#usautosales

How many canaries in the coalmine do we need?

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CM has said for ages that President Trump risks being hoisted by his own petard if he continues to attribute the stock market to his leadership. It works both ways. Stock markets are suffering. Suck it up.

GM has announced it is pulling the plug on over 14,000 US workers (8,000 white collar, 3,300 blue-collar workers in Canada and another 2,600 in the US) and potentially closing  5 plants. Is this a surprise? The chart above shows the % year over year change of US car sales. It has been stepping down clearly since GFC. In September this year GM’s sales slumped 19% in before falling 5.5% in October. The brutal storm activity is unlikely to help November either.

This quote will live to haunt in the coming downturn – CEO Mary Barra said the company doesn’t predict an economic downturn any time soon and is making the cuts “to get in front of it while the company is strong and while the economy is strong,

50% of US corporations have a credit rating of BBB or less. We are at the sharp end of massive government sector recapitalization crowding out and companies with dodgy balance sheets (that have levered up to conduct massive buybacks to flatter EPS masking anemic earnings growth) won’t be given the same tight interest rate margin spreads come the next refinancing. Await the implosion.

Rising interest rates don’t help and credit markets wait like vultures over the likes of GE which is having a reality check over its $115bn of debt, negative equity and troubled restructuring. Credit rating downgrade have booted it from some funds so the stock is in the cross hairs. If it had any sense it would file for Chapter 11 to buy breathing space.

If you want to put some perspective on it, GE’s market cap in 2000 was $592bn and now is $65.8bn. Tesla is now worth $56bn.

GM is yet another canary in the coalmine

 

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.

 

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.”