2026 Q2 IAA Industry Report

Section One: Sectional Summaries

Economic Summary

The U.S. economy entered Q2 2026 with positive underlying momentum.¹ Real GDP increased at an annual rate of 1.5 percent in the second quarter of 2026, down from 2.1 percent in Q1, indicating continued expansion but a slower headline pace.¹ The Philadelphia Fed Survey of Professional Forecasters placed Q2 real GDP growth at 2.1 percent annualized.³ Inflation became more volatile during the quarter, rising 3.8 percent year-over-year in April, 4.2 percent in May, and then slowing to 3.5 percent in June as energy prices retreated late in the quarter.^4-6 Labor-market conditions cooled, with June payrolls up only 57,000, the unemployment rate at 4.2 percent, and average hourly earnings up 3.5 percent year-over-year.⁷ The Federal Reserve held the target range for the federal funds rate at 3.5 to 3.75 percent in June, leaving the economy in a policy-sensitive environment where inflation, oil prices, and labor softness all matter for vehicle affordability.⁸

Automotive Summary

The U.S. auto market remained resilient in Q2 even as affordability, financing costs, and energy-price volatility pressured buyers.⁹ Cox Automotive indicated that June new-vehicle sales likely reached 1.36 million units, up 7.2 percent year-over-year, and that the June Seasonally Adjusted Annual Rate (SAAR) likely finished near 16.5 million.⁹ Federal Reserve Bank of St. Louis (FRED) data shows May total vehicle sales at 16.506 million SAAR, confirming that the market held near a mid-16 million selling pace through the middle of the quarter.¹⁰ Average transaction prices remained high but broadly contained.¹¹ Wholesale used-vehicle prices normalized after the Q1 spring surge, with the Manheim Used Vehicle Value Index at 212.9 in June, up 2.1 percent year-over-year and 0.1 percent from May.¹²

Salvage and Metals Summary

The salvage and metals complex remained value-supportive but cost-sensitive in Q2. Crushed auto-body prices stayed range-bound according to American Recycler data, indicating stability rather than a broad ferrous breakout.¹³ The main cost shock came from energy. Energy Information Administration (EIA) data shows that Brent crude averaged $103 per barrel in Q2 2026, compared with a July forecast path that expects lower prices later in 2026 as supply conditions improve.^14-15 Platinum group metals remained important for catalytic-converter and recovered-material economics. Johnson Matthey indicated strong PGM prices and a 2026 outlook in which platinum, ruthenium, and iridium remain in deficit while palladium and rhodium could move into small surpluses.^16-17

Electric Vehicle and Battery Summary

Electric Vehicle (EV) demand improved sequentially but remained below last year's incentive-supported market. Cox Automotive estimated Q2 EV sales at 247,226 units, up 14.7 percent from Q1 but down 20.5 percent year-over-year.¹⁸ June EV sales fell 15.2 percent from May and 27.8 percent year-over-year, and EVs represented 5.4 percent of total new-vehicle sales in June.¹⁹ Argonne data shows that plug-in electric vehicles reached 7.7 percent of monthly light-duty sales in June, suggesting that the broader plug-in category retained a meaningful share even as the pure EV market remained below 2025 levels.²⁰ Battery raw-material risk also remained central to salvage economics, with black mass payables, cobalt supply controls, nickel prices, and lithium pricing influencing the value of damaged EVs, hybrids, and recovered battery components.^21-22

Section Two: U.S. Economy

GDP and Growth Backdrop: Rebound, but Not a Clean Acceleration

Real GDP increased at an annual rate of 1.5 percent in the second quarter of 2026, down from 2.1 percent in Q1, indicating continued expansion but a slower headline pace.¹ The increase reflected gains in consumer spending, investment, and exports, partly offset by a decline in government spending, while imports increased and subtracted from GDP growth.¹ The deceleration from Q1 was driven by a downturn in government spending and slower growth in investment and exports, although consumer spending accelerated during the quarter. The stronger signal came from underlying private demand. Real final sales to private domestic purchasers, which combine consumer spending and gross private fixed investment, increased 3.9 percent in Q2, up from 1.7 percent in Q1.¹ This suggests that the private economy remained more resilient than the headline GDP number alone implies, supported by consumer spending and investment in equipment and intellectual property products.² The released estimates falls below the Philadelphia Fed's Q2 Survey of Professional Forecasters expected real GDP growth rate of 2.1 percent annualized rate in the quarter, implying the market is more exuberant.³ The economy remained resilient but less broad-based, with AI-related capital spending and business investment offsetting some drag from high energy costs and softer discretionary spending.³

Callouts:

Real GDP: +1.5% annualized in Q2 2026
Q1 real GDP: +2.1% annualized
Main Drag: Lower government spending and higher imports

Inflation: Energy Shock Remained in Q2

Inflation pressure intensified early in Q2 as CPI rose 3.8 percent year-over-year in April and 4.2 percent year-over-year in May.^5-6 The June release showed relief, with headline inflation declining 0.4 percent month-over-month and rising 3.5 percent year-over-year before seasonal adjustment.⁴ Energy remained the key swing factor: June energy prices were still up 15.7 percent year-over-year, and gasoline prices were up 26.7 percent year-over-year.⁴ Although June's headline inflation decline reduced near-term inflation pressure, year-over-year inflation remains above the Federal Reserve's 2 percent target, meaning rate decisions are likely to remain cautious and data-dependent, with policymakers balancing slower labor-market momentum against the risk that energy and tariff-related costs keep inflation elevated.⁴²

Callouts:

Inflation: CPI-U -0.4% MoM; +3.5% YoY in June
Gasoline index: +26.7% YoY in June

Labor Market Remains Steady as Job Growth Stalls

The labor market remained stable but clearly softer by the end of Q2. The Bureau of Labor Statistics data shows that non-farm payroll employment increased by only 57,000 in June, while the unemployment rate changed little at 4.2 percent.⁷ Average hourly earnings rose 0.3 percent in June to $37.64 and were up 3.5 percent over the year.⁷ The average workweek was unchanged at 34.3 hours, a sign that firms were moderating labor input without broad layoffs.⁷ However, the labor-force participation rate fell 0.3 percent to 61.5 in June, suggesting that the slight improvement in unemployment partly reflected fewer workers actively participating in the labor force rather than a broad strengthening in hiring.⁷ Job gains were also narrow, with healthcare continuing to add jobs but at a slower pace, reinforcing the view that hiring breadth weakened through the quarter.⁷ This mix is supportive of continued replacement activity but not strong enough to eliminate financing, insurance, and fuel-related affordability stress.

Callouts:

Payrolls: +57,000 in June
Unemployment: 4.2% in June
Labor-force participation rate: 61.5%, down 0.3 percentage point in June

Wage Growth Stays Positive, but Real Wage Cushion Remains Thin

Nominal wage growth remained positive in Q2 2026, but the real-income cushion stayed narrow as households continued to absorb earlier increases in energy, insurance, financing, and vehicle-ownership costs.²³ The Bureau of Labor Statistics data shows average hourly earnings for all private non-farm employees rose 0.3 percent in June to $37.64, leaving wages 3.5 percent above June 2025.²³ The average workweek was unchanged at 34.3 hours, so weekly earnings improved mainly through hourly wage gains rather than longer hours.²³ The inflation-adjusted picture was more mixed. BLS real earnings data show that real average hourly earnings increased 0.8 percent month-over-month in June, helped by the monthly decline in consumer prices, but were up only 0.1 percent year-over-year.²³ Real average weekly earnings rose 0.8 percent in June and 0.3 percent year-over-year, indicating that purchasing power improved at the end of the quarter but remained only marginally ahead of year-earlier levels.²³ The Atlanta Fed Wage Growth Tracker confirms that wage growth continued to cool from the stronger pace seen earlier in the cycle.²⁴ Median wage growth edged up to 3.6 percent in June from 3.5 percent in May but remained below the levels seen through much of 2025.²⁴ Job switchers still received a premium, with wage growth rising to 4.1 percent in June from 3.7 percent in May, while job stayers increased to 3.4 percent from 3.3 percent.²⁴ The key takeaway is that wages are still rising, but not fast enough to fully neutralize the cumulative pressure from auto loan rates, insurance premiums, repair costs, and energy volatility.^23,24 The labor market therefore remains supportive of baseline consumer spending, but affordability-sensitive buyers are still likely to delay purchases, trade down, or shift toward used vehicles, fuel-efficient models, and lower-cost repairable units.^23,24 This keeps the Q2 vehicle-demand environment resilient but uneven, with stronger purchasing capacity among higher-income households and job switchers, while lower- and middle-income buyers remain more exposed to financing and ownership-cost shocks.^23,24

Callouts:

Average hourly earnings: +0.3% MoM; +3.5% YoY in June
Real average hourly earnings: +0.8% MoM; +0.1% YoY in June
Atlanta Fed median wage growth: 3.6% in June, up from 3.5% in May
Job switchers: 4.1%; job stayers: 3.4% in June

Energy and Fuel: Q2 Price Shock Begins to Ease, but Fuel Remains a Cost Headwind

Gasoline and diesel prices remained elevated in Q2 2026, but the quarter ended with signs that the worst of the spring energy shock was beginning to ease.^14-15 The Energy Information Administration data show that U.S. retail gasoline prices climbed sharply in April as the earlier crude-oil spike passed through to pump prices, with regular gasoline averaging near the low $4 during the quarter before moving lower as crude prices retreated in June.^{14, 25} EIA's petroleum products outlook projected U.S. retail gasoline prices to average about $3.70 per gallon in 2026, up from $3.10 per gallon in 2025, while diesel prices were projected to average about $4.80 per gallon in 2026, reflecting continued tightness in refined-product markets even as crude prices moderated.²⁵ Crude oil markets were highly volatile during Q2.¹⁵ Brent crude averaged roughly $103 per barrel in Q2 2026, reflecting the impact of earlier Middle East disruptions and risk premiums in global shipping routes.¹⁵ However, by June the market began to reprice lower as global supply conditions improved. EIA data shows Brent averaged $85 per barrel in June, down $22 per barrel from May and $32 per barrel from the April 2026 peak.^{15, 26} The EIA's July outlook also expected Brent to fall further to an average of $74 per barrel in Q3 2026, suggesting that the Q2 crude-price shock may have been transitory if oil flows continue normalizing and global inventories rebuild.¹⁴ The lower crude prices into June reduced some forward inflation pressure, but gasoline and diesel costs remained high enough to weigh on household budgets and buyer margins.

Callouts:

Brent crude: averaged about $103/barrel in Q2 2026.
Q3 outlook: EIA forecast Brent to average about $74/barrel in Q3 2026.

Section Three: Automotive Industry

New-Vehicle Sales: Resilient Volume Despite Cost Pressure

The new-vehicle market remained surprisingly resilient in Q2 2026, even as elevated borrowing costs, higher fuel prices, tariff uncertainty, and subdued consumer confidence continued to pressure affordability.⁹ Federal Reserve Bank of St. Louis data shows that total vehicle sales held in a narrow but firm range during the quarter, moving from 16.588 million SAAR in April to 16.506 million in May and 16.949 million in June.¹⁰ This implies a modest 0.5 percent month-over-month decline in May, followed by a 2.7 percent increase in June, leaving June sales roughly 2.2 percent above April levels.¹⁰ The Q2 average sales pace was approximately 16.68 million SAAR, stronger than the Q1 average and consistent with a market that stabilized after the volatility seen earlier in the year.¹⁰ Cox Automotive reported that June sales likely reached 1.36 million units, up 7.2 percent year-over-year, with the June SAAR finishing near 16.5 million and above the firm's initial forecast.⁹ Cox also noted that Q2 volume finished above the weather-impacted first quarter, although first-half 2026 sales were still tracking 3.6 percent below the prior year.⁹ The market's resilience appears to be supported by fleet activity, steadier retail demand, improved inventory availability, and household wealth effects from strong equity markets.⁹ However, Cox emphasized that affordability remains the central constraint, with elevated interest rates, higher essential costs, and tighter household budgets limiting purchasing power across income groups.⁹

The composition of demand also shifted in important ways during Q2. Toyota gained momentum as hybrid demand strengthened, with Cox estimating that Toyota's Q2 sales rose 18.8 percent from Q1, while General Motors remained the first-half volume leader but faced a narrower lead.⁹ Performance across automakers was uneven: Hyundai Motor Group continued to gain share, Stellantis improved after several years of weakness, while Ford and Tesla remained under pressure.⁹ Looking ahead, Cox Automotive left its full-year 2026 sales forecast unchanged at 15.8 million units, down 2.9 percent from 2025, suggesting that the market is likely to remain steady but not broadly expansionary.⁹

Callouts:

Q2 Average Sales Pace: Approximately 16.68 million SAAR
June Sales Volume: Approximately 1.36 million units, up 7.2% YoY
Cox Full-year 2026 Forecast: 15.8 million units, down 2.9% from 2025

Used-Vehicle Prices: Q2 Normalization After a Strong Spring

Wholesale used-vehicle values remained supportive in Q2 2026, but the market began to normalize after the sharp spring strength seen in March. Cox Automotive's Manheim Used Vehicle Value Index finished June at 212.9, up 2.1 percent year-over-year, but below the March reading of 215.3, indicating that wholesale values eased from the Q1 peak while still remaining above year-earlier levels.^{12, 27} Cox automative characterized Q2 as a return toward more normal seasonal patterns after a strong start to 2026, with wholesale values expected to follow a more typical depreciation path through the second half of the year.^{28, 29} The index stood at 212.6 in May, up 3.6 percent year-over-year, before rising slightly to 212.9 in June, when the year-over-year gain narrowed to 2.1 percent.³⁰ Mid-June data briefly showed a stronger reading of 213.9, up 0.6 percent from May during the first half of the month, but the final June print suggests that late-month depreciation and normalization offset part of that early strength.²⁹ Q2 remained a favorable but less overheated pricing environment for the auto market.^{12, 27-29} Wholesale values were still high enough to support recovery values, buyer confidence, and repairable-unit demand, but the easing from March suggests that ASP performance will depend more heavily on vehicle mix, mileage, damage severity, title status, transport cost, and buyer discipline.^{12, 27-29} The key implication is that the used-vehicle market is no longer delivering broad-based spring appreciation, but it continues to provide a supportive floor for salvage values as affordability pressures keep many consumers and dealers active in used-vehicle channels.¹²

Callout:

Manheim Used Vehicle Value Index: 212.9 in June; +2.1% YoY.

IAA's Insurance Average Selling Prices (ASPs) Increased 3.9% Year-Over-Year

Average Selling Price (ASP) increased 3.9% year-over-year while Actual Cash Value (ACV) increased just 0.4%, demonstrating our ability to deliver strong pricing outcomes in a relatively stable vehicle value environment. Auction optimization remains one of the greatest drivers of value across our marketplace. During the second quarter, we enhanced the IAA Sales Decision Center® by expanding recommendations and further increasing seller adoption of High Bidder First Offer and IAA Timed Auctions™.

Section Four: Economic Indicators of Automotive Salvage and Metals

Salvage Materials Remain Stable but Cost-Sensitive

Crushed whole auto-body prices remained broadly stable in Q2 2026, extending the stabilization pattern that began in late 2025 and carried through Q1.^{13, 31} American Recycler's Q2 market data indicates that average crushed auto-body prices were approximately 0.1 percent above the Q1 exit rate, effectively unchanged over the quarter.^{31, 13} Compared with the Q1 average, Q2 prices were roughly 0.2 percent lower, confirming that the market was range-bound rather than accelerating.³¹ On a year-over-year basis, Q2 crushed auto-body prices were about 1.5 percent below Q2 2025, but they remained approximately 3.3 percent above the Q4 2025 average, suggesting that the late-2025 floor has held.^{31, 32} The Q2 signal is therefore one of stabilization, not margin expansion: crushed auto-body prices are no longer falling sharply, but they are also not rising enough to create a broad ferrous-price tailwind for salvage economics.^{31, 32}

Copper and other automotive metals remained more exposed to trade, energy, and EV-related demand conditions than crushed auto bodies. American Recycler's Q2 metals coverage continued to point to uneven market conditions across ferrous and nonferrous categories, with policy uncertainty, transportation costs, and downstream industrial demand shaping scrap-market sentiment.³² This means the salvage sector entered the second half of 2026 with a firmer recovery-value floor, but with buyer margins still highly sensitive to logistics costs and metal-specific volatility.^{14, 32}

Callouts:

Q2 Average Versus Q2 2025: Approximately -1.5% year-over-year
Q2 Average Versus Q4 2025: approximately +3.3%
Market Tone: Stable and range-bound, not a broad ferrous-price breakout

Broader Metals: Automotive Metal Appreciation Remains Elevated

Automotive metals remained elevated in Q2 2026, but the price story became more divided across base metals, precious metals, and battery-related inputs.¹⁴ The World Bank data shows its metals and minerals price index rose 13 percent in Q1 2026 and extended gains into April, with aluminum, copper, and tin expected to reach record-high levels in 2026 because of tight supply and demand from data centers, electric vehicles, and renewable energy.^{33, 34} Aluminum and copper therefore remained important cost channels for automotive manufacturing, repair parts, wiring, lightweighting, and EV-related components.^{33, 35} Precious metals also remained a major salvage-value channel in Q2. Platinum and palladium prices stayed supported by geopolitical uncertainty, investor demand, and supply constraints, while automotive catalytic-converter demand continued to anchor their industrial relevance.^{16, 17} Reuters reported that metal prices increased 85 percent and sales volumes rose 18 percent, reinforcing the strength of the PGM price environment through June.³⁶ For salvage and dismantling, this means catalytic converters and other recoverable after treatment materials remained important contributors to vehicle recovery values, even as ferrous crushed auto-body prices stayed more range-bound.³⁶ The Q2 takeaway is that automotive metals did not move as one cycle. Ferrous salvage prices were stable, but aluminum, copper, platinum, and palladium remained more exposed to tariffs, supply constraints, electrification demand, and geopolitical risk.^{16-17, 21, 37}

Callouts:

Metals and minerals index: +13% in Q1 2026, with gains extending into April
PGM price environment: one PGM producer reported an approximately 85% increase in realized metal prices in the first half of 2026, per Reuters

Section Five: Electric Vehicles and Battery Materials

EV Sales Recover Sequentially, but Remain Below Incentive-Driven 2025 Levels

Electric vehicle sales improved in Q2 2026, but the market remained well below the incentive-driven pace reached before the federal tax credit expired.¹⁸ Cox Automotive estimated Q2 EV sales at 247, 226 units, up about 14 percent from Q1, marking the strongest quarter since the end of federal purchase-credit support.¹⁸ However, sales were still down 20.5 percent year-over-year, confirming that the market has stabilized sequentially but has not returned to the subsidy-supported demand levels of 2025.¹⁸ The monthly pattern remained uneven. Cox reported that June EV sales fell 15.2 percent from May and 27.8 percent from a year earlier, with June sales totaling 74,967 units.¹⁹ EVs accounted for roughly 5.4 percent of total new-vehicle sales in June, while EIA data shows battery electric vehicles made up about 6 percent of new light-duty vehicle sales in Q2, down from 7 percent in Q2 2025.^{19, 38} Plug-in hybrid share also softened, falling from 1.9 percent in Q2 2025 to 1.4 percent in Q2 2026.³⁸ EV demand has not collapsed, but it has become more selective. Buyers are responding less to broad federal incentives and more to pricing, leasing terms, model availability, charging convenience, fuel savings, and brand-level product execution.^18-19

Callouts:

Q2 EV Sales: 247,226 units
Quarter-over-quarter Change: Approximately +14% from Q1
Year-over-year change: -20.5% from Q2 2025

Production Cuts and Export Controls Keep Critical Metals Elevated

Critical metals remained a key cost and recovery-value channel in Q2 2026, but price behavior differed sharply across lithium, cobalt, and nickel.²¹ Lithium prices stayed well above year-earlier levels, even though prices softened late in the quarter.³⁹ Battery-grade lithium carbonate reached a three-month low near the end of June before rebounding in early July, with prices still roughly 99 percent higher than a year earlier.²¹ This suggests that the lithium market has moved out of the deep 2025 trough, but the recovery remains sensitive to Chinese demand, mine restarts, and investor positioning.^{21, 39}

Cobalt remained the clearest supply-driven price shock. Reuters reported that cobalt prices had surged 160 percent since February 2025 to about $26 per pound, or $57,320 per metric ton, as the Democratic Republic of Congo's export curbs squeezed global supply.⁴⁰ Congo also moved to withdraw unused January-to-June export quotas at the end of Q2 and reassign them to a strategic quota, keeping short-term supply pressure active.⁴⁰ Nickel prices were firmer than in 2025, but the market remained less bullish than lithium or cobalt. Nickel price has shifted into a new trading range of roughly $16,750 to $18,750 per ton, compared with about $14,000 to $16,000 through 2025, implying an approximate 18 percent increase based on range midpoints.⁴¹ However, the nickel market is expected to remain oversupplied until 2028, limiting the case for a sustained price breakout.⁴¹ The battery-metal markets remain strategically important for EV production and salvage recovery, ^21-22 but the strongest price pressure is concentrated in lithium and cobalt rather than across the entire battery-metal complex.^39-41

Callouts:

Lithium: Roughly +99% YoY by late July, after a late-Q2 price low
Cobalt: Roughly +160% since February 2025 due to DRC export curbs

Section Six: Looking Forward

U.S. Macro Baseline: Growth Holds, but the Expansion is Narrower

The U.S. economy entered the second half of 2026 with a baseline of continued but uneven expansion rather than outright recession.⁴² Because the official Q3 GDP advance estimate was scheduled for release after quarter-end, the clearest available signal is that economists expected Q2 and Q3 growth to remain positive, with consensus estimates near 1.8 percent annualized.⁴³ The Federal Reserve's July Monetary Policy Report noted that real GDP grew at a moderate 2.1 percent annual rate in Q1 and that inflation had risen during the year, partly because of supply shocks affecting sectors such as energy.⁴² This mix points to an economy that is still growing, but with less room for policy error than earlier in the expansion.⁴²

The household side of the economy remains divided. Job conditions are still supportive, with the unemployment rate at 4.2 percent in June, but wage growth is no longer strong enough to fully offset elevated financing, insurance, repair, and energy costs.⁴² For vehicle markets, this creates a two-speed demand environment: higher-income households and commercial buyers remain better positioned to absorb ownership costs, while lower- and middle-income buyers remain more likely to delay purchases, trade down, extend vehicle life, or shift toward used and repairable units.¹²

Scenario Risk: Inflation, Rates, Energy, and Consumer Liquidity

The main downside scenario for the second half of 2026 is not a collapse in demand, but a continuation of sticky inflation and tight household liquidity.⁴⁴ The Federal Reserve kept the federal funds target range at 3.5 to 3.75 percent in July, reflecting a policy environment in which inflation remains above target even as job gains have kept pace with the workforce.⁴⁴ This means interest-sensitive purchases, including vehicles, remain exposed to high borrowing costs.⁴⁴ If inflation remains elevated, the Fed has less room to ease policy quickly, which could keep auto loans, credit-card debt, and dealer floorplan financing expensive.⁴⁴

Energy risk improved late in Q2 but did not disappear. EIA reported that Brent crude averaged $85 per barrel in June, down $22 per barrel from May and $32 per barrel from the April peak.²⁵ EIA also expected lower crude prices to reduce U.S. retail gasoline prices in Q3 compared with Q2.¹⁴ However, Q2 fuel costs were still high enough to affect household budgets, towing, logistics, and parts distribution.²⁵ For the auto and salvage ecosystem, this means lower oil prices may reduce some inflation pressure, but diesel, freight, insurance, and repair costs can still compress buyer margins.²⁵

Tariff and policy uncertainty also remain important cost channels. Higher costs for imported vehicles, steel, aluminum, electronics, replacement parts, and battery components can keep transaction prices elevated even when headline vehicle sales remain resilient.¹² These pressures are especially important for salvage because repair decisions depend not only on vehicle value, but also on parts availability, labor costs, logistics, and the insurer's total-loss threshold.¹² In this environment, the most likely demand pattern is uneven rather than weak: buyers with stronger liquidity remain active, while price-sensitive buyers become more selective.¹²

Automotive and Salvage Outlook: Supportive Values, More Disciplined Bidding

The strongest support for salvage values continues to come from the used-vehicle market. Cox Automotive indicated that the Manheim Used Vehicle Value Index normalized in Q2 after a strong start to 2026, but wholesale values remained above year-earlier levels.¹² The June index finished at 212.9, up 2.1 percent year-over-year, indicating that wholesale prices eased from the March peak but still provided a supportive floor for recovery values.¹² Cox also showed that June sales conversion was 57.5 percent, which was 2.6 percentage points above the recent three-year June average, even though conversion eased from spring levels.²⁷ Three forces should shape Q3 and Q4 salvage outcomes. First, used-vehicle values remain supportive, but the market is no longer benefiting from broad spring appreciation.²⁷ Second, lower crude prices could reduce some household and logistics pressure, but diesel, insurance, repair, and financing costs remain important margin constraints.¹⁴ Third, commodity and EV-related recovery values remain strategically important as catalytic converters, copper, aluminum, batteries, and high-voltage components become larger drivers of unit-level recovery economics.¹²

Section Seven: Canadian Commentary

Weak but Improving Growth, Energy-Driven Inflation, and Cross-Border Risk

Canada's Q2 backdrop was weaker than the U.S., but showed signs of improvement by midyear. The Bank of Canada's July Monetary Policy Report stated that Canada's economy had been weak but was showing signs of improvement, with growth expected to pick up and inflation projected to ease toward 2 percent.⁴⁵ The Bank of Canada held its target overnight rate at 2.25 percent in July, with the Bank Rate at 2.5 percent and the deposit rate at 2.2 percent.⁴⁶ Statistics Canada indicated that CPI inflation cooled to 2.8 percent year-over-year in June, while CPI fell 0.4 percent month-over-month.⁴⁷ Canada's labor market improved late in Q2 2026, but the broader signal remains one of stabilization rather than strength. The unemployment rate rose to 6.9 percent in April as more workers searched for jobs, then fell to 6.6 percent in May and 6.5 percent in June, suggesting that labor-market conditions improved as the quarter progressed.⁴⁸ Employment gains were strongest in May, when Canada added 87,800 jobs, while June added a more modest 18,200 jobs and gains were concentrated in part-time work and service sectors such as accommodation and food services, wholesale, and retail trade.⁴⁹ Wage growth remained positive but cooled from earlier in the year: average hourly wages rose 4.5 percent year-over-year in April, slowed to 3.0 percent in May, and improved slightly to 3.3 percent in June.⁵⁰ Gasoline prices fell more than 10 percent month-over-month in June but remained 20.5 percent above year-earlier levels, keeping transport and household budget pressure relevant for auto and salvage markets.⁴⁷ Canadian vehicle sales were mixed: June sales totaled 182,000 units, up 1.9 percent year-over-year, while first half 2026 sales were down 2.6 percent.⁵¹ The outlook for Canadian salvage is therefore stable but sensitive to energy, exchange rates, cross-border transportation costs, and trade policy.^{45, 51}

Callouts:

Canada CPI: +2.8% YoY in June; -0.4% MoM
Policy Rate: 2.25% Target Overnight Rate
Gasoline: -10%+ MoM in June; +20.5% YoY
Vehicle Sales: June +1.9% YoY; H1 2026 -2.6%

Section Eight: United Kingdom Commentary

Service-Led Growth, Easing Inflation, and Stronger EV Registration Mix

The U.K. entered the middle of 2026 with modest but improving growth momentum, though the recovery remained uneven across sectors.⁵² The Office for National Statistics estimated that real GDP grew 0.7 percent in the three months to May 2026 compared with the three months to February, marking the sixth consecutive three-month expansion.⁵² GDP was 1.1 percent higher than the same three-month period a year earlier, with services up 1.5 percent, production up 0.3 percent, and construction down 1.4 percent.⁵² The U.K. unemployment rate stood at 4.9 percent for March to May 2026, indicating more slack than earlier in the cycle.⁵³ Payrolled employees fell by 90,000, or 0.3 percent, over the year in March to May 2026 and declined by 30,000, or 0.1 percent, over the quarter.⁵³ The early June payroll estimate showed a further year-over-year decline of 71,000, while the monthly change was broadly flat, suggesting that the labor market is weakening gradually rather than breaking sharply.⁵³ Wage growth also appears to be cooling, with recent reporting noting private-sector annual wage increases near 2.8 percent in Q2, reinforcing the view that household income growth is positive but no longer strong enough to fully offset borrowing, insurance, energy, and vehicle-ownership costs.⁵³

The Bank of England held Bank Rate at 3.75 percent in June, reflecting continued concern about inflation risk despite softer labor-market conditions.^{54, 55} U.K. vehicle demand improved in June, with The Society of Motor Manufacturers and Traders (SMMT) data showing 213, 166 total registrations, up 11.4 percent year-over-year and the strongest June result since 2019.⁵⁶ BEV registrations reached 63,950, up 35 percent year-over-year and equal to a 30 percent monthly market share.^{57, 58} For U.K. salvage markets, the outlook is cautiously constructive: stronger registrations and a higher EV mix support future auction and recovery activity, but softening employment, slower wage growth, elevated borrowing costs, energy risk, and EV repair complexity will continue to limit buyer risk appetite.^57-59

Callouts:

GDP: +0.7% in Three Months to May; +1.1% YoY
Bank Rate: 3.75%, held in June
Unemployment: 4.9% for March-May
Payrolled Employees: -90,000 YoY
June Registrations: 213,166, +11.4% YoY
BEV Registrations: 63,950, +35.0% YoY; 30.0% share

Third-Party Data Disclaimer:

This report contains data, statistics, forecasts, and commentary obtained from various third-party sources, including but not limited to Cox Automotive, the U.S. Bureau of Labor Statistics, the U.S. Energy Information Administration, the Federal Reserve, the International Monetary Fund, the World Bank, Statistics Canada, the Bank of Canada, the UK Office for National Statistics, Johnson Matthey, and other industry sources identified throughout this report. IAA has not independently verified the accuracy or completeness of such third-party information and makes no representation or warranty, express or implied, regarding the accuracy, completeness, timeliness, or reliability of any third-party data or forecasts contained herein. Third-party data and forecasts are subject to change without notice and may be based on assumptions, models, or methodologies that differ from those used by IAA. IAA does not control and is not responsible for the methodologies, assumptions, or conclusions of third-party sources. The inclusion of third-party information in this report does not constitute an endorsement by IAA of such information or the sources providing it. Readers should independently evaluate all third-party information and consult original sources where appropriate.

REFERENCES

1. https://www.bea.gov/news/2026/gdp-advance-estimate-2nd-quarter-2026

2. https://www.bea.gov/data/gdp/gross-domestic-product

3. https://www.philadelphiafed.org/surveys-and-data/real-time-data-research/spf-q2-2026

4. https://www.bls.gov/news.release/cpi.nr0.htm

5. https://www.bls.gov/news.release/archives/cpi_05122026.htm

6. https://www.bls.gov/news.release/archives/cpi_06102026.htm

7. https://www.bls.gov/news.release/empsit.nr0.htm

8. https://www.federalreserve.gov/newsevents/pressreleases/monetary20260617a.htm

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10. https://fred.stlouisfed.org/series/TOTALSA

11. https://www.coxautoinc.com/insights/june-2026-atp-report/

12. https://www.coxautoinc.com/insights/q2-2026-muvvi/

13. https://americanrecycler.com/metal-recycling/

14. https://www.eia.gov/outlooks/steo/

15. https://www.eia.gov/outlooks/steo/report/global_oil.php

16. https://matthey.com/products-and-markets/pgms-and-circularity/pgm-management

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19. https://www.coxautoinc.com/insights/ev-market-monitor-june-2026/

20. https://www.anl.gov/esia/light-duty-electric-drive-vehicles-monthly-sales-updates

21. https://www.fastmarkets.com/metals-and-mining/battery-raw-materials/brm-monthly-market-update-2026/

22. https://www.reuters.com/world/africa/glencore-expects-drc-cobalt-exports-normalise-line-with-2026-quotas-2026-04-30/

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28. https://www.coxautoinc.com/insights/manheim-used-vehicle-value-index-mid-may-2026-trends/

29. https://www.coxautoinc.com/insights/manheim-used-vehicle-value-index-mid-june-2026-trends/

30. https://www.coxautoinc.com/insights/manheim-used-vehicle-value-index-may-2026-trends/

31. https://americanrecycler.com/metal-recycling/scrap-metals-marketwatch-april-2026-copy/

32. https://americanrecycler.com/metal-recycling/scrap-metals-marketwatch-june-2026-2/

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36. https://www.reuters.com/world/africa/valterra-platinum-interim-profit-surges-higher-output-prices-2026-07-29/

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38. https://www.eia.gov/todayinenergy/detail.php?id=67885

39. https://tradingeconomics.com/commodity/lithium

40. https://www.reuters.com/world/africa/congo-withdraws-unused-cobalt-export-quotas-2026-06-29/

41. https://www.fastmarkets.com/metals-and-mining/base-metals/monthly-base-metals-market-update-2026/

42. https://www.federalreserve.gov/monetarypolicy/2026-07-mpr-summary.htm

43. https://www.marketwatch.com/story/economy-is-poised-to-show-strong-second-quarter-growth-but-only-after-a-look-under-the-hood-8fd3615d

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48. https://www150.statcan.gc.ca/n1/daily-quotidien/260508/dq260508a-eng.pdf

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51. https://www.marklines.com/en/statistics/flash_sales/automotive-sales-in-canada-by-month

52. https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/may2026

53. https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment

54. https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2026/june-2026

55. https://www.reuters.com/world/uk/bank-england-hold-steady-this-year-iran-war-inflation-risks-persist-2026-07-24/

56. https://www.smmt.co.uk/ev-market-hits-new-high-but-target-gap-remains/

57. https://www.reuters.com/world/uk/uk-new-car-sales-rise-11-june-prelim-smmt-data-shows-2026-07-06/

58. https://www.smmt.co.uk/vehicle-data/car-registrations/

59. https://www.smmt.co.uk/vehicle-data/electric-vehicle-registrations/