Auto Market Weekly Summary

The trends for COVID-19 and consumer sentiment are encouraging, but the economy and the jobs recovery seem to have lost momentum from a stronger bounce back this spring and summer.

The peak demand phase in the used car market seems to be behind us as August sales softened and prices are starting to come down. High unemployment and the lack of more stimulus will likely lead to less spending and more credit issues in the weeks ahead.

Unemployment still high: Initial jobless claims were 884,000 for the week ending Sept. 5, which was unchanged from the prior week. Continuing claims, which represent people who previously filed and were approved and remain on unemployment compensation, increased in the latest data from Aug. 29. Roughly 13.4 million are on traditional unemployment benefits, which represents 8.8% of February’s job total. The increasing trend indicates that new job losses are again overwhelming jobs being recovered.

Used market loses steam: August saw the used-vehicle market lose some momentum, and the month was likely the peak of used-vehicle values this year as prices started to decline at the end of the month. Our initial estimates show that used-vehicle sales were down only 4% in August compared with a year ago.

The August used SAAR was 38.0 million, down from 39.7 last August but unchanged from July. The August used retail SAAR estimate was 20.3 million, down from 20.7 million last year and slightly down July’s 20.4 million. CPO sales decreased 8.5% from a year ago and were down 6.5% from July. CPO sales are down 9% year-to-date through end of August.

Manheim index increases: The Manheim Used Vehicle Value Index increased 3.64% in August compared with July. This brought the Index to 163.7, which was a 15.8% increase from a year ago. On a year-over-year basis, all major market segments saw seasonally adjusted increases, but luxury cars and pickups outperformed the overall market.

Weekly Manheim Market Report (MMR) price indices saw decelerating gains each week ending with a 0.1% decline in the last week of August. MMR Retention averaged 100.5% for the month but ended the month under 100% for four of the last five days.

Likewise, the sales conversion rate declined over the course.

Credit strong: Consumer credit remains strong as consumers have paid down credit cards and the auto loan severe delinquency rate is at a 27-month low. However, much of the decline in delinquencies is a result of loan accommodations.  As those accommodations end, we are seeing a rise in delinquencies. With high unemployment, less supportive benefits, and accommodations ending, loan performance will likely deteriorate over the next several weeks.

Inflation grows: Inflation is growing but remains under control in aggregate, yet some goods and services – like used cars – are seeing large price gains. Prices for apparel, airline fares, hotels, gas, car insurance, used vehicles and food away from home increased and drove aggregate prices up. Both the headline and core consumer price index, which excludes food and energy, hit their highest level of inflation since March.

Wages rise: Real hourly earnings in August grew 3.3% from a year ago but were down from 3.7% in July and a peak of 7.5% in April. These strong gains are a function of wages shifting due to a loss of lower paying jobs combined with lower inflation.

Consumer sentiment improves: The index of consumer sentiment from Morning Consult increased 0.7% over the seven days ending last week and is on track for a sixth-straight week of improvement. Sentiment is now down by 19.8% compared to the end of February.