In its May Beige Book, published Wednesday, the Federal Reserve noted softer demand for new vehicles in its overall outlook for economic activity.
More specifically, the roundup of economic factors from the 12 Federal Reserve Districts highlighted mixed consumer spending and how the market is impacting different income brackets.
National auto outlook: Broadly in the auto market, the Federal Reserve stated, “auto dealers reported softer new vehicle demand tied to affordability and fuel costs, alongside substitution toward used and hybrid vehicles.”
The latter is supported by recent data from OEMs, Cox Automotive, and CarGurus showing hybrid vehicle sales are surging, since the conflict in the Middle East began in late February and gas prices rose more than $1.50 to more than $4.50 per gallon in May.
CarGurus’ April data showed new hybrid sales had spiked.
That carried over in May, with automakers Kia, Hyundai, Mazda, and Honda reporting record growth, with some hybrid models seeing triple-digit growth.
On the most recent Auto Market Brief, Cox Automotive Chief Economist Jeremy Robb said hybrid sales are up 40% since the Middle East conflict began.
Regional view: Each region reported a mix of auto activity.
The Federal Reserve in Boston stated that auto sales rose moderately after weak sales in January and February, with dealers noting “the recent rise in gas prices made hybrid vehicles (but not EVs) easier to sell, even though increased demand was not motivated primarily by a desire to shift to hybrids.”
New Hampshire was highlighted for an increase in new and used sales but lower auto service activity due to the suspension of the state’s vehicle inspection program and rising costs.
Philadelphia’s auto contacts mentioned a lack of technicians and a decrease in sales. It stated one contact said, “the conflict in the Middle East and higher fuel prices may be keeping consumers on the sidelines or pushing them to buy used vehicles.”
Chicago saw an increase in light vehicle sales with consumers paying closer attention to fuel economy.
St. Louis dealers experienced slow sales due to “limited inventory and cautious buyers.”
New York, Dallas, Atlanta, Cleveland, and Minneapolis also made mentions of slower new sales.
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Key takeaway: Several regions noted inflationary pressures from higher fuel prices, and overall prices are impacting sales, loan demand, and repair work.
The Cleveland Federal Reserve even stated that one of its bankers suggested, “auto loan demand had decreased because macroeconomic and geopolitical uncertainty were causing consumers to delay large purchases.”
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