- Used retail vehicle sales rose in January and were up from a year earlier.
- Auto loan performance deteriorated further.
- Consumer sentiment improved with gas prices dropping.
Used retail-vehicle sales increased in January and were up from a year ago. Wholesale vehicle values also increased in January.
Auto loan performance deteriorated further in January as both severe delinquencies and defaults grew. The severe delinquency rate is the highest we have seen, but the default rate is still below levels seen in 2019. Auto loan credit access declined again in January.
Initial jobless claims are growing again, as are continuing claims. However, jobless claims remain historically low.
Measures of consumer sentiment show improvement in February as gas prices are falling again.
Used-Retail Vehicle Sales Rise
Our same-store estimates on Dealertrack indicate that used retail vehicle sales increased 16% in January from December and were up 5% year-to-year. Certified pre-owned (CPO) sales declined 10% from the previous month but were up 22% compared to January 2022.
Wholesale used-vehicle prices increased by 2.5% in January compared to December. The Manheim Used Vehicle Value Index rose to 224.8, down 12.8% from a year ago. January’s increase was driven in part by the seasonal adjustment. The non-adjusted price change in January was an increase of 1.5% compared to December, moving the unadjusted average price down 11.0% year over year. Pickups had the smallest year-over-year decline at 8.4%, followed by compact cars, down 10.7%, and vans, down 11.2%. The other five segments’ prices were lower than the industry.
Growth in Consumer Borrowing Slowed; Auto Credit Tightened
The Federal Reserve reported that consumer credit, excluding housing-related debt, saw growth slow significantly to $11.57 billion in December from an upwardly revised $33.11 billion in November.
Both revolving (credit cards) and non-revolving debt saw declines, with non-revolving debt slowing the most. Auto credit access tightened again in January. Our Dealertrack Credit Availability Index for all loans declined 1% in January, but movement in credit availability factors was mixed.
Yield spreads widened, the subprime share declined, and the share of loans with negative equity declined, and these moves pushed the Credit Availability Index lower, indicating consumer access to credit was more limited in January.
However, the index was helped by a lengthening in terms and a slightly higher approval rate. Down payments were unchanged but remained at a record high.
Most loan types saw tightening in January, with only used loans acquired through independent dealers loosening, while CPO loans tightened the most.
Auto Loan Performance Deteriorated Further
Auto loan performance in January saw further deterioration. The delinquency rate for loans 60 or more days past due increased by 2% and was up 20.4% from a year ago. Of delinquent auto loans, 1.89% were severely delinquent, an increase from 1.84% in December and the highest rate in the data series back to 2006.
Compared to a year ago, the severe delinquency rate was 38 basis points higher. In January, 7.30% of subprime loans were severely delinquent, an increase from 7.11%. The subprime severe delinquency rate was 156 basis points higher than a year ago, and the January rate was also the highest in the data series back to 2006.
The high level of severe delinquencies has not led to equivalent growth in defaults, but defaults are growing. Loan defaults increased 6.2% from December and were up 33.5% from a year ago. The annualized auto loan default rate in January was 2.72%, which was lower than the 3.24% rate in January 2019. The default rate in 2022 was 2.28%, up from a low of 1.98% in 2021 but still below the 2.90% rate in 2019.
Jobless Claims Edge Higher
Seasonally adjusted initial jobless claims increased by 13,000 to 196,000 for the week ending February 4, the highest weekly level since January 7. Non-seasonally adjusted initial claims increased by 10,000. The holidays create a noisy seasonal pattern in initial claims data, but we should be getting past the noise now.
Continuing claims, which represent people who previously filed and remain on traditional unemployment compensation, increased by 38,000 from the previous week, increasing the total to 1.69 million as of the week ending January 28. That level of continuing claims was 75,000 lower than before the pandemic.
The broadest measure of continuing claims increased by 52,000 to 1.94 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is up 52,000 over the last four weeks but is 160,000 lower than the pre-pandemic level.
The labor market is not as strong as it was for most of last year, but there is little evidence of major deterioration in the jobless claims data. Moreover, jobless claims remain at historically low levels relative to the job base.
Consumer Sentiment Rose as Gas Prices Fell
The initial February reading on Consumer Sentiment from the University of Michigan increased by 2.3% to 66.4 as views of current conditions improved, but future expectations declined. Median expected inflation rates increased for one year out but remained unchanged over the next five years.
Consumers’ views of buying conditions for vehicles declined slightly from what had been the best level since August 2021.
The improvement in the Michigan index is similar to the increase observed in the daily index of consumer sentiment from Morning Consult for the month so far. That index is up 2.6% so far in February as of Friday, Feb. 10. Sentiment has been improving again as gas prices have started falling again in February. As of Thursday, the average price for unleaded gasoline declined 1.7% w/w to $3.43 per gallon, down 1% from a year ago.
Jonathan Smoke is the chief economist at Cox Automotive.