Key Points

• Auto sales went up in March thanks to reasonably strong consumer spending
• New vehicle sales are performing better than used despite slightly higher prices
• Consumer spending power might not last for long as inflation continues, and a recession is anticipated later this year

Auto performance in March still shows positive growth, with light vehicle sales going up 9.3 percent year over year; the seasonally adjusted annual rate (SAAR) currently stands at 14.8mm. Based on that total, car sales went up 8.7 percent year over year, while light truck sales were up 8.6 percent year over year.

March sales were up 19.3 percent month-over-month compared to February; sales may be below pre-Covid trends, but it’s nonetheless the highest since May 2021.

By the end of March, total automotive inventory went up a whopping 103,000 units from the end of the previous month to reach 1.84mm units; this exceeds February’s 1.74 million units to make it the highest level it’s been since April 2021. However, inventory levels are still below “normal” levels, although the good news is that some inventory segments, such as large cars and pickup trucks, are starting to normalize. This should be a good sign that supply can reliably meet consumer demand.

Shift in Vehicle Sales’ Momentum

If you recall our previous article, we predicted that used car inventories would slowly dry up while new car inventories would see growing demand again. Cox Automotive’s recent report seems to indicate that this is happening: total new light-vehicle sales shot up to 8.6 percent in March compared to a year ago “with the same number of selling days.”

However, this gain is actually led by strong fleet sales that “increased 27.7 [percent] year over year in March to 225,200 units.” Leading the pack are rental fleets, whose sales went up 46 percent year over year. Retail sale estimates indicate an increase of 5.6 percent with an estimated retail SAAR of 12.9 million – an increase of 0.6 million from last month.

But new vehicle sales are still on a modest upward trend. In fact, new retail sales “last week” were up by 10 percent year over year. In the words of Cox Automotive’s Chief Economist Jonathan Smoke, “Volumes were up for new, and relative to last year, [sales] performance improved.” In contrast, used sales were the complete opposite: volumes were down, and “performance declined.”

Cox Automotive data indicates that used vehicle sales “increased 13 [percent] in March from February” but were still 6 percent lower year over year owing to lackluster performance as is “typically [seen] in the month of March.” The higher-than-normal used retail prices, coupled with higher interest rates and “lower tax refunds,” have only served to hamper used sales performance.

Consumer Spending Still Going Strong

Despite the lag in used car sales, consumer spending is still relatively good. While vehicle sales have fluctuated in recent years, they recently went up by 7 percent year over year. According to TrueCar, average transaction prices have increased 5.6 percent yearly to $45,397 – equal to $2,419 per unit year-over-year. It reflects that consumers are still willing to spend thanks to modest savings and higher-paying incomes.

Nominal consumer spending is still going strong and is currently 31 percent above pre-Covid trends despite price hikes (22 percent higher than pre-Covid trends) on new and used vehicles. The modest increase in sales also comes in spite of persisting but normalizing supply chain issues, the bank failure scares, increasing gas prices due to OPEC’s oil production cuts, and the risk of a recession later in the year.

Pickup trucks and compact utility vehicles (CUVs) remain highly sought after despite higher price tags. This is partly due to consumers looking for more utility and off-roading capability in their personal vehicles. Total car sales also saw a modest increase, especially as more frugal buyers look to fuel-efficient cars and EVs to save on costs in the long term.

Electric vehicles also saw a surprising boost in sales: the number of EVs sold in the first quarter of 2022 was 5 percent of the total auto market share, far higher than the 2.4 percent market share in the first quarter of 2021. Retail used EV sales have also seen a remarkable increase, going up 32% year over year in Q1 of 2023 to 42,753 units. It also helps that the “average retail listing price for a used EV” hovers around $43,400, a significant decrease compared to the $59,000 for a new EV.

In fact, Kelley Blue Book estimates that EV sales for the first quarter went up 44.9 percent “year over year” to reach a staggering total of 258,882 vehicles! If anything, it seems very likely that annual EV sales can “surpass 1 million for the first time in 2023.” Tesla held 62.4 percent of the market share, down from 64.2 percent in the previous year; high Chevrolet Spark sales placed Chevy in second place, while Ford trailed in third.

But Will It Last?

However, this consumer spending dynamic might not last for long, especially if the aforementioned factors start inhibiting consumer spending. In fact, the average unleaded gas price has gone up 2.3 percent week over week to $3.58/gallon as of April 10th, according to Cox Automotive.

In spite of “access to auto credit” loosening “slightly,” auto loan performance has also been deteriorating. In February, delinquent loans for 60 days or more went up 21.9 percent compared to a year ago, a streak of ten consecutive months. 1.9 percent of auto loans in February were classified as “severely delinquent,” while the number of loan defaults was up 2.2 percent in February from January.

Higher auto loan rates are causing more Americans to default on their payments, with new car rates elevating to 8.95 percent in March from 5.66 percent the previous year. Meanwhile, used car rates increased 11.3 percent in March from 7.7 percent the previous year. It’s not uncommon to see someone paying upwards of $700 monthly on their car’s auto loan these days.

Consumers are still cautious about where and how they spend their money, but priorities may differ from person to person. Paying $700 monthly for a car loan might seem reasonable for some, while others will find it too steep on top of other financial responsibilities. Automakers usually try to generate interest through incentives, such as cash-back offers, but most incentives today are intended for full-sized trucks.

Demand for new or used cars can fluctuate, especially if consumers decide to wait and see if dealerships will offer further incentives: discounts, more cash-back options, and more. Even if the price is right, the financing aspect may differ greatly: you’d have to deal with unfavorable – some would say hostile – interest rates. In fact, one in six borrowers paid more than $1,000 on monthly auto payments from January to March!

Despite the higher income levels and robust job market (with 1.7 jobs available per unemployed person), it will eventually come to a head once prices of commodities continue to rise precariously. The rise in loan delinquencies is already a telling sign. Automakers may be enjoying record profits for now, but the question of affordability – especially with phenomenally high loan payments – remains debatable.

Automakers and dealers seem to be taking all these factors into consideration. For one, automakers are looking to shift their focus from “going after market share to production discipline to maintain [their] strong profits and cash flow,” especially as they move towards reducing the production of internal combustion engine (ICE) cars in favor of more EVs. Secondly, they aim to keep “inventories at levels lower than the pre-covid (sic) norms” to keep prices sustainable.

“Job market pressures” in the form of “wage inflation” and labor shortages are a core challenge in helping the automotive industry recover, especially once commodity prices increase, corporate profits tank, and companies lay off staff to maintain profitability. Fears of a recession may also compound this issue, but it’s too early to say how things will develop from now.

The EV Outlook

EV growth will likely see further improvements this year, with predictions that it’ll reach a 7 percent market share by the end of 2023. Even as new vehicle pricing “peaked in 2022” before coming down from Q3 of 2022 (and even this year), premiums for a new EV have gone down to 23 percent above the average new vehicle price. Compare this to 2018 when a new EV, still a new, emerging technology at the time, could cost as much as $66,000, an 83 percent premium above the average new vehicle at the time.

The bottom line is that automakers are keen to transition from ICE vehicles to EVs; Ford, for one, has already outlined plans to “begin production of its 2nd generation EVs in 2025” and improve upon its EV capacity. Meanwhile, the Biden administration looks set to introduce “aggressive climate regulation[s]” in a bid to promote further EV growth, further entailing the need for more supporting changes, such as new charging stations nationwide.

The IRA’s clean vehicle credit was a good motivator in getting more Americans to own an EV, and the results did show some promise. However, this new regulation is bound to shake things up beyond the government’s interest in combating climate change. While willing, automakers are nonetheless worried that EV demand won’t reach the expected demand; lingering issues could still pop up occasionally and potentially affect EV sales performance.

The future of EVs definitely looks great, and we’re pretty excited about it as well. Barring the impending recession later this year, we believe EVs are headed down the right track, especially with more incentives to own one, improve charging infrastructure, and accelerate developments into new EV technologies.

The post New Momentum for New Cars Despite Fears of an Impending Recession – 13 April 2023 first appeared on VinFreeCheck and is written by Calvyn Ee

Even after these price changes, the Model Y Performance was still 16 percent cheaper than in January this year; the Model 3, on the other hand, will be 9 percent cheaper. Both EVs are also still eligible for the clean vehicle tax credits. According to Tesla’s Chief Executive Elon Musk, the price changes were motivated by rising demand. Following the sudden outburst of demand after the initial price cuts, Tesla followed up with a subsequent price increase to “strike the right balance between demand and supply.”

While new Tesla prices are going up, used Teslas are the polar opposite owing to these initial OEM price cuts. Used Teslas have seen an 8.9 percent decrease in price (year-to-date), leading many Tesla owners to lament that this will cost them their vehicle’s resale value. And let’s not forget that the price for a used Model 3 saw a sharp decline of 16.8 percent from September to December 2022, which translates to $8,822 in only four months!

Even used Model Ys are going through a surprising reduction thus far.

In the wake of Tesla’s initial price cuts back in January, Ford followed suit by reducing the price of its Mustang Mach-E lineup in hopes of catching up to Tesla – even if it means selling at a loss. While it’s uncertain if others will follow suit, it could signal good news for consumers looking to buy an EV, new or used. In the case of used EVs, it’s possible that their prices won’t rise phenomenally compared to other used cars, but that could change drastically with consumer demand. Time will tell.

Still, with the changes to the Act’s “Clean Vehicle Credit,” more electric vehicles will be eligible for tax credits up to $7,500 (subject to stipulated terms and conditions). This is also on top of other incentives available in different states, making purchasing an electric vehicle much more attractive. That’s not to say EVs aren’t already popular. EV sales were significant in the third quarter of 2022: they made up “one of every 20 new cars sold.”

Barrons noted that “EV penetration of new U.S. car sales in 2022” had increased to 6 percent, a major increase compared to 2021’s penetration at 3 percent. Tesla led the pack in terms of sales for both its Models 3 and Y, eclipsing the next 15 brands combined by a substantial margin! The Bank of America estimates that EV penetration for this year can potentially go up to 7 percent, with competition slowly ramping up as Tesla’s rivals seek to catch up with potentially new EV models to unveil.

If anything, the clean vehicle tax credits from the Act should help improve overall EV affordability. Some provisions also encourage capacity build-up for raw materials and battery production, hopefully encouraging further EV penetration within the United States. However, the higher prices of batteries (exacerbated by material shortages), coupled with burgeoning demand for alternative powertrains, could inevitably push prices up in due course.

The Act still has a ways to go in addressing various EV reforms, such as the battery requirements only being enforced starting March 2023, so the tax credits are still subject to change. That includes the list of EVs that qualify for said tax credits. Used EVs being eligible for tax credits does help, but with how used car prices are still fluctuating, it can feel like a precarious situation.

Another way of driving further EV penetration would be to improve existing charging infrastructure, something the government intends to do. With how gas prices are now seeing a decline, buyers interested in an EV but lack “private residential charging” may find that owning a mild hybrid (those that still primarily use combustion and electric power as a backup) is better in the long term with regards to comparative fuel/charging costs.

The post What’s Going on with Tesla? On Price Changes and the EV Outlook first appeared on VinFreeCheck and is written by Calvyn Ee

In terms of “year-over-year differences” from 2021 to 2022, the average used car price in December 2022 saw a 3 percent price drop (equal to $1,043) compared to 2021. Contrast this to the September 2022 high of 7.8 percent (an increase of $2,414) compared to the previous year. It might not seem like much at first glance, but this is significant because prices hadn’t gone “below year-over-year 2021 levels until November” – and the price fell further in December.

Karl Brauer, iSeeCar’s Executive Analyst, predicts that, in the next “2-3 months,” we’ll be able to see just “how far and how fast prices will drop.”

Many of the cars that made the list were, at one point, in high demand during the pandemic. Leading the pack is the Nissan Armada, a large SUV that people sought for its upscale and roomy interior, excellent driving quality, and plentiful safety features. Its average price in December 2022 was a modest $33,621, a decrease of 16.9 percent compared to the previous year.

In second and third place respectively are the humongous Ford Expedition MAX and the Jaguar E-PACE, Jaguar’s first compact SUV. The former recorded an average price of $48,137 in December 2022, a reduction of 15.2 percent compared to December 2021. The latter vehicle saw an average price drop to $35,221, marking a 14.6 percent reduction.

Take a look at the remaining vehicles on the top 10 list of the biggest losers.

The price change from September to December 2022 was much more pronounced if we look at recent trends. The Tesla Model 3, already placing sixth among used cars with the biggest price drop, was on top of this list with a price reduction of 16.8 percent – that’s $8,822 in four months! With used electric vehicles still higher than the average used and new car on the market, it’s possible that Tesla is dropping the price to help boost demand for their EVs. However, they recently backpedaled on this and have since upped the price on their popular Models Y and 3.

The Nissan Kicks, a modestly-priced subcompact SUV packed with tech features, and the muscular Ford Mustang are not too far off. The Kick averages $20,046 following the 11.9 percent price drop from September to December 2022; the Mustang, on the other hand, had an 11.5 percent drop in that same period. You’ll also notice that the Mustang’s price dropped substantially from 2021 to 2022, which spells good news for Mustang enthusiasts.

Overall, used car prices are likely to continue falling, which means you might be able to afford the used car you’ve always wanted. Still, expect demand for used cars to increase now that prices are falling, and prices may soon begin to normalize over time. For now, though, be on the lookout for when prices continue to drop, and you might just be able to secure a good deal for a used car in pretty good condition.

Be aware of possible red flags, though. Scammers will likely use this opportunistic time to sell off problematic vehicles, like flooded cars affected by Hurricane Ian. Make sure you get your copy of the car’s vehicle history report before agreeing to any purchasing deals. Inform yourself of the car’s true details – from its mileage to records of past accidents – and spot signs of a scam before it’s too late.

The post Used Cars with the Biggest Price Drops first appeared on VinFreeCheck and is written by Calvyn Ee

Now, car repossessions are seeing an unexpected rise: the average monthly payment for a new car has increased by 26% since 2019, as of December 2022. People could pay as much as $718 a month for their car. Even prime borrowers with a healthy credit scores are also losing their cars, a red flag that things might not get any better.

Rising inflation and fears of a weakening economy, coupled with increasing unemployment, are giving families a lot of grief with keeping up with their daily expenses. To add insult to injury, rising gas prices (partially due to the ongoing Russia-Ukraine war) only added to the stresses of car owners. With little other choice, many folks either had to scrape by to hold on to their car or simply abandoned repaying their car loans entirely.

Meanwhile, car repossessors are having a tough time of their own. One effect of the pandemic was bringing down the number of repossession companies by 30%. As such, whatever repossessors are still running today have their hands full and are preparing for the potential tide of upcoming repossessions.

Incidentally, while the rate of repossessions has increased, it’s not actually reached alarming levels. Experian estimates that the percentage of auto loans that were “30 days delinquent” reached 2.2% in the third quarter of 2022; contrast this with the 2.35% delinquent rate “over the same period in 2019.” It’s expected that these rates won’t go anywhere beyond what happened in the 2008 crisis; high, yes, but not historic high.

As if that wasn’t bad enough, even car owners who can afford a new (or used) vehicle might get into trouble because of a bad deal. “Yo-yo” car sales are when a dealer woos potential buyers into purchasing a car, then contacts them later to yoke them with a new contract that’s worse than what was initially agreed upon. In short, the dealership allows the customer to leave with a car “before the transaction’s financing is finalized.”

If the customer doesn’t go back to the dealership to sign the new contract, they risk having their car repossessed by the dealer or worse. It only adds more financial stress to car owners.

If you’re still adamant about buying a car, consider the following safety tips.

Buy previous year models: You’d do well to be mindful of the amount of financing for the car you’re interested in. Recent previous-year models – those made between 2019 to 2022 – can still fetch a high asking price, so you should consider older models for their more affordable price tags. Most older models still have features that you might find in a modern car, such as smartphone integration or top-notch driver assist techs, so you’re not really losing out.

Plan your expenses: With prices rising, you need to future-proof your financial situation so as to ensure you and your family have enough saved up for daily necessities on top of meeting your auto repayment commitments. Keep close track of your expenses and find ways to stretch every dollar you have.

Read the fine print: Be extra careful when reviewing the sales contract the dealer or seller hands you. Look out for any suspicious clauses, like one that permits the dealer to cancel the sale if the credit contract you signed doesn’t get purchased by an auto lender. Sometimes, dealers might introduce these kinds of clauses to “bind” you to the contract, only to pull a “yo-yo” and charge you a higher interest rate or make other unlawful demands.

Get a vehicle history report: In some cases, a used car might still have an unpaid lien on it. Under normal circumstances, a lienholder must repay the lien in full. However, it’s possible that when the lienholder defaults and the car is repossessed, the lien might remain unpaid. If you buy a car with a lien on it, the onus of repaying it might ultimately fall to you – even if you aren’t the original lienholder.

To protect yourself from such a scenario, a vehicle history report will serve you well as an insurance policy. With it, you’ll be able to see if a used car you’re interested in may have a lien still attached to it. You might even find out the car has many more problems that the dealer hasn’t told you about. As such, you should prioritize getting a vehicle history report before starting your car-buying journey.

The post High Car Repossession Rates: A Concerning Situation first appeared on VinFreeCheck and is written by Calvyn Ee

While this does sound good for those looking to buy a car for cheap, it also has some caveats. One particular issue is that flooded cars caught in Hurricane Ian are now entering the used car market, which isn’t necessarily a good thing.

Flooded cars being sold to consumers isn’t something new. It’s possible to completely refurbish a flooded car by stripping all its defective parts and replacing them with new components before reintroducing them to the market. For the most part, that works nicely – you’re essentially getting a new car from an old one, so to speak.

However, many flooded cars are likely hitting the market in the same state they were in when they were flood-damaged. Experts estimate that 358,000 cars in Florida and other areas that were affected by Hurricane Ian have flood damage – and they may be entering your state to be resold.

The concern is that not all these cars will be refurbished when they go up for sale. Flood damage doesn’t only cause one-time damage to the entirety of the car but can also gradually worsen its condition. Floodwaters can corrode a car’s electronics and mechanical systems, rotting the car from the inside. If left unrepaired, it can significantly jeopardize your safety if you take it out for a drive.

To make things complicated, uninsured cars (or those lacking comprehensive coverage) won’t have their titles updated to reflect that they’re flood-damaged. It’s perfectly legal to sell cars with salvage or junk titles as long as they’re disclosed to the customer. But for those without either title indication, you won’t know that you bought a flooded car until it’s too late.

To add fuel to the fire, some sellers may know this and choose to keep the information from buyers, hoping to make a payday while getting rid of a defective vehicle from their inventory. You’d best not let that happen to you!

Granted, it can be challenging to determine if a used car on sale might be flood-damaged. On the outside, it’ll look like any used car out there. But once you start looking at it more closely, you might be able to spot the warning signs, including:

• A musty smell in the cabin, which sellers will try to hide with copious amounts of air freshener
• Signs of water damage on upholstery
• Damp carpeting with a strong, musty odor
• Faulty components, such as brittle or damaged wiring
• Rust or other forms of water damage on doors or under the dashboard
• Fog or moisture beads in the lights

Be sure to get an independent check performed on a used car you’re interested in buying. Even if the seller provides you with a free vehicle history report or some form of guarantee that a used car is in pretty good shape, you’ll never know if they’re trying to lull you into a false sense of security. Go with your gut and get that independent check scheduled – or better yet, look for a better deal.

Speaking of which, get yourself a vehicle history report from VinFreeCheck instead of relying on what the seller provides you. You’ll never know if the report they give is a false copy they made to sell you a lemon. As such, having a vehicle history report in hand before you go used car shopping is a much-needed insurance policy to keep you safe from potential fraudulent deals and such.

Our vehicle history report contains data taken from various reliable sources, such as the National Motor Vehicle Title Information System (NMVTIS) and the National Insurance Crime Bureau (NICB), to provide you with accurate information about a car’s overall use, including technical specifications, branded titles, odometer readings, and more. It also provides you with flood records if a car was caught in one, thus helping you identify potential red flags in a deal before making a decision.

The post Caveat Emptor: Flooded Cars Entering the Used Car Market first appeared on VinFreeCheck and is written by Calvyn Ee