Auto Market Weekly Summary

The number of new daily COVID-19 cases continued to increase last week. New jobless claims declined to a pandemic low, but consumer sentiment declined again, losing ground so far in July.

Inflation increased again in June as bottleneck-sensitive categories like used cars, car rentals and lodging saw more big gains. Used vehicles are not likely to contribute further to inflation after June as retail used vehicle prices likely peaked in early July following declines in wholesale used prices that started in June.

Inflation increased: Both the headline aggregated measure and the core Consumer Price Index (CPI), which excludes Food and Energy, increased 0.9% on a seasonally adjusted basis from May. Categories with the largest June increases in prices were used cars and trucks (+10.5%), car rental (+5.2%), and lodging away from home (+7.0%). Energy costs accelerated and rents saw modest gains.

On a year-over-year basis, the core CPI increased to 4.5%, which was the highest such increase since 1991. The overall CPI increased to 5.4%, which was the highest year-over-year increase since 2008. The categories with the largest increases were car rental (+88%), gasoline (+45%), used cars (+45%), airline fares (+25%), moving, storage, and freight (+17%), and lodging (+15%).

Most of these dramatic year-over-year increases are a result of depressed prices last year. Those base effects will diminish in the months ahead.

Used vehicles are not likely to contribute further to inflation after June as retail used vehicle prices likely peaked in early July following declines in wholesale used prices that started in June.

Retail sales rose: Retail sales surprised to the upside in June. All categories are up from a year ago.

The consensus estimates expected retail sales to decline, but some of the increase was a result of downward revisions to prior estimates. The May decline was revised down to a 1.7% decrease from an initially reported decline of 1.3%. The initial June estimate showed a gain of 0.6%.

Auto sales again underperformed against other goods as sales excluding motor vehicles and parts increased 1.3% in June while sales of motor vehicles and parts were down 2.0%.

The biggest retail gainers in June included department stores (+5.9%), miscellaneous store retailers (+3.4%), electronics and appliance stores (+3.3%), clothing and accessories stores (+2.6%), gas stations (+2.5%), food service and drinking places (+2.3%), and health and personal care stores (+1.6%).

Retail sales were up 18% from last June against a time when some areas remained closed down last year. Compared to June 2020, no major category for retail sales was down.

Loan performance deteriorates: Auto loan performance is starting to deteriorate as loan accommodations come down. However, June saw a modest loosening of auto loan credit, and it was easier in June to get all types of auto loans compared to last year.

Equifax estimated that 1.6% of auto loans were in accommodation as of early June, which was down from 2.3% in April. Relative to the level of accommodation pre-pandemic, approximately 660,000 auto loans did not have payments due in June and had frozen statuses, which prevented them from deteriorating.

In June, 1.13% of auto loans were severely delinquent, which was an increase from 1.07% in May and 4.21% of subprime loans were severely delinquent, which was an increase from 3.97% in May. Delinquencies of 60-plus days increased in June for the first time since January but were down 11.1% year over year.

Despite the modest deterioration in loan performance in June as well as the first monthly decline in wholesale vehicle values, auto loan credit access improved after having declined in May. Our Dealertrack Credit Availablity Index measured auto credit as modestly tighter in June than February 2020 before the pandemic began, but auto credit was looser year over year for all types of vehicle loans.

Consumer sentiment declines: The initial July reading on Consumer Sentiment from the University of Michigan declined 5.5% to 80.8 from 85.5 in June. This left the index down 20% from February 2020. Both underlying gauges of current conditions and future expectations declined with future expectations declining the most. Consumers saw buying conditions for vehicles decline again to the lowest level in 30 years.

The daily measure of consumer sentiment from Morning Consult has also declined thus far in July. The index as of last Friday was down 1.6% over the last seven days, leaving it down 2.0% so far in July, and down 13.9% compared to February 29, 2020.

Jobless claims fall: Jobless claims declined in the last week of reported data and set new lows for the pandemic. As of June 26, 13.8 million Americans remain on some form of unemployment benefits, and that total declined by 372,000 from the prior week. With the American Rescue Plan, pandemic assistance and enhanced unemployment benefits were set to continue through September, but 26 states decided to end enhanced benefits this summer. Initial claims declined last week to 360,000, which was a new low for the pandemic.

An Auto Market Report video will be published in Smoke on Cars on Tuesday, July 20.