All Things Used Cars +
Economic Overview
The U.S. economy continues to show resilience as May employment data significantly exceeded expectations. Nonfarm payrolls increased by 172,000, with upward revisions to prior months pushing the three month average to its strongest level since January 2025. Unemployment remained stable at 4.3%, reinforcing a healthy labor market.
Despite strong job growth, consumers continue to face affordability pressures. Real wages remain negative as inflation outpaces earnings growth, while elevated fuel prices are increasingly impacting household spending. Treasury yields moved higher following the jobs report, reducing the likelihood of near term interest rate relief and keeping financing costs elevated.
Key Takeaway:
A strong labor market supports vehicle demand, but inflation, fuel costs, and higher borrowing rates continue to pressure consumer purchasing power.
Automotive Market Overview
May new vehicle sales remained solid, with SAAR reaching 16.1 million units, up 3.2% year over year. Manufacturers increased incentives to support volume while average transaction prices remained below $50,000. Retail demand continues to be strongest among higher income consumers.
The wholesale market transitioned out of its spring appreciation cycle, with depreciation returning across most vehicle segments. Auction conversion rates remained stable around 63%, but buyers became increasingly selective, placing greater emphasis on condition, mileage, and retail readiness.
Used vehicle retail fundamentals remain healthy. Days to turn held near 33 days, inventory remains tight, and trade values continue to benefit from consumers seeking more affordable alternatives to new vehicles. Wholesale declines have been modest, and MMR retention improved during June, indicating an orderly market correction rather than a sharp downturn.
Key Takeaway:
New vehicle demand remains healthy, while used vehicle retail performance continues to outperform expectations despite normalizing wholesale values.
Dealer Takeaways
Dealers enter the summer market with favorable demand conditions but increasing affordability concerns. Strong employment, healthy credit availability, stable used vehicle demand, and improving trade values continue to support sales opportunities.
At the same time, rising interest rates, higher fuel costs, and growing consumer caution are creating headwinds, particularly among middle and lower income buyers. Wholesale values are softening seasonally, making inventory discipline and acquisition strategy increasingly important.
Key Takeaways:
- Focus on inventory quality and turn rather than volume alone.
- Continue leveraging strong used vehicle demand and trade opportunities.
- Monitor affordability trends closely as higher rates and fuel prices pressure consumers.
- Maintain disciplined acquisition and pricing strategies as wholesale values normalize.
- Watch upcoming inflation data closely, as it will influence interest rate expectations and consumer demand through the second half of the year.
