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Smoke on Cars

Auto Market Weekly Summary


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Article Highlights

  1. Inflation remains in check.
  2. Consumers may be motivated to buy vehicles this month.
  3. New-car incentives and discounting trigger used-car price declines.

The stock market snapped a three-week losing streak thanks to a bounce Friday related to the announcement of a new “skinny (trade) deal” between the U.S. and China that found common ground on a narrow set of terms and postponed an additional hike in U.S. tariffs set to happen this week.

Inflation benign: The economic data last week was also fairly positive with benign inflation affirming the view that the Fed will cut rates again on October 30. Inflation remains low in headline terms, as lower food and energy costs help consumers. Consumers are, in turn, not expecting higher prices ahead, which is boosting consumer sentiment.

Car-buying motivation: Consumers are also seeing buying conditions for vehicles improve, which could provide motivation for stronger retail demand this month, assuming that the average consumer does see better auto loan rates along with strong incentives and discounting like we had in September.

Used-car discounting: Stronger incentives and discounting in the new market are weighing on pricing in the used market. Slower moving retail used inventory encourages dealers to become more price-selective in the wholesale market. We saw a big shift in used-vehicle pricing in September as weekly price depreciation patterns accelerated each week and pulled the Manheim Index down in September for the worst September change in 18 years. Weakening demand and rising supply point to further price declines ahead.

Looking ahead: This week, we’ll get data on September retail sales and new residential construction.

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