Auto ECON Updates

Auto ECON Updates (234)

The Producer Price Index for final demand rose 0.5 percent in April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported. Final demand prices declined 0.1% in March and advanced 0.6% in February. On an unadjusted basis, the index for final demand moved up 2.2% for the 12 months ended in April, the largest increase since rising 2.3% for the 12 months ended April 2023.

Nearly three-quarters of the April advance in final demand prices is attributable to a 0.6% increase in the index for final demand services. Prices for final demand goods moved up 0.4%.

The index for final demand less foods, energy, and trade services moved up 0.4% in April after rising 0.2% in March. For the 12 months ended in April, prices for final demand less foods, energy, and trade services increased 3.1%, the largest advance since climbing 3.4 % for the 12 months ended April 2023.

Cox Automotive released estimates that retail used-vehicle sales in April were down 4% compared to March but higher year over year by 9%, assessing retail vehicle sales based on observed changes in units tracked by vAuto. The average retail listing price for a used vehicle was up 2% over the last four weeks.   

Using estimates of retail used days’ supply based on vAuto data, an initial assessment indicates April ended at 45 days’ supply, up two days from 43 days at the end of March but down one day from April 2023 at 46 days.

April’s total new light-vehicle sales were down 3.3% from last year, and volume was down 9.1% from March. The April sales pace, or seasonally adjusted annual rate (SAAR), came in at 15.7 million, up just 0.4% from last year and up slightly from March’s 15.6 million level. 

Combined sales into large rental, commercial, and government fleets declined 5.6% year over year in April. Including an estimate for fleet deliveries into dealer and manufacturer channels, the remaining retail sales were estimated to be down 1.2% from last year, leading to an estimated retail SAAR of 12.9 million, up 0.2 million from last year’s pace, and up from March’s 12.8 million level. Fleet market share was estimated to be 17.5%, down from last year’s 19.3% share. 

ZeroSum, a retail agency that provides inventory-based digital marketing solutions tailored to dealers, has released its May State of the Dealer report.

ZeroSum’s April highlights point to a stabilizing supply and demand picture, representing what is shaping up to be a new normal. These two sides of the equation appear to be moving toward a relatively stable and foundational equilibrium that dealers can plan against. The pace of inventory growth is slowing, with a 1% MoM increase in April. It has long been expected that new vehicle supply would recover but not reach pre-pandemic levels (~3.3M), and it appears that this recent plateau is approaching somewhere near full market recovery.

Vehicle movement, meanwhile, largely kept its gains from the previous month and is expected to maintain that level in May. Higher incentives, which have generally accompanied the increase in supply, are providing a boost to shoppers. Tax refunds, which historically spur vehicle sales in March and April, are helping as well. These supply and demand dynamics are also contributing to a leveling of turn rate and days-to-move metrics, with the former flat MoM at 41% and the latter in the low 60s for the fourth straight month, and marketed prices have also been within a relatively narrow range since November.

“It certainly looks like we are arriving at a new and healthy normal, with supply and demand in a viable equilibrium situation going forward,” said Jeff Englishmen, Vice President of Dealer Success at ZeroSum. “If this continues, it provides a foundational set of dynamics for dealers to plan against and deal with.”

Used vehicle inventories remained flat in the current month, while vehicle movement retreated from a strong March but held onto gains compared to the end of 2023. The May movement forecast points to a similar outcome. Used car pricing has ticked up slightly since February but remains in a relatively narrow range.

Luxury segments, full-size vans and electric vehicles have been experiencing a continued downward trend, according to Black Book Market Insights released this week. Despite this trend, last week was characterized as “stable”, as the overall market saw a slight uptick of 0.01%.

Car Segments:

  • On a volume-weighted basis, the overall Car segment increased +0.04%. For reference, in the previous week, cars increased +0.21%.
  • The 0-to-2-year-old Car segments were down -0.06% and 8-to-16-year-old Cars increased +0.15%.
  • Four of the nine Car segments increased last week.
  • For the first time in over a month, the slightly used units (aged 0-to-2-years) experienced a decrease of -0.06%. The decline was primarily driven by luxury segments, although the Sub-Compact and Mid-Size categories also saw a decrease.
  • The Sporty Car category maintained its position as the leader in growth, registering an increase of 0.40% last week, which follows a slightly higher gain of 0.43% the previous week.

Truck / SUV Segments:

  • The volume-weighted, overall Truck segment increased +0.01% compared to the depreciation seen the prior week of -0.02%.
  • The 0-to-2-year-old models gained +0.01% on average and the 8-to-16-year-olds decreased by -0.14% on average.
  • Five of the thirteen Truck segments increased last week.
  • The Full-Size Van segment’s decline persisted due to an oversupply of units offered for sale in recent weeks, though there was a deceleration in the depreciation trend last week, with a decline of -0.53%. Outside of last weeks’ 0.53% drop, the previous three weeks saw declines greater than 1%.
  • Last week, Full-Size Pickups continued their upward trend with an increase of +0.13%. However, their smaller counterparts, Small Pickups, experienced a decline of -0.12% during the same time. This marked the first decrease for the segment since mid-February.

S&P Global Mobility projects new light-vehicle sales volume in April 2024 to reach 1.34 million units. While this unadjusted volume total would be a drop from both the month prior (down 7%) and year-ago (down 2%) levels, two fewer selling days than March 2024 and one less than April 2023 more than account for any potential declines. This volume would translate to an estimated sales pace of 16.0 million units (seasonally adjusted annual rate: SAAR), just the third time in the past 24 months the metric has reached this level.

“With an auto sales environment currently defined by the mixed signals of advancing inventory and incentives, together with affordability concerns from high interest rates and still high vehicle prices, the anticipated April result reflects consumers are still in the market for a new vehicle,” said Chris Hopson, principal analyst at S&P Global Mobility.

Retail advertised inventory continues its steady rise, and stands now at 2.97 million units, an increase of 65% vs. last year. While most dealer inventory comprises 2024 and some 2025 model year vehicles, pockets of older inventory remain. 

“Consumers in the market for a new vehicle are increasingly able to find opportunities for discounts coming from the availability of more vehicles in dealer inventory,” said Matt Trommer, associate director at S&P Global Mobility.

The supply side of the auto equation is continuing to show signs of advancement, hinting at sustained growth for inventories and incentives moving through 2024. According to Joe Langley, associate director at S&P Global Mobility, “The outlook for North American light-vehicle production for 2024 was revised higher by 1.5% to 16.0 million units on demand resilience and more importantly on stronger production results, indicating minimized impact of supply chain issues.”

“Advancing production levels set the stage for incentives and inventory to continue to develop, potentially enticing new vehicle buyers who remain on the sidelines due to higher interest rates,” said Hopson. “It will be a bumpy ride and month-to-month sales volatility is likely.  S&P Global Mobility projects calendar-year 2024 light vehicle sales volume of 16.0 million units, a 3% increase from 2023.”

 

Changes in environmental regulatory requirements for the auto industry over the past six months have shifted focus from Electric Vehicles and created a pathway for Hybrid Vehicles to gain more market share. These changes also shift power away from EV leader Tesla to more Hybrid-focused OEMs.

The findings are part of “Charging Ahead: Hybrids Come into Sharper Focus as EV Aspirations Meet Reality” by Rick Wainschel, vice president of data science and analytics at Cloud Theory.

“Regulatory requirements and dates have eased, with the Biden Administration slashing ECV adoption targets from 67% to 35% by 2032,” Wainschel said. “With that shift, OEMs have pulled back on their investments and reduced their EV scale and scope.” 

Rick Wainschel.

Hybrids have been gaining in inventory share and market share for the past three years, and these changes will only add to momentum in this sector. In Q1 2024, year-over-year Hybrid share of vehicle movement jumped 3.2 percentage points, to 11.6% from 8.4% in Q1 2023. Electric Vehicle share (excluding Tesla and Rivian) grew 1 percentage point from 2.6% in Q1 2023 to 3.6% in Q1 2024. Electric Vehicle inventories (5.5%) outpaced EV market share, indicating that there is still an oversupply imbalance that was driven by overproduction as OEMs had moved towards meeting the prior regulatory standards. Meanwhile, Hybrid inventory share was significantly less than market share in Q1 2024 (9.3%% vs. 11.6%), indicating that there is room to grow that sector further.

“The shift from a sustainable future focused on EVs to one balanced between EVs and Hybrids profoundly changes the competitive landscape,” Wainschel said. “Companies such as Toyota Motor Group, Hyundai Motor Group, Stellantis, Ford Motor Company and Honda Motor Company all have well-developed Hybrid lines and now have a more varied patch to achieve fuel economy goals and regulatory requirements.”

Honda's CR-V was the best selling Hybrid in 2023.

The shift will present a challenge for EV-centric companies such as Tesla, Rivian and Polestar, which must contend for consumers--who have expressed reluctance to purchase EVs due to battery concerns, charging anxiety, and high purchase costs--with only an EV offering.

“The shift in regulatory focus gives traditional OEMs more options to meet government standards and to appeal to consumers,” Wainschel said. “Ford’s recently launched ‘Your vehicle, your choice’ campaign, for example, opens pathways that EV-specific rivals can’t follow. Trading gas-powered vehicle purchases for enough Hybrid replacements can help traditional OEMs extend regulatory demands and timelines even further, thereby reducing pressure to quickly and unprofitably introduce EVs.”

Ford’s revenue for the 2024 first quarter was $42.8 billion, up 3% year-over-year even as vehicle shipments declined slightly. The company has increased revenue in each of the past three years and expects to do so again in full-year 2024. Net income for Q1 was $1.3 billion; adjusted earnings before interest and taxes, or EBIT, totaled $2.8 billion.

Operating cash flow in the period was $1.4 billion; adjusted free cash flow was a use of $500 million. Both reflected working capital effects from about 60,000 vehicles that were in inventory at the end of the first quarter but are expected to be shipped in Q2. CFO John Lawler said that the company’s balance sheet remains “rock solid,” with $25 billion in cash and nearly $43 billion in liquidity at quarter-end.

New-vehicle retail sales for April 2024 are expected to increase when compared with April 2023, according to a joint forecast from J.D. Power and GlobalData. April 2024 has 25 selling days, one fewer than April 2023.

Retail sales of new vehicles are expected to reach 1,084,900 units, a 2.1% increase on a selling day adjusted basis. 

The seasonally adjusted annualized rate (SAAR) for total new-vehicle sales is expected to be 15.6 million units, down 0.2 million units from April 2023.

“April is showing mixed results, with an increase in retail sales offset by a decline in sales to fleet buyers,” said Thomas King, president of the data and analytics division at J.D. Power. “This is a notable change from recent months in which manufacturers have increased fleet sales. Although sales to retail buyers are rising, the rate of growth is modest. This is due in part to discounts from manufacturers and retailers stabilizing, coupled with ongoing deterioration of used-vehicle values that results in shoppers having less trade-in equity.”

Cox Automotive forecasts a decline in April’s U.S. new-vehicle sales compared to last year; however, the market remains on the road to recovery, with vehicle sales at a healthy pace. Cox Automotive confirms its forecast that 2024 will be the best year for new-vehicle sales since 2019.

Sales volume this month is expected to fall 2.2% from April 2023 to 1.34 million units. The seasonally adjusted annual rate (SAAR), or selling pace, is expected to finish near 15.9 million, up 0.2 million over last year’s pace and up 0.4 million from March’s 15.5 million level. There are 25 selling days in April, one less than last year and two less than last month. Due to adjustments based on the number of selling days, the sales pace is forecast to increase even though sales volume will likely show a decline.

Healthy inventory levels and rising incentives continue to support new-vehicle sales. At the beginning of April, the total supply of available new vehicles was up 46% compared to last April, according to the latest vAuto Live Market View data.

Cox Automotive Senior Economist Charlie Chesbrough said: “Since April 2023, the new-vehicle SAAR has experienced some large swings, with an average sales pace in the mid-15 million level. This month, more volatility in the market is also expected, although the sales pace is anticipated to rise slightly. Despite high interest rates and elevated vehicle prices, consumers remain resilient. Sales growth may be sluggish, but growth continues. And we expect these conditions to persist throughout the year.”

Signs of a spring market slowdown are emerging, as the overall market appreciated barely +0.05% last week, and the Trucks & SUVs category saw a slight -0.02% dip, according to Black Book’s Weekly Market Update. Additionally, the average auction conversion rate nationwide experienced a minor decrease, indicating that buyers are starting to proceed with more caution.

Car Segments:

  • On a volume-weighted basis, the overall Car segment increased +0.21%. For reference, in the previous week, cars increased +0.27%.
  • The 0-to-2-year-old Car segments were up +0.06% and 8-to-16-year-old Cars increased +0.21%.
  • Five of the nine Car segments increased last week.
  • The Sporty Car segment experienced the most significant growth last week with a rise of +0.43%. On average, over the past four weeks, it has maintained a weekly increase of +0.44%.
  • While the growth rate is beginning to decelerate for the overall market, the Compact Car segment is still on an upward trajectory, marking gains for the 15th straight week. It saw an increase of +0.32% last week.

Truck/UV Segments:

  • The volume-weighted, overall Truck segment decreased -0.02% compared to the appreciation seen the prior week of +0.09%.
  • The 0-to-2-year-old models gained +0.03% on average and the 8-to-16-year-olds decreased by -0.09% on average.
  • Six of the thirteen Truck segments increased last week.
  • Full-Size Vans are experiencing an accelerated pace in depreciation, with a decline of -1.67% last week. This uptick in supply, propelled by a rise in fleet remarketing, is driving the depreciation.
  • The Small Pickup segment maintains its strong performance, recording a +0.42% gain last week. This marks the ninth consecutive week of upward movement, with a weekly average increase sitting at +0.32%.
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