- Inflation declines to its lowest level since March 2021.
- Used-vehicle sales improve, wholesale prices drop.
- Access to auto credit improved, but auto loan performance is mixed.
Year-over-year inflation declined again in June, and the monthly increase in core prices is finally decelerating. Headline inflation was down to 3.1% year-over-year in June, the lowest level since March 2021.
Compared to last year, used-vehicle sales performance improved in June for the best year-over-year performance since March. However, wholesale used vehicle values fell again in June, and wholesale prices are down 10% from a year ago, according to the June Manheim Used Vehicle Value Index.
Consumers are tapping credit less and less, as credit card usage declined in May and non-revolving loans had the first monthly decline since the Great Recession.
Auto loan performance saw mixed performance trends in June as delinquencies increased, but defaults declined. Auto credit access improved in June across all auto sales channels and lender types, according to the Dealertrack Credit Availability Index.
Inflation Declines to Its Lowest Level Since March 2021
According to the Consumer Price Index (CPI), year-over-year inflation declined again in June to the lowest level since March 2021.
The headline aggregate measure increased 0.2% on a seasonally adjusted basis, which was an acceleration from May. The core CPI, which excludes Food and Energy, rose 0.2%, a deceleration from May and the smallest increase since February 2021.
Most major categories saw decelerating increases, but several categories saw declines. Used cars finally showed a decline, but the decrease of 0.5% is just a fraction of the declines we have seen in both wholesale and retail used prices in May and June. New-vehicle prices were unchanged. Shelter is starting to see decelerating inflation but is still high and contributing much of the above-target inflation.
On a year-to-year basis, the core CPI declined to a 4.8% increase from 5.3% previously. The overall CPI year-over-year declined to 3.1% from 4.0% previously. With meaningful declines in food and energy prices, lower-income consumers continue to see accelerating relief from extreme inflation. Our estimated CPI for the lowest income quintile declined to 7.2% in June from 9.8% in May and a peak of 21.9% last June.
Used-Vehicle Sales Improved, Wholesale Prices Dropped
Cox Automotive’s used-vehicle retail sales estimates, based on vAuto data, indicate that sales volumes were down 4% in June compared to May. However, last year’s decline was more severe, and the weekly trend in sales improved in late June, so the year-over-year comparison improved. Volumes were down 6% from a year ago, which was the best year-over-year performance since March. Certified pre-owned (CPO) sales outperformed the overall used market and were up 2% from May to June and up 8% from a year ago.
As the retail market lost momentum and underperformed this spring, wholesale vehicle value trends turned down, according to the Manheim Index. The Index fell 4.2% in June on a seasonally adjusted basis after declining 2.7% in May and 3.0% in April. The decline in June pushed the Index down to 215.1, which was down 10.3% from a year ago. The unadjusted price change in June was a decline of 3.8%, leaving the unadjusted average price down 10.1% from a year ago.
Consumer Borrowing Decelerates
The Federal Reserve reported that consumer credit excluding housing-related debt saw growth decelerate substantially to $7.24 billion in May from a downwardly revised $20.32 billion in April, driven by slowing usage of credit cards and declines in non-revolving debt.
Credit card debt grew by $8.5 billion, a large decline from $14.2 billion in April. Non-revolving debt, which includes auto and student loans, declined by $1.3 billion following a $6.2 billion increase in April. It was the first monthly decline in non-revolving credit since the Great Recession.
Auto Loan Performance Was Mixed as Access to Auto Credit Improved
Auto loan performance saw mixed performance trends in June as delinquencies increased, but defaults declined.
Delinquencies that were 60 days or more increased in June for the second consecutive month and were up 18.7% from a year ago. In June, 1.74% of auto loans were severely delinquent. That was up from May’s 1.68% rate and was the highest June rate dating back to at least 2006. 6.76% of subprime loans were severely delinquent. That was an increase for the month from 6.48% in May and was the highest June rate dating back to at least 2006. The subprime severe delinquency rate was 101 basis points (BPs) higher than a year ago, while the aggregate was 25 BPs higher.
The high delinquency rate level has not led to historically similar high levels of defaults. Defaults declined in June. Defaults of auto loans fell by 0.4% in total in June from May but were up 40.6% from a year ago. Defaults of subprime auto loans declined by 2.0% but were up 28.5% from a year ago.
Access to auto credit improved in June across all loan channels and lender types. Following tightening during the banking crisis this spring, the Dealertrack Auto Credit Total Loan Index measured that auto credit availability improved by 0.8% in June. However, credit access remained tighter than a year ago and, for many channels, tighter than before the pandemic.
Movement in credit availability factors was mixed in June. Yield spreads narrowed, average terms lengthened, down payments declined, and those moves improved consumer credit access. However, the approval rate dropped, the subprime share declined, and the negative equity share declined, and those moves hurt credit access for consumers. By channel, CPO loans saw the most loosening. On a year-over-year basis, all channels were tighter, with CPO loans having seen the most tightening.
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.