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Smoke on Cars

Auto Market Weekly Summary


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Article Highlights

  1. Inflation soars to highest levels since 1982.
  2. Auto loan performance deteriorates.
  3. Jobless picture and consumer sentiment improve.

The trend in new daily COVID-19 cases kept rising last week as the seven-day average of daily cases was up and case levels are back to early October numbers. The most current view of consumer sentiment moved slightly higher for the week, and the initial reading for December from the University of Michigan registered an increase after months of declines. 

Inflation trends accelerated in November to levels last seen in June 1982 when MTV played music videos. Auto loan credit expansion slowed in October. Auto loan performance deteriorated again in November as credit performance trends normalize from abnormally strong conditions earlier this year. Auto loan credit access increased in November, as credit access continues to be easier than before the pandemic began.

Jobless claims data have been noisy in recent weeks because of seasonal factors, but the underlying trends indicate that the labor market is getting very close to pre-pandemic conditions and full employment again.

Inflation hits 40-year high: Headline inflation decelerated in November but pushed inflation to the highest level since 1982. The headline aggregated measure increased 0.8% on a seasonally adjusted basis from 0.9% in October. The core CPI, which excludes Food and Energy, increased 0.5% from 0.6% in October.

Categories with the largest November increases in prices were motor fuel (+6.1%), airline fares (+4.7%), lodging away from home (+2.9%), used cars and trucks (+2.5%), car and truck rental (+1.1%), miscellaneous personal goods (+1.1%), and new cars and trucks (+1.1%). Rent growth accelerated to 0.5%.

The core CPI accelerated to 4.9% from 4.6% in October, to reach the highest year-over-year increase since June 1991. The overall CPI accelerated to 6.8% from 6.2% in October. The year-over-year level of aggregate inflation was highest since June 1982.

The categories with the largest year-over-year increases in October were fuel oil (+59%), gasoline (+58%), car rental (+37%), used cars (+31%), and lodging (+22%).

Wholesale used vehicle values, according to the Manheim Used Vehicle Value Index, increased 3.9% in November, leaving values up 44% from a year ago. Wholesale prices peaked in the week before Thanksgiving and have declined slightly since. Retail used prices lag wholesale prices and saw continued increases in the last two weeks.

Consumer credit increases: The Federal Reserve reported that Consumer Credit, excluding housing-related debt, grew by $16.9 billion in October, which was a deceleration of the credit expansion. Revolving credit (credit card balances) increased by $6.58 billion, which was down from $9.76 in September. Non-revolving debt (auto loans and student loans) increased by $10.32 billion, which was down from $18.1 the prior month

Car loan performance deteriorates: Auto loan performance deteriorated again in November. With government support fading and loan accommodations falling, credit performance has started to normalize from historically low delinquencies and defaults thus far through the pandemic.

The 60-day-plus delinquencies increased in November for the sixth month in a row and were up 5.2% from a year ago. In November, 1.36% of auto loans were severely delinquent, which was an increase from 1.33% in October and the highest severe delinquency rate in nine months.

Compared to a year ago, the severe delinquency rate was six basis points higher. In November, 5.17% of subprime loans were severely delinquent, which was an increase from 5.05% in October and the highest severe delinquency rate in 10 months.

Compared to a year ago, the subprime severe delinquency rate was 46 basis points higher. Loan defaults increased 12.8% in November from October and were up 6.2% from a year ago. Auto credit access expanded in November. Our Dealertrack Auto Credit Availability Index measured auto credit as looser in November compared to February 2020 before the pandemic began for all types of loans and for all types of lenders

Consumer sentiment improves: The initial December reading on Consumer Sentiment from the University of Michigan increased 4.4% to 70.4 from 67.4 in November. Consumers’ views of current conditions and future expectations both improved. Consumers saw buying conditions for vehicles improved slightly from what had been the lowest level registered by the survey back to 1978.

The daily measure of consumer sentiment from Morning Consult improved slightly last week, leaving a 0.1% decline thus far in December.

Rising COVID-19 cases, worry about the omicron variant, rising inflation, and a volatile stock market could diminish the Michigan reading when final data are released at month-end

Job picture brightens: As of November 27, 1.99 million Americans remained on traditional unemployment benefits, which are limited to at most six months of coverage. The broadest measure of continuing claims, which had included pandemic unemployment assistance before it ended in September, declined by 350,000 to 1.95 million in the latest data and is only 155,000 higher than the 2.10 million level prior to the pandemic beginning.

Initial claims declined last week to a pandemic low of 184,000 from an upwardly revised 227,000 the prior week. Seasonal adjustments have caused big swings in the initial claims numbers for the last three weeks, but it is clear that initial claims are falling towards a normal if not below the normal level.

An Auto Market Report video will be published in Smoke on Cars on Tuesday, December 21. Register for the Cox Automotive Industry Insights Webcast scheduled for Thursday, January 13, at 2 p.m. EST.

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