initial March reading on Consumer Sentiment from the University of Michigan declined 4.9% to 59.7 from 62.8 in February. 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 improved.


The next Auto Market Report video will be published on Smoke on Cars on Tuesday, March 15.

Save the date: The Q1 2022 Cox Automotive Industry Insights and Sales Forecast Webcast will be held on Monday, March 28, 1 p.m. EDT. RSVP to attend.


Jonathan Smoke is the chief economist at Cox Automotive.

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