By: Craig Bowles
The leading automakers are scheduled to report monthly sales on Thursday, December 1st.
- Automakers are expected to report a 17.6 mln to 17.7 mln seasonally adjusted annual rate (SAAR) for November sales. If this month’s record forecast holds, December’s year-over-year sales only need to be flat to set a new annual record in 2016.
- Results for November 2016 have 25 selling days compared to 23 sales days in November 2015.
- Gasoline prices slipped from early June’s $2.38/gallon seasonal high to $2.14/gallon in July. We’re currently at $2.13/gallon. February 2016 was $1.70/gallon. (AAA)
- Kelley Blue Book sees a 17.3 mln to 17.5 mln unit range (down from their previous 17.4 mln to 17.8 mln). Rising supply and potential interest rate hikes remain areas of worry.
- Incentive spending for November was up 13% from a year ago, according to TrueCar. Ford incentive spending in November increased 23.0% y/y. GM incentive spending in November increased 12.7% y/y. Goldman believes the US Auto cycle peaked in 2015 and is currently being held at a plateaued level by increasing incentives.
- Car loan financing rates are coming off all-time historic lows, and average new loan term durations remain at or near all-time highs. There are roughly 265 mln light vehicles registered in the U.S. today compared to only 255 mln driving age people, or just over 1 car per driver, according to Zero Hedge.
- Edmunds reports a record 32% of car shoppers have negative equity on their trade-ins when they’re purchasing their next vehicle. These “upside down” shoppers had an average of $4,832 of negative equity at the time of trade-in, also a record.
- 2015 marked six 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
- U.S. 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 and has now risen to levels not seen since 2008. 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 are inverted with the leading inflation index the strongest index. Growth rates: Leading Inflation Index 5.7%, Lagging Economic Index 2.9%, Coincident Economic Index 1.5%, Leading Economic Index 1.4%. This is an unsustainable economic setup that is historically corrected by recession.
Ford Motor (F) Expected Release Time: 9:15 a.m. ET
Overview: Ford Motor (F) has said that auto sales plateaued and comparisons for the rest of the year are going to be really tough. Ford expects operating income to decline in 2017 as the automaker increases investment in electric and autonomous vehicles. Ford Credit 2017 profit guidance was lowered by $300 million to $1.5 billion. Ford halted one of two plants that build its top-selling F-150 pickup. Ford is reconsidering production moves to Mexico from Michigan and Kentucky following the surprise Trump election. Bill Ford’s taking advantage of what appears to be the President-elect’s open-door policy is encouraging. CFO Bob Shanks expects the Trump administration to slow regulation increases on fuel economy and emissions. The company had 93 days of supply of F-series pickups, which includes the F-150, at the end of September, up from 83 days a year earlier. October saw an overall vehicle inventory jump to 90 days from 80 in September. Q3 positives are expected to be offset in Q4.
Technical Review: Ford shares found resistance around the $17 level in 2013 and 2014. The 200-day moving average area has acted as a magnet the past two years and has quit trending lower. 2016 has found support at the $11.50 area. Seasonally, auto stocks favor the first half of the year. Point and figure technicians have a bearish price objective of $8.50 with a $13.50 downtrend line. (Chart courtesy of StockCharts.com)
Edmunds.com: 0.8% (Source: Edmunds.com)
Kelley Blue Book: 0.1% (Source: KBB.com)
True Car: 0.3% (Source: TrueCar.com)
General Motors (GM) Expected Release Time: 9:30 a.m. ET
Overview: General Motors (GM) is yielding 5% and the stock is priced at a 5.3 P/E multiple, so is tempting for investors. Similar to Ford, GM is cutting back production. They plan to cut 2000 jobs permanently and suspend the third shift at Lordstown, Ohio, and Lansing Grand River, Michigan production facilities in early 2017. The company said that it can make money if U.S. auto sales fall about 40 percent from today’s levels and affirmed its forecast for 2016 profit of up to $6.00 per share with expectations to exceed its cost-savings target of $5.5 billion by 2018. General Motors set aside $864 million for credit losses in the first half of 2016, up 14% from a year earlier. After 2016, the company will face incremental regulatory content driven additions on its upcoming truck refresh and Chevy Bolt launch. October year-over-year sales still showed negatives in their biggest lines with Chevrolet at -0.8% and GMC -6.2%. October saw vehicle inventories increase to 84 days from 79 in September. GM economists have expressed little interest in the business cycle and prefer to look 5 or even 10 years out when forecasting, so has been a weakness at economic turning points.
Technical Review: GM shares found resistance at around $38 in early 2011, at the end of 2013, and again in 2015. GM and Ford stocks both showed Q1 weakness the past couple of years into a February low and tend to move similarly. Ford’s stock is relatively weak since late July. Such divergence between the two stocks often precedes major moves in either direction. Point and figure technicians have a bullish price objective of $43 with trend line support at $29. (Chart courtesy of StockCharts.com)
Edmunds.com: 8.4% (Source: Edmunds.com)
Kelley Blue Book: 8.6% (Source: KBB.com)
True Car: 11.2% (Source: TrueCar.com)
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