Pent-up demand for new and used vehicles is starting to normalize following a spike in May and June, Jonathan Smoke, chief economist at Cox Automotive, said during the CBA Live conference Tuesday.
“In the U.S. retail market, [March and April] are almost always the largest months of the year by volume, relative to the rest of the year,” Smoke said. “So, if we lost the ability to purchase or sell in those months, much of that demand was eventually going to come back.”
Pent-up demand contributed to vehicle sales outperforming expectations in May and June. Total retail sales reached 1 million units in both May and June, compared with 686,966 units in March and 710,827 units in April, according to TrueCar ALG.
In March, about 20% of consumers said they intended to purchase a car in the next six months, a number that has fallen to 14% in September, indicating that future demand will be close to or slightly lower than normal levels, Smoke noted.
“Even those who plan on purchasing weren’t necessarily ready to pull the trigger like you would normally see in a market that isn’t encumbered by a health crisis,” Smoke added, noting that many consumers in August were waiting to see whether another round of stimulus would be approved.
Consumers now are likely delaying auto purchases due to financial concerns, Smoke said, adding that government stimulus and other unemployment benefits contributed to lower delinquency and default rates on auto loans.
Since those programs have ended, and it is unclear if another round of support is coming, lenders are widening credit spreads to prepare for a deterioration in credit performance, Smoke said. Rates are still dependent on the consumer’s credit tier, he noted.
“I think that when the full September numbers are in, we’re going to see the first uptick in the delinquency rate,” Smoke said. “We still have a long way to go to bet back to what we were pre-pandemic … but it definitely looks like we’re moving in that direction.”
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