Auto Market Faces Strain Amid Government Shutdown and EV Tax Credit End

Economic Winds Shift: October Sees Changes in Auto Sales and Consumer Sentiment

The ongoing federal government shutdown, now into its sixth week, has left the release of new labor market data on hold. However, insights into consumer sentiment for November and preliminary statistics on October vehicle sales have emerged, painting a picture of shifting dynamics in the auto market.

Vehicle Sales: A Mixed October Performance

October saw a mixed performance in the vehicle sales sector as incentives declined, influenced by the absence of tax credits for electric vehicles. New-vehicle sales, according to data from Wards, increased by 2.7% month over month, although they saw a 3.6% decrease compared to October 2024. The seasonally adjusted annual rate (SAAR) fell to 15.3 million from September’s 16.4 million, marking a 6.7% drop.

• Combined sales to large rental, commercial, and government fleets saw a 0.6% reduction year over year.
• Sales to rental fleets rose by 10.7% year over year, whereas commercial and government fleet sales dropped by 9.8% and 11.8%, respectively.
• Retail sales were projected to decline by 2.3% from the previous year, resulting in a retail SAAR of 13.0 million.
• The average transaction price for new vehicles in October fell by 0.4% from September, with an estimate of $49,766, marking a 2.1% increase from the previous year.
• The average manufacturer incentives decreased significantly by 11.8% month over month, reaching $3,238, the lowest since April 2024, as support for electric vehicles diminished.

Used Vehicle Market: Resilience Amidst Decline in Wholesale Prices

Despite challenges, used retail sales showed resilience, climbing by 5.1% in October compared to the previous month, with a 5.8% increase year over year. Certified Pre-Owned (CPO) sales experienced a 7.5% rise month over month and a 2.6% increase year over year.

• Wholesale vehicle values dropped by 2.0% on a seasonally adjusted basis, with the Manheim Index settling at 202.9.
• October’s unadjusted price change indicated a 3.7% decrease, leaving the average price slightly up by 0.2% year over year.

Consumer Sentiment: A Downward Trend

The University of Michigan’s preliminary November reading showed a 6.2% decline in consumer sentiment, marking a significant drop as the government shutdown persists. This index now stands 30% lower year over year, nearing historic lows last seen during the inflation surge of 2022.

• Both current conditions and future expectations saw decreases, with a sharper decline in current conditions.
• Inflation expectations for one year increased slightly to 4.7%, while five-year expectations fell to 3.6%.
• Consumer views on vehicle buying conditions hit their lowest since June 2022, affected by worsening car prices and interest rates.
• The Morning Consult daily index recorded a continuing negative trend, showing a 1.2% decline for November so far.