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Smoke on Cars

Auto Market Weekly Summary: August 14


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Article Highlights

  1. Inflation metrics mixed, but core inflation, most important to the Fed, declined.
  2. Used-vehicle sales had their best year-over-year performance since February.
  3. Auto loan delinquencies increased, but defaults declined.

Year-over-year inflation increased in July, but core price inflation, which is more relevant to the Fed’s assessment, continues to decline.

Used-vehicle sales improved in July compared with last year for the best year-over-year performance since February. Wholesale used-vehicle values fell again in July but at a decelerating pace of decline.

Consumers are tapping credit cards less but taking out more auto and student loans, as credit card debt declined by $0.61 billion, the first decline in over two years.

In July, auto loan performance saw mixed performance trends as delinquencies increased, but defaults declined. Auto credit access improved again in July across all auto sales channels and most lender types.

Inflation Metrics Mixed, but Core Inflation Declined

According to the Consumer Price Index (CPI), year-over-year inflation increased in July from the lowest level since March 2021 in June. The headline aggregate measure rose 0.2% on a seasonally adjusted basis and was unchanged from June. The core CPI, which excludes Food and Energy, also increased by 0.2% and was also unchanged compared to June.

Most major categories saw stable or decelerating increases, but medical care and recreation saw declines. Used car prices saw an accelerating decline, and the decrease of 1.3% is getting closer to what we have been seeing in retail price declines. New vehicle prices also declined modestly in the CPI data. Shelter was unchanged, with a relatively high 0.4% increase contributing much of the above-target inflation.

On a year-to-year basis, the core CPI declined to a 4.7% increase from 4.8% previously. The overall CPI year-to-year increased to 3.2% from a downwardly revised 3.0%.

Used-Vehicle Sales had Their Best Performance Since February

Our used retail sales estimates based on vAuto data indicate that sales volumes were up 6% in July compared to June. Volumes were down only 0.5% from a year ago, the best year-to-year performance since February. Certified pre-owned (CPO) sales again saw strong performance year-to-year, up 12%, and were up 3% from June to July. [Check back in the Newsroom on Wednesday for a full report on CPO sales.]

As the retail market lost momentum and underperformed this spring, wholesale vehicle value trends turned down, according to the Manheim Used Vehicle Value Index, but the declines started slowing in July. The Index declined 1.6% in July on a seasonally adjusted basis after falling 4.2% in June, 2.7% in May and 3.0% in April. The decline in July pushed the Index down to 211.7, which was down 11.6% from a year ago. The unadjusted price change in July was a decline of 3.8%, leaving the unadjusted average price down 10.7% from a year ago.

Credit Card Debt Falls, Auto and Student Loan Debt Increases

The Federal Reserve reported that Consumer Credit, excluding housing-related debt, saw growth accelerate in June to $17.85 billion from an upwardly revised $9.46 billion in May, driven by increases in non-revolving debt. Credit card debt declined by $0.61 billion, the first decline in over two years. Non-revolving debt, which includes auto and student loans, increased by $18.45 billion following a weak but upwardly revised $0.97 billion increase in May.

Auto Loan Delinquencies Increased, but Defaults Declined

In July, auto loan performance saw mixed performance trends as delinquencies increased, but defaults declined. Delinquencies of 60 days or more delinquencies increased in July for the third month in a row and were up 15.7% year over year. In July, 1.77% of auto loans were severely delinquent. That was up from June’s 1.74% rate and was the highest July rate dating back to at least 2006. 6.90% of subprime loans were severely delinquent. That was an increase for the month from 6.76% in June and was also the highest July rate dating back to at least 2006. The subprime severe delinquency rate was 71 basis points (BPs) higher than a year ago, while the aggregate was 21 BPs higher.

The high delinquency rate level has not been leading to similarly high historic levels of defaults, and defaults declined again in July. Defaults of auto loans decreased by 18.1% in total in July from June and were down 9.0% from a year ago. Defaults of subprime auto loans declined by 21.4% and were down 18.3% compared with a year ago.

Auto Credit Availability Improved Again in July

Access to auto credit improved again in July across all loan channels and almost all lender types, according to the Dealertrack Credit Availability Index. Following tightening that occurred this spring during the banking crisis, the Dealertrack Auto Credit Total Loan Index measured that auto credit availability improved by 0.2% in July. However, credit access remained tighter than a year ago and, for many channels, was tighter than before the pandemic.

Movement in credit availability factors was mixed in July. Yield spreads narrowed, and approval rates increased, and those moves improved credit access for consumers. However, average terms lengthened, the subprime share declined, down payments declined, and the negative equity share declined, which hurt consumer credit access. By channel, used loans saw the most loosening. On a year-over-year basis, all channels were tighter, with certified pre-owned (CPO) loans having seen the most tightening. The only lender type to tighten in July was captives.

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.

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