Quantifying the auto sales misses we’ve been seeing all day, Autodata said vehicle sales totaled 16.88mm SAAR vs their estimate of 17.1mm. Ward’s said it was 16.81mm. Either way, these figures compare with 17.46mm seen in April 2016 and the trend is becoming more clear that the auto sales top is in for this cycle. GM said they finished April with 100 days of inventories on dealer lots vs 98 in March and up from 71 in April 2016. Ford’s inventories were better controlled as they totaled 83 days (gross stock which includes in transit) vs 80 in March but down from 87 in April 2016. There is no question that much of this buildup are sedan’s but Ford in particular had more days supply of trucks than they did of cars. SUV inventories remained steady.
Last week JD Power said “Total incentive spending in the marketplace stands at $16.4 billion through April, up 13% from last year. On a per unit basis, spending for the average new vehicle through April was $3,814, up $460 from a year ago. On trucks and SUVs, spending was $3,740, up $578, while on cars, spending was $3,938, up $308.” They went on to say “Despite record incentive levels, average days to turn continues to rise. Nearly 30% of vehicles sold in 2017 sat on dealer lots for over 90 days, up from 27% last year. With flat retail demand and inventory at record levels, manufacturers will continue to face a difficult choice between maintaining elevated incentives or making production cuts.”
Bottom line, zero rates pulled forward a lot of sales from the future and the future is now here with the hangover. I’m not going to venture to guess yet if it will be a mild one or something more but it’s here either way. The industry stretched out payment maturities at historically low rates to plenty of unworthy borrowers and now we have a multitude of cars that are worth less than the loans on them as used car prices fall as many leases come due. I’ve seen estimates that about 5% of the US workforce touch the auto sector in some way.
Here is a chart on capacity utilization in the auto sector:
General Motors (GM) 6 months:
Ford (F) 6 Months:
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.