Weaker Demand Dominates January Auto Market

Weaker Demand Dominates January Auto Market

Prices for new vehicles fell in January as weaker demand dominated the retail market. Car dealerships continued offering high levels of incentives compared to prices. Prices for used cars stayed flat in January, and consumer credit went down. The criteria for car loans were tighter than ever as more consumers ran into trouble getting approved for loans.

New Vehicle Discounts Increase

The average new vehicle price relative to the MSRP went up in January but is down overall since a year ago. The average MSRP also went down in January and remains down from last year. However, the average incentive spending has increased by just under 1%. At the same time, incentives as a percentage of the average vehicle transaction has gone up to 5.7%, which is the highest since July 2021.

Used Car Sales Go Up

The volume of used car sales went up 5% in January compared to where they were in December. The sales of certified pre-owned cars went down 12% from December but have stayed flat from year to year. The wholesale value of vehicles remained unchanged in January as well. Used car prices have largely stopped fluctuating wildly, but car dealerships are still stocking fewer used cars than the 60-day average. Affordable used cars under $15,000 are still scarce.

Consumer Credit and Borrowing Declined

Other than mortgages, most consumer credit avenues have gone down. In November, consumer credit increased by $23.38 billion. In January, it only grew by $1.56 billion, which is a huge decrease. Auto loans are considered nonrevolving debt and don’t usually decline as much as revolving debt. This remained the case in January as it went down by about half of what the revolving debt did in the same period. Nevertheless, growth in both areas was paltry compared to November.

Auto Credit is Down To Lowest Level Since 2020

Access to auto loans went down substantially in January to the lowest levels since August 2020. Lenders tightened credit access across the board. The loan index had previously shown some signs of life in the summer and fall of 2023, but those small gains have been wiped out by the declines of the last three months. Compared to February 2020, it’s harder to get credit in almost every area except for used cars bought through independent dealers and loans from auto finance companies. Loans for new vehicles have become tighter than in other areas.

Auto Loan Defaults Increased

January saw a substantial increase in delinquent and defaulted car loans. Delinquent loans by 60 or more days were up nearly 8% from a year ago. In January, roughly 2% of car loans were seriously delinquent. This number goes up to nearly 8% for subprime loans. The delinquency rate stayed high during 2023, but a high rate of defaults did not result. However, defaults went up by 2% in January.

Even though some indicators show that the car market has been getting better overall since 2020, there are still difficulties to navigate for both consumers and car dealerships.

 

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