Auto Market Weekly Summary

Highlights

1. Despite remaining above the Federal Reserve’s 2% target, as reported last week, inflation showed signs of potential slowing, being slightly lower than expected.
2. Access to auto credit decreased overall in May, presenting challenges for subprime borrowers.
3. Although loan delinquencies rose in May, a decline in defaults offered some positive news for the auto lending sector.

Inflation and Interest Rates

The Consumer Price Index (CPI) in May showed no change from April but was up 3.3% from one year ago. Expectations were higher, with a 0.1% increase from April and 3.4% from last May forecasted. Core CPI, which excludes volatile food and energy prices, increased 0.2% from April and 3.4% from one year ago.

• Falling energy prices in May, especially gasoline, played a role in holding inflation steady.
• The housing component of the CPI rose by 0.4% month over month and 5.4% year over year, a major obstacle to lowering inflation.
• The market reacted positively to these numbers as they suggest the Federal Reserve is making progress in controlling inflation.
• The Federal Open Market Committee (FOMC) reiterated that its bias is to maintain interest rates at current levels until inflation shows a clearer downward trend. Thus, the timing and pace of any interest rate relief will be data-dependent, and the story could change quickly as data points unfold. [Read the related commentary.]

Auto Credit Availability

According to the Dealertrack Credit Availability Index, access to auto credit decreased in May, with most channels and all lender types tightening their credit offerings.

• Credit access was more restricted year over year for all channels, except for franchised used-vehicle sales, which remained steady.
• Credit Unions loosened their offerings the most, followed by captives.
• For used loans through independent dealers and new loans, there was significant loosening year over year, whereas certified pre-owned (CPO) loans only saw a marginal increase in availability.

Loan Performance

Auto loan performance was mixed in May, with an increase in delinquencies but a decrease in defaults.

• Delinquencies rose for the first time since February, up by 7.7% year over year.
• In May, 6.88% of subprime loans were severely delinquent, up from 6.81% in April and remains some of the highest readings on record.
• Defaults went down by 6.2% month over month, albeit an 8.2% increase year over year.
• Subprime auto loan defaults declined by 6.6% and are now down by 4.0% year over year.

Consumer Sentiment

Consumer sentiment, as measured by the University of Michigan survey, fell for the third consecutive month to 65.6 in June 2024, dropping to its lowest level since November 2023.

• The current conditions index fell 7.1 points and is now 62.5, or 9.7 points below estimate.
• Expectations declined 1.2 points, or 4.4 points below estimate, to 67.6.
• One-year Inflation expectations were unchanged but 0.1 above estimate, at 3.3%. Longer-term inflation expectations were up 0.1 and 0.1 above estimate, at 3.1%.
• Most consumers attributed the deterioration in their personal finances to high prices.
• While these numbers suggest a gloomy and inflation-frustrated consumer, the University of Michigan cautioned that the index results are preliminary and subject to revision and that the declines from May to June were within the sample’s margin of error.

Mark Strand

Senior Director of Economic and Industry Insights

Mark Strand provides perspective on industry trends informed by the best available internal and external market data and research to address the industry’s critical questions. He has spent the last ten years providing insightful connections across market dimensions, including demographics, economic indicators, industry trends, shopping behaviors and preferences, and vehicle sales to illuminate implications, risks and opportunities to inform decision making.