By: Craig Bowles
The leading automakers are scheduled to report monthly sales on Friday, December 1st.
- Automakers are expected to report a 17.1 to 17.8 mln seasonally adjusted annual rate (SAAR) for November sales, so the range of expectations is unusually wide for the month. “The hurricane-impacted regions had replacement demand that boosted the last two months that should be fulfilled at this point,” according to Kelley Blue Book. Edmunds is more optimistic saying, “Black Friday bargains ran throughout the entire month of November. Automakers are starting to really sweeten the deals to clear out lingering 2017s and end this year on a high note.”
- Results for November 2017 have 25 selling days, same as in November 2016.
- Gasoline prices had moved up to around $2.40/gallon in April and May for a seasonal peak before falling to $2.23 by the end of June. (Current is back up to $2.50.) February 2016 was $1.70/gallon. (AAA)
- Kelley Blue Book expects slowing of 1.5% to 3% in 2017, so narrows their expected sales range to 17.0 to 17.2 million. Rising supply and interest rate hikes remain areas of worry. Off-lease vehicles are returning to the market as low mileage, relatively-new used vehicles. According to Cox Automotive data, 3.6 million lease vehicles will return to the market in 2017, up from 3.0 million in 2016. The fastest-rising class of loans is now 73–84 months and already at nearly 1/3 of new vehicle loans. Interest rates on new-vehicle loans fell to a six-month low in July. (Edmunds)
- Auto loan defaults have been rising since 2014. (Bloomberg.com) US credit card debt has surpassed the financial crisis record. (zerohedge.com) Used car prices at record highs. (Edmunds) New car prices reach all-time high as average loan term nears 70 months. (Edmunds)
- 2016 was the seventh consecutive year of annual growth and the auto 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 stock prices had been flat-to-lower since the end of 2013 despite strong sales, but GM has now pushed higher. Zero Hedge has pointed out 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 show inflation indicators similar to the leading economic indicators and lagging indicators (includes services inflation and debt) still outpacing the actual economy. Growth rates: Leading Economic Index 5.7%, Leading Inflation Index 5.5%, Lagging Economic Index 2.3%, Coincident Economic Index 2.0%.
Ford Motor (F) Expected Release Time: 9:15 a.m. ET
Overview: Ford Motor (F) and China’s Zotye will invest a combined $756 million in a joint venture in China to build electric passenger vehicles. Ford saw EU car registrations rise 5.9% Y/Y to 1,169,672 in October despite a 12% drop in the U.K. Ford’s Executive VP and President of Global Operations Joseph Hinrichs noted that Ford cannot continue its current cost-structure if it wants to achieve the margins it aspires to have. Part of this solution is to exit certain assets quickly so that it can refocus its efforts elsewhere. Expectations are for earnings to be 50% lower over the next 12 to 18 months due to heavy spending on the car of the future and more use of data-collection tools. Ford had a 72-day supply of vehicles as of October 1 but that moved up to 79 days by November 1. (Ford.com) RBC doesn’t expect CEO Hackett “the change agent” to impact more than cost cutting until at least 2019 or 2020 as the company is still very early in a turnaround. Management has been reshuffled but everything takes time in this industry.
Technical Review: Ford shares have been trending lower but are testing a trend change. Seasonally, auto stocks favor the first half of the year after February. The stock has shown limited duration above $12.50 the last two years. (Chart courtesy of StockCharts.com)
Edmunds.com: 4.9% (Source: Edmunds.com)
Kelley Blue Book: 1.8% (Source: KBB.com)
General Motors (GM) Expected Release Time: 9:30 a.m. ET
Overview: General Motors (GM) plans to launch a new family of electric vehicles in 2021 with batteries that will cost about 30 percent less than those used on the current Chevrolet Bolt. GM will bring three fully electric vehicles to the market in the next 18 months, two new fully electric crossover models to the market by 2020 and will eventually be able to manufacture its own batteries for the models. Pension obligations being underfunded by over $20 bln could complicate efforts to fix GM’s inefficient capital structure and unlock significant value for all shareholders. $3 billion in debt was issued to help with the pension problem which apparently is a part of new trend for pension strained companies. GM had a 104-day supply of vehicles as of August 1, the most since November 2007, and slashed that to 80 days by November 1. (GM.com) The company expects to get down to 70 days by year end. Guggenheim upgraded GM to Buy from Neutral citing an “increased comfort” around GM’s 2018 outlook and expectations for greater detail on its vision for autonomous vehicles (AV) at the company’s highly-anticipated November 30 event. (Barron’s.com)
Technical Review: GM shares had found resistance at around $38 since early 2011 but higher lows since 2015 finally helped push through resistance in September and October. GM and Ford stocks tend to move similarly but diverged since mid-2016 when GM’s stock became relatively strong. Such a lengthy divergence between the two stocks is unusual and possibly more fundamental. Looking at a 5-year chart comparison, GM has caught up with the uptrending S&P. Auto stocks outpaced the overall market in 1972, 1987, 1993 and the late 1990s but lagged as Ford is doing in 2007. 1986-87 similarly had leading inflation indicators showing strength and nobody was mentioning it on the financial news networks. (Chart courtesy of StockCharts.com)
Edmunds.com: 1.8% (Source: Edmunds.com)
Kelley Blue Book: -1.0% (Source: KBB.com)
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