Auto Market Weekly Summary

The Federal Reserve has new data to consider ahead of its end-of-October meeting, based on the most recent inflation report. Year-over-year inflation was unchanged in September, but core price inflation, which is more relevant to the Fed’s assessment, continues to decline on a year-over-year basis.

Consumers are still tapping credit cards but taking out fewer auto and student loans, as credit card debt increased by $14.68 billion in the latest measure and non-revolving debt declined by $30.31 billion.

Auto loan performance was mixed in September as delinquencies increased but defaults declined. Auto credit access improved slightly in aggregate in September, but trends were mixed across sales channels and lender types.

Measures of consumer sentiment are mixed so far in October, with Michigan’s index down, but Morning Consult’s daily index showing a modest increase. Consumers are worried about inflation, but gas prices are down 4.9% so far in October.

Inflation was mostly unchanged in September.

Year-over-year inflation, according to the Consumer Price Index, was unchanged in September when a slight decline had been expected. The headline aggregate measure increased 0.4% on a seasonally adjusted basis, which was higher than the 0.3% gain expected but down from 0.6% in August.

The core CPI, which excludes Food and Energy, increased 0.3%, which was unchanged from August and as expected. Housing and medical care saw accelerating increases that drove the higher-than-expected increase. Transportation saw a 0.4% increase, which was much lower than the 3.1% increase in August, as gasoline increased 2.2% when it had increased 10.7% in August.

Used car prices saw a 2.6% decline, which was more than what we have been seeing in retail price declines but catching up with the higher declines we have seen in prior months. New vehicle prices saw an accelerating increase, which we did not see in actual transactions. According to Kelley Blue Book, new-vehicle transaction prices were down in September.

Shelter saw an acceleration to a 0.7% increase from 0.3% in the previous month. The CPI data series has yet to see declining rents that have been going down on new leases for more than a year now.

On a year-over-year basis, core CPI declined to a 4.1% increase from 4.3% previously. The overall CPI was steady at 3.7% from last year.

Auto loan performance was mixed with delinquencies up but defaults down.

The Federal Reserve reported that in August Consumer Credit excluding housing-related debt saw its biggest one-month decline since April 2020 as credit declined by $15.63 billion, driven by a $30.31 billion decline in non-revolving debt. Credit card debt increased by $14.68 billion.

Auto loan performance was mixed in September as delinquencies increased but defaults declined. Loans delinquent for 60 days or more increased for the fifth month in a row and were up 13.3% from a year ago.

In September, 1.89% of auto loans were severely delinquent. That was up from August’s 1.85% rate and was the highest September rate dating back to at least 2006. 7.38% of subprime loans were severely delinquent. That was an increase for the month from 7.17% in August and was the highest rate for any month dating back to at least 2006.

The subprime severe delinquency rate was 72 basis points higher than a year ago, while the aggregate was 16 BPs higher. The delinquency rate has been high all year but has not been leading to a similarly high level of defaults, and defaults declined in September after increasing in August.

Defaults of auto loans declined by 9.8% in total in September from August but were up 31.7% from a year ago. Defaults of subprime auto loans declined by 11% but were up 18% from last year.

Access to auto credit improved slightly in aggregate in September, but credit tightened in many channels and with banks.

Extending a streak of improvements this summer following tightening that occurred this spring during the banking crisis, the Dealertrack Auto Credit Total Loan Index measured that auto credit availability improved 0.2% in September. However, credit access remained tighter than a year ago and compared to February 2020.

Movement in credit availability factors was mixed in September. The approval rate increased slightly, the subprime share increased, and the negative equity share increased, and those moves improved credit access for consumers. However, yield spreads widened, which hurt credit access for consumers.

By channel, used loans made through independent dealers saw the most loosening, but CPO loans saw the most tightening. On a year-over-year basis, all channels were tighter with CPO loans having seen the most tightening.

Captives loosened credit the most in September, and banks tightened, but credit unions were the tightest year-over-year.

Consumers less optimistic about current and future economic conditions

The initial September reading on Consumer Sentiment from the University of Michigan declined 7.5% to 63.0 as views of current conditions and future expectations both declined.

Worries about inflation are clearly driving much of the decline as the median expected inflation rate over the next year jumped to 3.8% from 3.2% last month, and the longer-term view increased to 3.0% from 2.8%. The Fed will not like this move as it suggests consumers are anchoring to higher inflation.

Consumers’ views of buying conditions for vehicles declined to the worst level yet so far this year.

The daily index of consumer sentiment from Morning Consult tells a slightly different story including the daily readings from last week. As of Oct. 13, that index had increased 0.3% in October. This aligns with average gas prices declining 4.9% so far in October.

Jonathan Smoke

Chief Economist

Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.