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Smoke on Cars

Auto Market Weekly Summary

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Article Highlights

  1. Credit tightens; auto loan borrowing increases.
  2. Jobless claims slow; consumer sentiment improves.
  3. Retail sales growth slow with auto sales underperformed.

The peak in daily new COVID-19 cases was four weeks ago, and now hospitalizations are clearly declining as well. The jobs recovery is improving again, but the country still has 15.5 million on unemployment benefits. Consumer sentiment has also been slowly improving for the last two weeks.

Retail sales growth slowed in July as auto sales growth slowed even more. Credit remains available, but auto credit is tighter now as lenders are less generous on terms and are charging higher rates.

Congress has not been able to reach an agreement on a new stimulus package, and many of the President’s unilateral directives on extending unemployment benefits and suspending the payroll tax have not yet been implemented. It is unlikely that consumers will see any more relief before September.

Jobless claims slow: Initial jobless claims were under 1 million for the week ending August 8, which was the lowest weekly filings number since the pandemic began. Continuing claims, which represent people who previously filed and were approved and remain on unemployment compensation, fell to 15.5 million from 16.1 million. That represents 10.2% of February’s job total. Continuous claims declined by more than 600,000 from the prior week, bringing the two-week decline to 1.5 million.

Retail sales growth slows: Retail sales increased again in July but at a much slower rate of increase compared to May and June. Sales increased 1.2% from June, as spending increases were impacted by the summer wave of COVID-19 outbreaks. Auto sales underperformed the overall increase in sales. Sales excluding autos increased 1.9%. With the increase in July, retail sales are up 2.7% year over year.

Consumer sentiment improves: The initial August reading on Consumer Sentiment from the University of Michigan improved slightly to 72.8 from 72.5 in July. The underlying gauges of future expectations and current conditions both improved modestly. Consumers saw declining buying conditions for vehicles driven by more negative views of vehicle prices. The improvement in the Michigan index was consistent with the improvement in consumer sentiment we have been tracking in the daily measure of consumer sentiment from Morning Consult. That index shows that sentiment improved again over the last 7 days and is down by 23.2% compared to the end of February.

Consumers resume borrowing: The Federal Reserve reported that Consumer Credit, excluding housing-related debt, increased in June by $8.99 billion. That was the first increase following three prior months of declines. With the increase, non-housing debt at the end of June was down $108 billion since January. Most of the declines have been in revolving debt like credit cards, which declined by $782 million in June and are down $143 billion since December. Auto loans increased by $12.1 billion. As credit card balances fell, bank deposits and savings have risen. According to Fed data, deposits in savings accounts grew by $1.4 trillion from February 24 to July 1. July saw modestly higher average interest rates on both new and used loans.

Auto credit tightens: Analysis of Dealertrack F&I data show that new auto loan credit tightened in July as lenders pulled back on terms, required larger down payments, and widened spreads. However, approval rates for most credit tiers and loan types improved in July, but approval rates remain lower than February. Captive and dealer finance companies had higher approvals; other lender types were down. Boosted by higher approval rates, subprime gained share in new but lost some share in used. However, the subprime share of the new loan market remains down year over year. The highest credit tier lost some share in the new market in July but saw share improvement in used.

Check back on Smoke on Cars tomorrow for a video that will include updated data.

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