Automotive

The sorry tale of US auto makers in Japan

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It isn’t new news. American leaders have often complained at the Japanese for not buying more American cars. The sad reality is that most American cars are totally unsuited to the narrow streets in the land of the rising sun. Last year, Chrysler sold 240 cars, Cadillac 585 and Chevy 593. Jeep, to its credit sold a compact SUV into Japan and sold 9,745 cars. Toyota sold 2.45mn cars in the US last year. Nissan 1.56mn and Honda 1.64mn. What is the best selling US brand in Japan? Harley Davidson – it imported 10,766 bikes last year approximately half the total of foreign imported motorcycles sold in Japan in 2016 above 251cc.

We shouldn’t forget that Ford pulled out of Japan several years back as the low volumes couldn’t justify it. Don’t think that the Japanese hate imported cars:

Mercedes-Benz was Japan’s No.1 import brand selling 67,386 units, BMW at 50,571 and Volkswagen at 47,234. By model, the top-selling import in 2016 was BMW’s Mini with 24,548 units. Volkswagen’s Golf at 22,802 deliveries, followed by the Mercedes-Benz C-Class (17,760); BMW 3-Series (11,947) and VW Polo (10,903). Surprise surprise- all at the lower end of the size spectrum.

 

Tesla – zero emissions and zero registrations

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An eagle eyed reader spotted this article in the South China Morning Post today showing that private EV registrations in Hong Kong fell to ZERO in April 2017 from 2,964 in March. The SCMP noted; “Since the April 1 introduction of the first registration tax on EVs, vehicle prices have shot up by 50 to 80 per cent, depending on the model, with tax relief now capped at HK$97,500. A Tesla S was HK$570,000 (under the new tax regime, the price is more than HK$900,000)…the domination of Tesla means zero-emissions motoring in Hong Kong has been largely an elitist activity.” HK is 6% of Tesla’s global volume yet the share price is pricing in blue sky.

Yet more evidence that Tesla product can’t stand on its own without massive subsidies. In previous Tesla dispatches the argument has been the car is an ostentatious fashion accessory to show the world one’s commitment to climate change but only if the price is right.

Repossession by remote

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A growing number of car loans in the US are being pushed further down the repayment line as much as 84 months. In the new car market the percentage of 73-84-month loans is 33.8%, triple the level of 2009. Even 10% of 2010 model year bangers are being bought on 84 month term loans. The US ended 2016 with c.$1.2 trillion in outstanding auto loan debt, up 9%YoY and 13% above the pre-crisis peak in 2005.

Why is this happening? Mortgage regulations tightened after 2008 to prevent financial lenders from writing predatory loans, especially sub prime. Auto lending attracts far less scrutiny. Hence the following table looks like it does with respect to outstanding accounts on loans

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Sub Prime auto loans, at all time records, make up 25% of the total. Devices installed in cars let collection agencies repossess vehicles by remote when the borrower falls behind on repayment. This lowers risk and allows these long dated loan products to thrive. Average subprime auto loans carry 10% p.a. interest rates. More than 6 million American consumers are at least 90 days late on their car loan repayments, according to the Federal Reserve Bank of New York.

While it is true that $1.2 trillion auto loan book pales into insignificance versus the $10 trillion in mortgage debt at the time of the GFC, a slowdown in auto sales (happening now) isn’t helpful. The auto industry directly and indirectly employs c. 10% of the workforce and slowing new and used car sales will just put more pressure on prices further lifting the risk of repossessions

It is worth reminding ourselves the following.

Last month the Fed published its 2016 update on household financial wellbeing. To sum up:

“44%. This is actually an improvement on the 2015 survey that said 47% of Americans can’t raise $400 in an emergency without selling something. The consistency is the frightening part. The survey in 2013 showed 50% were under the $400 pressure line. Of the group that could not raise the cash, 45% said they would go further in debt and use a credit card to pay It off over time. while 25% would borrow from friends or family, 27% would forgo the emergency while the balance would turn to selling items or using a payday loan to get by. The report also noted just under a quarter of adults are not able to pay all of their current month’s bills in full while 25% reported skipping medical treatments due to the high cost in the prior year. Additionally, 28% of adults who haven’t retired yet reported to being largely unprepared, indicating no retirement savings or pension whatsoever. Welcome to a gigantic problem ahead. Not to mention the massive unfunded liabilities in the public pension system which in certain cases has seen staff retire early so they can get a lump sum before it folds.”

If only this perpetual debt cycle could be stopped via remote. Someone else’s problem one would suggest.

Little Chef Tokyo style

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This is what a highway service area looks like in Tokyo. This is Hanyu SA in Saitama. Is it any wonder some people actually do trips where the main purpose is to stop off at unique parking spots.

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US auto inventory highest at any point excluding GFC

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US auto sales didn’t blow the doors off in March. As discussed in Sunday’s “New cars for 40% off” auto makers are struggling. One dealer has chopped prices for some models from 40% to 46% in the last few days. Ford sales down 7.2%YoY, Chrysler down 33.1%YoY and GM managed a paltry 1.9%. Hyundai and Kia were down 10% and 15% respectively. For all makers click here. Despite some of the highest level of incentives, auto inventories are at the highest point at any time excluding GFC. Used car prices have fallen the most in any recorded month since Nov 2008. Loan maturities hit a new record of almost 67 months.

“Looking for a new car? This maybe last year’s model but it’s new and 46% off (this was 40% off two days ago). I recall seeing such lunatic deals the last time we headed for a collapse in auto sales. Mac Haik Ford in Houston is practically giving cars away. Even some of the 2017 models are getting chunky discounts.”

The NADA Used Car Guide’s “seasonally adjusted used vehicle price index fell for the eighth straight month, declining 3.8% from January to 110.1. The drop was by far the worst recorded for any month since November 2008 as the result of a recession-related 5.6% tumble. February’s index gure was also 8% below February 2016’s 119.4 result and marked the index’s lowest level since September 2010.”

WolfStreet noted “Used vehicle wholesale prices determine the value of the collateral for $1.11 trillion in auto loans that have boomed on higher prices, higher unit sales, longer maturities (the average hit a new record of 66.5 months in Q4), and higher loan-to-value ratios (negative equity)”

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Just another sign of tapped out consumers and the ineffective recovery where the can has just been kicked down the road. Payback will be a bitch.

ZeroHedge wrote:

“If GM piles on incentives at this rate three months in a row, it would spend nearly $4 billion on incentives, in just that quarter, just in the US alone. How much dough is that for GM? In Q1 2015, GM reported global net income of $2.0 billion. In Q1 2015, it reported global net income of $0.9 billion. These incentives can eat an automaker’s lunch in no time. And they did in the years before the industry collapsed during the Great Recession.”

New cars for 40% off

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Looking for a new car? This maybe last year’s model but it’s new and 40% off. I recall seeing such lunatic deals the last time we headed for a collapse in auto sales. Mac Haik Ford in Houston is practically giving it away.  Even some of the 2017 models are getting chunky discounts.

Jim Glover Chevy near Arkansas River is also trying to shift 2016 metal. Why buy used when a 2016 new Malibu is $7,000 off?

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Chrysler is also chucking discounts left, right and centre. Northwest Dodge Houston is taking $14,000 off new Rams.

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ZeroHedge wrote:

If GM piles on incentives at this rate three months in a row, it would spend nearly $4 billion on incentives, in just that quarter, just in the US alone. How much dough is that for GM? In Q1 2015, GM reported global net income of $2.0 billion. In Q1 2015, it reported global net income of $0.9 billion. These incentives can eat an automaker’s lunch in no time. And they did in the years before the industry collapsed during the Great Recession.”

The National Automotive Dealer Association (NADA), a division of JD Power wrote,

Manufacturers dialed up incentive spending 18% last month to help reduce new vehicle inventory levels that are at a decade-plus high.”

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The NADA Used Car Guide’s “seasonally adjusted used vehicle price index fell for the eighth straight month, declining 3.8% from January to 110.1. The drop was by far the worst recorded for any month since November 2008 as the result of a recession-related 5.6% tumble. February’s index gure was also 8% below February 2016’s 119.4 result and marked the index’s lowest level since September 2010.”

WolfStreet noted “Used vehicle wholesale prices determine the value of the collateral for $1.11 trillion in auto loans that have boomed on higher prices, higher unit sales, longer maturities (the average hit a new record of 66.5 months in Q4), and higher loan-to-value ratios (negative equity)”

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It doesn’t bode well.

Tesla proves autonomous vehicles have a LONG way to go

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I’m not a believer in autonomously driven vehicles. This idea that a computer, if pre programmed, can outsmart a human. Sure, the raft of new safety features (auto brake assist) and lane assist control etc can help in situations when people cruising at brain dead slow speeds are busy texting and checking FB. Yet, there is a point where these systems are dangerous. I have driven cars with them and there have been times where the car outputs are the exact opposite of my inputs. It is unsettling and downright dangerous so I tend to switch these aids off. This excerpt from the Tesla Owners forum on FB shows how the latest and greatest auto-pilot function is flummoxed by such a simple situation. Read on.

Found a bug in 8.1 the hard way. Ruined two rims after 15 minutes of use.
That’s what happened yesterday: I started the AP on a smaller street with a sidewalk with a curb on the right. There was no line on the street next to the curb, but a line for bicycles on the sidewalk. The AP then suddenly pulled right, as it was irritated by the line on the sidewalk and ignored the curb. The rims touched the curb before I was able to react, even though I had my hands at the steering wheel…I already posted this in a German group yesterday and some people told me they had the same situation, but were able to react before it was too late.”

The idea that people put complete faith in auto-pilot systems is a worry. By the same token more advanced systems are supposed to use inbuilt algorithms to determine whether to swerve away from the kid on a BMX bike doing skids on the sidewalks toward the edge of the kerb braking as late as he dares and an old lady on a crossing 5 meters further on. The system may choose to sacrifice you the driver, err sorry passenger. While there is no doubt autonomous systems will continue to get better, would you prefer your airline pilot to be limited to a computer software program only or would you prefer a human in the cockpit who can assess the situation in real time?

Maybe I’m too analog. A fuddy-duddy that refuses to accept the future. I don’t think I’m alone but one day more people will grow tired of an app-driven existence. Life will become too boring and they’ll soul search for more tactile experiences. I was tinkering in the garage on my bikes fitting new parts, tyres, cleaning chains and doing oil changes. There is a something to be said about zen and the art of motorcycle maintenance. I was completely at peace after completing these analog tasks because it requires a focus that can’t be found in a 15 second swipe of an app.