Sponsored by Agile Auto

 

 

 

ECONOMIC

The biggest story continues to be interest rates, inflation and pressure on the consumer.

Long term Treasury yields moved sharply higher last week, with the 30-year Treasury reaching levels not seen since before the financial crisis. Treasury Secretary Scott Bessent responded by increasing planned purchases of longer dated Treasury securities, which initially pushed yields lower. The relief was short lived as markets returned their attention to inflation, fiscal deficits and federal debt, which recently crossed $40 trillion.

Energy is adding another layer of pressure. Brent crude recently moved back above $94 per barrel amid continued Middle East supply concerns.

Yesterday’s economic data reinforced the mixed picture. Second quarter GDP growth was revised to 1.5%, down from 2.1% in Q1. Consumer spending remained relatively strong during the quarter, but July data showed real consumer spending essentially flat. Personal income increased 0.4%, while the personal savings rate remained low at 3.0%.

Inflation also remains stubborn. July PCE inflation was 3.7% year over year, while core PCE was 3.3%. That keeps pressure on the Fed and makes meaningful near term relief in borrowing costs increasingly difficult.

Bottom line: The economy is still growing and consumers are still spending, but high rates, elevated energy costs, persistent inflation and low savings are creating an increasingly difficult affordability environment.

 

 

AUTOMOTIVE

The automotive market remains relatively resilient, but wholesale depreciation is accelerating.

Wholesale values declined 0.52% last week, compared with 0.49% the previous week and more than double the historical 2017 to 2019 same week average decline of approximately 0.21%.

The weakness was broad based:

Cars: down 0.35%

Trucks and SUVs: down 0.58%

Compact Crossovers/SUVs: down 0.80%

2 to 8 year old Minivans: down 0.95%

All 13 truck segments declined across every age band.

The Manheim Used Vehicle Value Index tells a similar story. Wholesale values declined 1.2% during the first half of August, continuing the correction that began in July.

At the same time, retail values are moving much more slowly. That means wholesale and retail markets are temporarily moving at different speeds, creating both margin opportunities and aging risk depending on what dealers own.

Affordability remains critical. The average new vehicle loan rate was 9.52% in July, while the typical monthly payment reached approximately $763. Consumers are increasingly balancing payment against utility, reliability and fuel economy.

That is showing up in shopping behavior as SUV and hybrid consideration continues to strengthen.

The message from the consumer is becoming increasingly clear: They still want to buy vehicles, but they are becoming much more selective about what they can afford and what represents value.

 

 

DEALER TAKEAWAY

This is becoming a vehicle selection market.

Demand has not collapsed, but the margin for acquisition mistakes is getting smaller.

Wholesale values are depreciating faster. Interest rates remain high. Consumers have less room in their monthly budgets. And the vehicles consumers want are becoming increasingly concentrated around affordability, utility and value.

That means dealers should be extremely disciplined about what they acquire going into September.

1. Don’t chase yesterday’s market.
Wholesale depreciation is accelerating. What a vehicle was worth 30 or 60 days ago matters much less than where its value is headed over the next 30, 60 and 90 days.

2. Know your store’s winners.
Market demand alone isn’t enough. The vehicle needs to match your store’s historical turn, gross profitability, customer affordability and current inventory needs.

3. Protect yourself on trucks and SUVs.
Truck and SUV depreciation is currently outpacing cars. Buy them because the individual vehicle makes sense for your store, not simply because the segment historically performed well.

4. Affordability should influence acquisition.
With financing costs elevated and consumer savings low, payment matters. The best inventory isn’t necessarily the cheapest inventory. It is inventory that delivers the right combination of payment, utility, demand and profitability.

 

 

Agile Auto’s View

The market isn’t telling dealers to stop buying.

It’s telling dealers to become much more precise about what they buy, how much they pay and how long they expect to own it.

In a depreciating market, yesterday’s sales history tells you what worked.

The competitive advantage is knowing what you should acquire today to sell profitably tomorrow.