Auto Market Weekly Summary

Headline inflation accelerated further in February, according to the Consumer Price Index (CPI). The headline aggregate measure increased on a seasonally adjusted basis and marked two months in a row of acceleration, the highest monthly increase since August. However, on a year-to-year basis, core CPI declined to the lowest since April 2021. The overall CPI increased to 3.2% from 3.1% in January.

Retail sales were weaker than expected in February. Most categories had less than 1% sales growth. Adjusted for inflation using the CPI, retail sales increased only 0.1% for the month and were down 1.6% from a year ago.

Auto loan performance saw mixed trends in February, as delinquencies increased but defaults declined.

Consumer sentiment has changed little so far in March. With vehicle prices falling, consumers’ views of buying conditions for vehicles improved to the best level since June 2021.

Inflation Accelerated in February but is Lower Than a Year Ago

Headline inflation accelerated further in February, according to the CPI. The headline aggregate measure increased 0.4% on a seasonally adjusted basis, marking two months in a row of acceleration and the highest monthly increase since August.

The core CPI, which excludes Food and Energy, increased 0.4%, which was the same increase as January and was stronger than expected. Housing saw a decelerating increase to 0.4% from 0.6%, reversing January’s surprise gain.

Transportation saw the strongest monthly increase of all categories, up 1.6%, driven by a 3.8% increase in motor fuel, the first increase since September. Vehicle insurance also continues to be a contributor to inflation. New vehicles recorded a 0.1% decline, while used cars saw a 0.5% gain. We also observed new car prices declining 0.1% in February in actual transaction data, and we observed used retail prices declining.

On a year-over-year basis, core CPI declined to 3.8%, the lowest since April 2021. The overall CPI increased to 3.2% from 3.1% in January. Headline inflation has risen from a low of 3.1% three times since first reaching 3.1% last June.

Retail Sales Weakened More Than Expected

The initial retail sales report for February showed a weaker-than-expected recovery in consumer spending. The 0.6% increase was lower than the 0.8% expected, and January’s sales decline was revised to a larger decline.

The auto sector outperformed the rest of the retail market as sales excluding motor vehicles and parts increased by 0.3%, while sales of motor vehicles and parts increased by 1.6%.

Category-level performance was less negative but weak as three of the 12 major categories saw sales declines, but 10 categories had less than 1% growth. Building material and garden equipment stores (2.2%) and motor vehicle and parts dealers had the largest gains. Clothing and clothing accessories stores (-0.5%) and health and personal care stores (-0.3%) had the largest monthly declines.

Retail sales were up 1.5% from a year ago on a nominal basis, up from a downwardly revised year-to-year result of no change in January and the weakest year-over-year performance since May 2020.

Compared to last year, a third of the 12 major categories were down, with building material and garden equipment stores (-6.1%) and furniture, electronics, and appliance stores (-5.4%) down the most. Motor vehicles and parts were up 1.4% from a year ago. Non-store retailers (ecommerce) (+6.4%) was the category up the most. Adjusted for inflation using the CPI, retail sales increased only 0.1% for the month and were down 1.6% from a year ago.

Auto Loan Performance was Mixed as Delinquencies Rose, but Defaults Fell

Auto loan performance saw mixed trends in February, as delinquencies increased but defaults declined.

Loans that were delinquent 60 days or more increased for the 10th month in a row and were up 8.5% from a year ago. In February, 2.04% of auto loans were severely delinquent. That was up from 2.03% in January, the highest rate dating back to at least 2006.

Of subprime loans, 7.99% were severely delinquent. That was up from 7.91% in January and was the highest rate for any month dating back to at least 2006. The subprime severe delinquency rate was 65 basis points (BPs) higher than a year ago, while the aggregate was 15 BPs higher.

The delinquency rate was high throughout 2023 but did not lead to a similarly high level of defaults. Defaults declined by 0.8% in total in February from January but were up 13.7% from a year ago. Defaults of subprime auto loans decreased by 3.3% and were up only 0.2% from a year ago.

The annualized default rate in February was 3.14%, down from 3.15% in January, which had been the highest since Feb 2020. It was 3.20% in Feb 2019.

Consumers’ View of Conditions for Buying Vehicles Improved

The initial March reading on Consumer Sentiment from the University of Michigan declined 0.5% to 76.9 as future expectations declined, but views of current conditions were stable.

Expectations for inflation were unchanged from last month. Recent inflation data and readings on gas prices in March indicate that consumers are seeing price increases so far this year.

Vehicle prices continue declining, and consumers’ views of buying conditions for vehicles improved to the best level since June 2021.

The daily index of consumer sentiment from Morning Consult also points to a small increase in the first half of March. As of March 15, that index has also increased 0.6% for the month. The average price for unleaded gas has risen 3.2% so far in March according to AAA, and gas prices are only down 1% year over year.

Jonathan Smoke

Chief Economist

Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.