Auto dealers still have the upper hand as low inventories of new cars persists more than two years into the pandemic, often resulting in buyers willing to snap vehicles up before they hit the lot.
Scarcity at car sales lots has kept the roaring auto market from crashing down to earth, as it has in the housing market, even as inflation at a four-decade high squeezes paychecks.
The supply crunch helped dash earlier hopes that a surge in the U.S. cost of living, last pegged at early 1980s levels, might soon retreat, even as the Federal Reserve looks to dramatically raise interest rates this summer to tighten financial conditions and quell demand from consumers. “There’s clearly been a slowing of demand from where it was, but it’s still elevated relative to production,” Callan said by phone. “I think the bigger concern is the trend, and where it’s going.”
While used-car inventories have begun to normalize to levels seen before the pandemic, the continuing lack of new production likely means a sparse pipeline of previously owned vehicles to fill lots going forward. Normal or alarming? Subprime auto loan delinquencies, often viewed as a canary in the coal mine for consumer balance sheets, this summer topped levels seen before the pandemic.
Callan at Columbia worries about the potential repercussions of sharp financial losses in stocks SPX, +1.21% and bonds TMUBMUSD10Y, 2.696% in the first half of 2022, combined with a cooling in the U.S. housing market.
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