By: Craig Bowles
The leading automakers are scheduled to report monthly sales on Tuesday, October 3rd.
- Automakers are expected to report a 17.5 mln seasonally adjusted annual rate (SAAR) for September sales, down from 17.6 million in September 2016. September will be another opportunity for the first sales increase of the year driven by replacement demand for vehicles destroyed by major hurricanes that devastated parts of Texas and Florida. August 2017 was the sixth month in a row under 17 million SAAR, the longest period since a six-month streak from September 2014 through February 2015, according to Kelley Blue Book. (Spring and summer have historically been strong months.)
- Results for September 2017 have 26 selling days compared to 25 days in September 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 $2.57) 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 headwind facing the industry is 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 made a new second quarter record high. (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 are flat-to-lower since the end of 2013 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 show an improved setup except for lagging indicators that includes services inflation and debt outpacing the actual economy. Growth rates: Leading Economic Index 4.6%, Leading Inflation Index 3.5%, Lagging Economic Index 2.4%, Coincident Economic Index 2.1%.
Ford Motor (F) Expected Release Time: 9:15 a.m. ET
Overview: Ford Motor (F) Q2 earnings beat analyst expectations due to a lower-than-expected tax rate (10% versus 30%). Rising prices helped the F-Series truck sales drive profits but this is unsustainable with price increases running at five times the industry average during the quarter. Ford plans to idle five North American vehicle assembly plants for a total of 10 weeks to reduce inventories. The factories involved employ more than 15,000 people. Expect earnings to be 50% lower over the next 18 to 24 months, heavy spending on the car of the future, and more use of data-collection tools. Ford had an 81-day supply of vehicles as of September 1, up from 77 days the prior month. (Ford.com) Ford announced in May that they would cut 10% of their global workforce. Ford and GM produce around 40 vehicles per employee. Twenty years ago, a GM-Toyota joint venture produced 74 vehicles per worker. Tesla’s automation allows them to produce only 10 vehicles per worker.
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 Ford’s weakness this year was atypical. Point and figure charts show that a massive diamond patter since 2010. Moving above $12.25 would break the downtrend line. (Chart courtesy of StockCharts.com)
Edmunds.com: 4.7% (Source: Edmunds.com)
Kelley Blue Book: 2.7% (Source: KBB.com)
True Car: x.x% (Source: TrueCar.com)
General Motors (GM) Expected Release Time: 9:30 a.m. ET
Overview: General Motors (GM) is making progress on reducing inventory and Barclays expects an inevitable incentive push in the coming months (especially in large pickups). Plans are to cut production by 150,000 cars during the second half of the year. GM took its 2017 SAAR guidance from mid-17 mln to low 17 mln. The company is considering killing production of some slower-selling cars, such as the Chevy Sonic, which is built at the automaker’s Orion plant in Michigan. Deutsche Bank believes the low valuation of General Motors will bring more pressure from activists to potentially to spin off the better growth businesses. 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 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 88 days by September 1. (GM.com) The worry is that high inventories could start a price war similar to what happened in 2007. General Motors plans to test thousands of driverless cars in 2018. The Supreme Court 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. India’s GM dealers are threatening to sue if not adequately compensated for being forced to close by year-end.
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. The stock found resistance at $41 in late 2013, so this is the first attempt at that level since. 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 2-year chart comparison, GM has caught up with the uptrending S&P similar to late 2016, so upside potential for the next six months would be limited if recent history is any indication. (Chart courtesy of StockCharts.com)
Edmunds.com: 7.4% (Source: Edmunds.com)
Kelley Blue Book: 7.7% (Source: KBB.com)
True Car: x.x% (Source: TrueCar.com)
DISCLAIMER: By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.