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Smoke on Cars

Auto Market Weekly Summary


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Article Highlights

  1. Inflation rises, triggering a fall in consumer sentiment.
  2. Retail used-car prices had the largest monthly gain in history.
  3. Auto sales outpace overall retail sales.

New daily COVID-19 cases continued to decline as more people were vaccinated. Economic activity continued to recover as more states ease restrictions. 

New jobless claims declined to their lowest level for the pandemic. Inflation jumped, likely prompting a decline in consumer sentiment. Retail sales were unchanged, and consumer credit is growing.

Inflation rises: Both headline and core inflation surged in April, as prices are rising substantially in several goods and services. The headline aggregated measure increased 0.8%, while the core Consumer Price Index (CPI), which excludes Food and Energy, increased 0.9% on a seasonally adjusted basis from March. 

Five components drove almost 60% of the April increase in prices: used cars and trucks (+10%); car rental (+16.2%); lodging (+8.8%); airline fares (+10.2%); and food away from home (+0.3%). The biggest gains in consumer prices in April were in car rentals, airline fares, sporting events (+10.1%), and used cars and trucks. Retail used-car prices had the largest monthly gain in history. 

Energy costs declined, and rents saw modest gains, so the April increase could have been worse.

On a year-over-year basis, the core CPI increased to 3.0%, which was the highest year-over-year increase since 1993. The overall CPI increased to 4.2%, which was the highest year-over-year increase since 2008.

Consumer sentiment sags: Inflation may be impacting consumer sentiment, as sentiment has fallen in May. Gas prices have jumped due to the Colonial Pipeline shutdown. Consumers see poor buying conditions for vehicles and homes.

The initial May reading on Consumer Sentiment from the University of Michigan declined 6.2% to 82.8 from 88.3 in April. This left the index down 18% from February 2020. Both underlying gauges of current conditions and future expectations declined. Consumers saw buying conditions for vehicles decline to the lowest level since the Great Recession. Buying conditions for houses also declined and are at the lowest level in 30 years. 

The daily measure of consumer sentiment from Morning Consult saw big declines for the seven days ending last Friday, coinciding with the Colonial Pipeline shutdown and surge in gasoline prices. The index is now down 2.9% over those seven days, leaving it down 2.4% in May, which erased all of April’s gains. 

Retail sales flat: Retail sales were unchanged in April from March’s big surge from stimulus checks. All categories except for grocery stores saw gains year over year against the 2020 lockdown.

The March gain was revised up to a 10.7% increase. Auto sales again outperformed against other goods as sales excluding motor vehicles and parts declined 0.8% in April, while sales of motor vehicles and parts were up 2.9%. 

The other retail gainers were electronics and appliance stores, food and beverage stores, health and personal care stores, and food service and drinking places. Retail sales were up 51.2% from last April against the lockdown period in 2020. Compared to that lockdown period last year, only grocery stores were down year over year.

Credit grows: Consumer credit is growing as loan performance continues to improve and encourages lenders to be more aggressive.

The Federal Reserve reported that consumer credit excluding housing-related debt increased in March by $25.8 billion. Revolving credit (credit card balances) increased by $6.4 billion while non-revolving debt (auto loans and student loans) increased by $19.4 billion. 

Auto loan performance improved again in April as stimulus payments and additional government support as well as tax refunds and improving employment conditions helped to reduce severe delinquencies. Loan accommodations also continued to play a role. Equifax estimates that 2.3% of auto loans were under an accommodation as of April 19, which was unchanged from 2.3% at the end of February and throughout March.

Relative to the level of accommodation pre-pandemic, approximately 1.2 million auto loans currently do not have payments due and have frozen statuses. These are the loans most likely to have fallen into delinquency and possibly complete default by now. In April, 1.12% of auto loans were severely delinquent, which was a decline from 1.35% in March. 4.13% of subprime loans were severely delinquent, which was a decline from 4.95%. 60-day+ delinquencies declined in April for the third month in a row, and delinquencies were down 19% from a year ago. 

Better-than-normal loan performance and strong vehicle values have helped auto credit access improve in seven of the last eight months. Our Dealertrack Auto Credit Availability Index measured loosening of credit in September, October, November, December, and again in February, March, and April after tightening in January. Auto credit remains modestly tighter than February 2020 before the pandemic began, but credit is looser for new-vehicle loans.

Jobless claims fall: Jobless claims continue trending down as economic activity recovers. Traditional continuing claims declined by 34,000 week-to-week at 3.66 million as of May 1. In the latest data, 16.9 million Americans remain on some form of unemployment benefits, including pandemic unemployment assistance, and those numbers grew by 696,000 in the latest data. Initial claims fell by 34,000 to 473,000, which was the lowest level of claims since the pandemic began.

An Auto Market Report video will be published in Smoke on Cars on Tuesday, May 18.

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