Auto Market Weekly Summary

Highlights:

• Headline inflation continues to run hotter than expected.
  
• Access to auto credit improved in March, according to the Dealertrack Credit Availability Index, partially reversing the tightening observed over the prior three months.
  
• Auto loan performance saw mixed trends in March, as delinquencies declined but defaults increased.
  
• Most measures of consumer sentiment have declined so far in April.

Headline Inflation Hits Highest Level Since September

Headline inflation continues to run hotter than expected. In March, inflation grew at the same pace as February, according to the Consumer Price Index (CPI). The headline aggregate measure increased 0.4% on a seasonally adjusted basis and marked three months of higher-than-expected increases. The core CPI, which excludes Food and Energy, also increased 0.4% and was stronger than expected.

Transportation saw the strongest monthly increase of all categories, up 1.0%, which was driven by a 1.7% increase in motor fuel, a 2.3% increase in maintenance and repairs, and a 2.6% increase in vehicle insurance. However, new vehicle prices recorded a 0.2% decline, while used cars saw a 1.5% decline. In actual retail transaction data, Cox Automotive also observed new and used car prices declining in March.

Housing saw an accelerating increase to 0.5% from 0.4%, and a 0.5% jump in medical care following no change in February added to the hotter-than-expected inflation report.

On a year-over-year basis, core CPI remained at 3.8%, the lowest since April 2021. The overall CPI increased to 3.5% from 3.2% in February. Headline inflation is at its highest level since hitting 3.7% in September last year.

Auto Credit Access Improved in March

Access to auto credit improved in March as credit loosened across all channels and all lender types.

With the improvement in March on the Dealertrack Credit Availability Index, the tightening over the prior three months was partially reversed, but not all factors improved for consumers. The approval rate increased, the subprime share jumped, and the negative equity share increased, and those moves indicated easier credit access for consumers. However, yield spreads widened and term length declined, and those moves reduced credit access for consumers.

The down payment share was unchanged but at the highest level in the history of the data series.

Credit access is tighter than a year ago in all channels and most lender types. By channel, certified pre-owned loans saw the most loosening, while used loans through independent dealers saw the least amount of loosening. On a year-over-year basis, all channels were tighter, with used loans through franchised dealers having seen the most tightening. Among lenders, captives loosened the most in March, but auto-focused finance companies were the only lenders to be looser year over year.

Auto Loan Performance Mixed as Delinquencies Fell and Defaults Rose

Auto loan performance saw mixed trends in March, as delinquencies declined but defaults increased. 60-day+ delinquencies fell for the first time in eleven months but were up 8.5% year over year.

In March, 1.88% of auto loans were severely delinquent. That was down from 2.04% in February and was the highest rate for March, dating back to at least 2006. 7.25% of subprime loans were severely delinquent in March, down from 7.99% in February, but also at the highest rate for March dating back to at least 2006.

The subprime severe delinquency rate was 50 basis points higher year over year, while the aggregate was 13 BPs higher. The delinquency rate was high throughout 2023 but did not lead to a similarly record level of defaults. However, defaults increased in March by 8.5% from February and were up 33.4% year over year. Defaults of subprime auto loans increased by 13.9% and were up 28% year over year. The annualized default rate for March was 3.40%, which was 26 basis points higher than February and higher than the 2.90% annualized default rate in March 2019. The year-to-date default rate is 3.23%, which is equivalent to the default rate in 2010.

Most Consumer Sentiment Measures Decline

According to the sentiment index from the University of Michigan, the initial April reading declined 1.9% to 77.9 as future expectations and views of current conditions both declined. Current conditions declined the most. Expectations for inflation in one year and in five years both increased, following recent inflation data. Consumers’ views of buying conditions for vehicles fell to the lowest level yet this year but remained better than a year ago. Consumers’ views of vehicle prices and interest rates both deteriorated.

The daily index of consumer sentiment from Morning Consult points to a small decline in the first half of the month. As of April 12, that index has declined 0.5% for the month.

The average price for unleaded gas has increased 2.8% so far in April, according to AAA. At $3.63 per gallon for unleaded as of April 11, gas prices are unchanged year over year but at the highest level since early October.

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.