Auto Market Weekly Summary: January 17

Inflation declined in December, as did used-retail vehicle sales. Auto loan performance deteriorated further, and consumer sentiment is mixed so far this month.

Used-vehicle retail sales and average wholesale prices on a non-seasonally adjusted basis also fell in December, as did. Full-year 2022 saw the largest declines in used-vehicle wholesale values in Manheim Used Vehicle Value Index data history.

Auto loan performance deteriorated further in December, but the auto loan default rate improved. The severe delinquency rate is far higher than in 2019, but defaults have not followed. Auto loan credit access declined again across all channels and lender types.

Measures of consumer sentiment are mixed so far in January, but the University of Michigan index shows strong improvement. Consumers’ views of buying conditions for vehicles improved and were at the best level since August 2021.

Inflation Slowed Again in December

Inflation, according to the Consumer Price Index, slowed again in December. The headline aggregate measure declined 0.1% when a 0.1% increase was expected on a seasonally adjusted basis. The decline followed a 0.1% increase in November.

The core CPI, which excludes Food and Energy, accelerated to a gain of 0.3% from a 0.2% increase in November but was in line with expectations. Energy prices declined substantially in December, which helped produce the decline in the headline CPI. However, shelter and some other services, such as medical care services and transportation services, saw accelerating price growth.

Used cars, car and truck rental, and airline fares saw large declines. New-vehicle prices declined for the first time since January 2021 in the CPI, but that runs counter to what we saw in December with real transactions.

Core CPI decelerated to a 5.7% increase from 6.0% year over year. The overall CPI declined to 6.5% compared with 7.1%.

Used-Vehicle Sales Fall Month over Month in December

Our same-store estimates on Dealertrack indicate that used retail sales declined 7% in December from November and were down 10% year-over-year. CPO sales increased 14% from November to December and were up 21% for the year.

According to the Manheim Index, wholesale vehicle values increased 0.8% in December on a seasonally adjusted basis. The decline left the re-based Index at 219.3, down 14.9% from a year ago. This was the largest year-to-year decline in the series’ history.

The unadjusted price change in December was a decline of 1.9%, leaving the unadjusted average price down 13.1% from a year ago. All eight major market segments saw seasonally adjusted prices that were lower than a year ago. Vans had the smallest decline at 12.0%, followed by pickups, sports cars, and compact cars at 12.2%, 12.6%, and 13.5%, respectively.

Most Consumer Credit Borrowing Growth Slowed In November

The Federal Reserve reported that Consumer Credit, excluding housing-related credit, saw growth slow to $27.96 billion in November from an upwardly revised $29.12 billion in October. Credit cards saw gains, while non-revolving debt (auto and student loans) saw declines.

Auto Credit Availability Tightened in December, according to Dealertrack

Auto credit access tightened again in December. The Dealertrack Auto Credit Total Loan Index declined 2.1%, as every factor but the approval rate worked against consumers. Yield spreads widened, the subprime share declined, terms shortened, the share of loans with negative equity declined, and down payments increased. Credit tightened across all loan channels and all lender types, with new loans tightening the most and credit unions tightening the most across lenders.

December Auto Loan Performance Deteriorates

Auto loan performance in December saw further deterioration. Loans delinquent by more than 60 days increased by 5.3% and were up 26.7% from a year ago.

Of all loans, 1.84% were severely delinquent, which was an increase from 1.74% in November and the highest rate since February 2009. Compared to a year ago, the severe delinquency rate was 39 basis points higher. In December, 7.11% of subprime loans were severely delinquent, increasing from 6.75% the prior month. The subprime severe delinquency rate was 163 basis points higher than a year ago, and the December rate was the highest in the data series back to 2006.

Still, the high level of severe delinquencies has not led to equivalent growth in defaults. Loan defaults declined 13.5% from November but were up 16.9% from a year ago. The annualized auto loan default rate in December was 2.56%, which was lower than the 2.98% rate in December 2019. The default rate in 2022 was 2.28%, up from a low of 1.98% last year but still lower than the 2.90% rate in 2019.

Consumer Sentiment Mixed in Initial January Reading

The initial January reading on consumer sentiment from the University of Michigan jumped 8% to 64.6 as views of current conditions and future expectations both increased. Median expected inflation rates declined for one year out and increased slightly over the next five years. Consumers’ views of buying conditions for vehicles improved and were at the best level since August 2021.

The improvement in the Michigan index is counter to the modest decline observed in the daily index of consumer sentiment from Morning Consult for the month so far, but the index improved over last week. That index is down 0.7% so far in January as of Friday, Jan. 13, but it was up 0.7% from the previous week as we saw more declines at the beginning of January when gas prices were rising again.

The average price for unleaded gasoline declined 0.2% from the previous week as of Thursday, Jan. 12, to $3.29 per gallon, which was unchanged from a year ago.

A replay of the 2023 Cox Automotive Industry Insights and Forecast Call held on Thursday, Jan. 12, is available. Listen now.

Jonathan Smoke is the chief economist at Cox Automotive.