Auto Market Summary points to slight market correction

Cox Automotive released its latest auto market weekly summary Monday and while some trends continued, others slightly veered off course. Jobless claims were up, consumer sentiment and retail sales for the auto industry were down, and the supply of used vehicles has finally reached a stable level. This week’s report also reported lower numbers of construction permits being requested, possibly due to the high prices of materials and labor. With states reopening and people returning to work, the auto industry is hopeful that supply, demand, and prices will continue to stabilize after experiencing the brutal effects of the pandemic.

Current Employment Stats

The latest report from the Department of Labor showed that jobless claims spiked to 412,000 for the week ending on June 12th, which was 37,000 more than the week before. Overall, the number of people receiving unemployment benefits has continued to drop each week and the latest numbers are projected to be an anomaly due to the Memorial Day holiday, meaning analysts expect jobless claims to continue their decline.

While most states are opting to continue following the guidelines in the American Rescue Plan stating that financial assistance and benefits will run through September, some states have decided to end such financial aid throughout the next two months to encourage their constituents to find employment. The financial assistance many Americans previously received (e.g., stimulus checks) seemed to have boosted auto sales and service, so it is unclear if dealerships will see an uptick in business or not after people return to work.

Consumer Sentiment Decreasing

Consumer sentiment has reportedly continued to fall throughout the month of June, similar to the drop we saw from April to May. The University of Michigan, which regularly conducts assessments of consumer sentiment, noted that survey respondents blamed concern over rising prices throughout all industries for the dip. While the beginning of June saw more promising numbers, consumer sentiment dropped throughout the past week and is still much lower than pre-pandemic numbers.

Lower Retail Sales

Cox Automotive’s report also noted that retail sales across many industries were slightly down and other industries saw only small gains. Auto retail sales reportedly saw a 0.7% decrease throughout May and a larger 3.7% decline in sales of vehicle parts. The report surmised that sales were down because consumers rushed to buy cars and parts when the country began the reopening process earlier this year and are no longer shopping around.

Inflation Concerns

Recent projections from the Federal Reserve are also making consumers leery about the future, as inflation is expected to rise sooner rather than later. Higher inflation would mean even higher prices and consumers would likely be the ones covering the costs. For the next few months, however, auto loan rates will likely remain in the same range, so dealers are hoping consumers will continue to take advantage of them. When possible, dealerships may want to ramp up their marketing of these low rates to draw customers in before any hikes occur.

Stabilizing Used Vehicle Supply 

Supply has been a serious concern for the auto industry throughout the past few months, but Cox Automotive’s report indicated that the supply of used cars has jumped to more manageable levels. Prices have still continued to climb, with Associated Press journalist Tom Krisher reporting that some used vehicles are even now valued over their original prices. Luckily for consumers, though, the rise seems to be slowing, with last week’s prices rising just 0.75% for cars and 0.68% for trucks and SUVs.

Consumers, of course, would rather see lower costs and more availability of both new and used vehicles, so the price hikes we have seen due to the low supply and high demand have strained many peoples’ wallets. However, dealerships can attract new and returning customers by offering higher trade-in values since most dealerships are still needing to replenish their used vehicle lots. Giving more money for a trade-in is a great incentive for customers when they are making their decision on what to buy.

Did you enjoy this article from Kimberly Hurley? Please share your thoughts, comments, or questions regarding this topic by submitting a letter to the editor here, or connect with us at newsroom@cbtnews.com.