Auto Market Weekly Summary

New daily COVID-19 cases continued to decline last week, but the pace of decline slowed. Economic activity continues to recover as more states ease or eliminate restrictions. New jobless claims declined to their lowest level for the pandemic last week.

Inflation increased again in May as bottleneck-sensitive categories like car rentals, used cars, airline fares, and moving, storage and freight costs saw more big gains. Used-vehicle sales remained strong in May, and the Manheim Index set another record. The pace of wholesale used price increases is slowing and is likely to reach a peak this month.

Used-vehicle sales rise: We initially estimate that used vehicle sales were up 3% in May compared with a year ago. Compared to 2019, total used vehicle sales were up 2%. The May used SAAR was 41 million units, up from 39.9 million last May and unchanged from April. The May used retail SAAR estimate was 22.4 million, up from 21.1million last year and unchanged from April. Compared to May 2019 used retail sales were up 5%. 

CPO sales in May increased 13% from a year ago and up 4% from April to May. May CPO sales were up 7% compared to May 2019. 

The Manheim Used Vehicle Value Index increased 4.6% from April to May. The increase brought the Index to 203.0, which was a new record and 48.2% higher than a year ago. On a year-over-year basis, all major market segments saw seasonally adjusted increases in May, but pickups again outperformed the overall market. Wholesale price increases are slowing and are likely to reach a peak in June

Inflation rises again: Headline and core inflation both jumped again in May, as prices continue to rise in several types of goods and services. The headline aggregated measure increased 0.6%, while the core Consumer Price Index (CPI), which excludes Food and Energy, increased 0.7% on a seasonally adjusted basis from April. 

Categories with the largest May increases in prices were car rental (+12.1%), used cars and trucks (+7.3%), airline fares (+7.0%), and moving, storage, and freight (+5.5%). Energy costs were unchanged in aggregate, and rents saw modest gains. On a year-over-year basis, the core CPI increased to 3.8%, which was the highest year-over-year increase since 1992. The overall CPI increased to 5.0%, which was the highest year-over-year increase since 2008. 

The categories with the largest year-over-year increases were car rental (+110%), gasoline (+56%), used cars (+30%), airline fares (+24%), vehicle insurance (+17%), moving, storage, and freight (+16%), and lodging (+10%). Most of these dramatic increases are a result of depressed prices last year, and those base effects will diminish in the months ahead

Consumer sentiment improves: If inflation was part of the reason for the May decline in consumer sentiment, that does not seem to be the case so far in June. However, consumers do think the buying conditions for vehicles and homes are the worst in at least 30 years.

The initial June reading on Consumer Sentiment from the University of Michigan increased 4.2% to 86.4 from 82.9 in May. This left the index down 14% from February 2020. Both underlying gauges of current conditions and future expectations improved with future expectations growing the most. Consumers saw buying conditions for vehicles and houses decline to the lowest level in 30 years. 

The daily measure of consumer sentiment from Morning Consult has seen modest improvement over the seven days ending last Friday. The index as of last Friday was up 0.5% over the last seven days, leaving it up 0.1% in June, but the June gains have not yet erased the May decline of 0.9%

Jobless claims fall: Jobless claims continue trending down as economic activity recovers. Traditional continuing claims declined by 258,000 week to week, landing at 3.50 million claims as of May 29. In the latest data, 15.3 million Americans remain on some form of unemployment benefits including pandemic unemployment assistance, and those numbers declined by 95,000 in the latest data. Initial claims fell by 9,000 to 376,000, which was the lowest level of claims since the pandemic began

Credit grows, tightens: Consumer credit is growing, and loan performance continues to improve. However, we observed modest tightening of auto loan credit in May.

The Federal Reserve reported that Consumer Credit excluding housing-related debt increased in April by $18.6 billion. Revolving credit (credit card balances) declined by $2 billion while non-revolving debt (auto loans and student loans) increased by $20.6 billion. 

Auto loan performance improved again in May as improving employment conditions and loan accommodations led to further declines in severe delinquencies. Equifax estimates that 2.3% of auto loans were in accommodation as of the end of April which was unchanged from 2.3% at the end of February. 

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 May, 1.07% of auto loans were severely delinquent, which was a decline from 1.12% in April. Of all subprime loans, 3.95% were severely delinquent, which was a decline from 4.13% in April. The delinquencies of 60-plus days declined in May for the fourth month in a row, and delinquencies were down 21.5% from a year ago. 

Despite continued strong loan performance and strong vehicle values, credit access declined in May after having improved in seven of the prior eight months. Our Dealertrack Auto Credit Availability Index measured auto credit as modestly tighter than February 2020 before the pandemic began, but auto credit is looser for new vehicle loans.

An Auto Market Report video will be published in Smoke on Cars on Tuesday, June 22. Also, the Mid-Year Review, hosted by Jonathan Smoke and the Industry Insights team, is scheduled for Monday, June 28.