North America

April Monthly Auto Sales Preview: Ford (F) and General Motors (GM)

By: Craig Bowles

The leading aut­omakers are scheduled to report monthly sales on Tuesday, May 2nd.

Summary:

  • Automakers are expected to report a 17.0 mln to 17.1 mln seasonally adjusted annual rate (SAAR) for April sales. “After a weaker-than-expected March, it’s becoming more likely that 2017 will be the first down year for the industry since 2009,” according to Kelley Blue Book. “Year-over-year declines may become more typical, but there’s no reason to panic,” assures Edmunds. A slowing auto sector would not be expected to spread to other parts of the economy but that’s what Bernanke thought in 2006 when the housing sector slowed. This is a negative of having a less diversified economy where everything is tied to the finance sector.
  • Results for April 2017 have 26 selling days, compared to 27 sales days in April 2016.
  • Gasoline prices in 2017 had been remaining close to $2.30/gallon but moved up the past month to $2.40/gallon. February 2016 was $1.70/gallon followed by an early June 2016 $2.38/gallon seasonal high. (AAA)
  • Kelley Blue Book expects slowing of 1 to 4 percent in 2017 with sales in the range of 16.8 to 17.3 million. Rising supply and interest rate hikes remain areas of worry. Another record in 2017 would likely require undisciplined sales tactics driven by incentives, leasing and longer loan terms. Goldman believes the US Auto cycle peaked in 2015 and is currently being held at a plateaued level by increasing incentives.
  • Industry incentives as a percentage of average transaction prices came to 11.2% in the first half of April. Morgan Stanley looked at 266 subprime auto ABS deals and found 60+ day delinquencies and default rates are soaring back to ‘great recession’ levels for prime and subprime auto securitizations. Lending Standards have tightened since Q2 2016. (zerohedge.com)
  • According to data from the Federal Reserve Bank of New York, the number of car loans delinquent by at least 30 days grew to $23.27 billion in the fourth quarter compared to the previous $23.46 billion high posted in the third quarter of 2008.
  • 2016 marked seven consecutive years of annual growth and the industry’s longest such streak in more than 50 years. The NY Fed’s report focusing on how a rate hike effects the auto industry suggests that a 1% increase in rates would cause car production to fall at a rate of 12% a year and sales to fall at 3.25% a year
  • US auto stocks are flat-to-lower for close to 3 years despite strong sales. Zero Hedge has pointed out the reason for this is that the automotive inventory-to-sales ratio has been rising since 2011. (StLouisFed.org) Goldman expects pent up auto demand from 2009 through 2012 to be cleared through by 2017 and forecasts a 15 mln SAAR by the end of the decade. U.S. composite economic indexes still aren’t healthy with the leading inflation index the strongest index and lagging indicators that include debt and services inflation outpacing the actual economy. Growth rates: Leading Inflation Index 5.6%, Leading Economic Index 4.4%, Lagging Economic Index 2.2%, Coincident Economic Index 2.0%.

 

Ford Motor (F)                                                                                                  Expected Release Time: 9:15 a.m. ET

Overview: Ford Motor (F) reported better than expected Q earnings results but net income fell 35% over the same year-ago period when demand was high for the redesigned F-150 pickup truck. Results included a $295 million recall expense covering nearly a half-million vehicles with fire risks and faulty door latches. Ford confirmed full-year operating guidance of $9 billion for 2017. China vehicle sales fell by 21 percent in the first quarter compared with a year ago, after a tax cut on small-engine vehicles was rolled back.

Technical Review: Ford shares found resistance around the $17 level in 2013 and 2014. Since then, the down trending 200-day moving average area has acted as a magnet. Seasonally, auto stocks favor the first half of the year after February, so recent weakness is atypical.  Point and figure charts show a massive diamond patter since 2010 is showing signs of breaking down. (Chart courtesy of StockCharts.com)

fC 

Estimates y/y

Edmunds.com:      -5.8%    (Source: Edmunds.com)

Kelley Blue Book:  -5.5% (Source: KBB.com)

True Car:                -x.x% (Source: TrueCar.com)

Average:                 -5.7%

 

General Motors (GM)                                                                                              Expected Release Time: 9:30 a.m. ET

Overview: General Motors (GM) earnings (like Ford Motor and Fiat Chrysler) beat Wall Street’s expectations.  GM’s inventory is a worry with a 98-day supply of vehicles, versus 71 days a year earlier. The worry is that high inventories could start a price war similar to what happened in 2007. Venezuelan authorities unexpectedly took over GM’s plant, so 2,700 workers were laid off. General Motors plans to test thousands of driverless cars in 2018. The Supreme Court has denied General Motors’ legal efforts to use its 2009 bankruptcy to block lawsuits over injuries and financial losses related to the carmaker’s long-ignored ignition switch defect. The company plans to launch 10 new electric vehicle models in China by 2020. Greenlight Capital would like GM to consider two classes of shares: a “Dividend Share” that would have one-tenth of a vote per share and a “Capital Appreciation Share” that would have one vote per share.

Technical Review: GM shares have found resistance at around $38 since early 2011 and did so again in Q1. GM and Ford stocks tend to move similarly. Looking at a 5-year chart, GM has shown more enthusiasm on upward moves but links back up with Ford on the declines. GM’s stock has been relatively strong since late July 2016. Such a lengthy divergence between the two stocks is unusual and possibly more fundamental. Point and figure charts show balance area support centered around $31. (Chart courtesy of StockCharts.com)

gmC

Estimates y/y

Edmunds.com:          -3.7% (Source: Edmunds.com)

Kelley Blue Book:      -0.6% (Source: KBB.com)

True Car:                     x.x% (Source: TrueCar.com)

Average:                  -2.2%

 

 

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