Wednesday, May 25, 2016

Crucial Point

With the loss of quality manufacturing jobs each month and year, car sales become a point of concern. The revived auto-manufacturing industry and the ability to sell those vehicles has been the one true bright spot in our economy.
rose pass 17.4m in 2015 after a strong 16.4m in 2014. The new kid on the block, Tesla had a breakout response for deposits on its Model 3. However, it faces many problems among which is the ability to get the product to the customer. It lacks dealerships. The nation lacks refuel infrastructure for electric cars. In addition, the new ramp-up will be a logistical nightmare. I do wish Musk well. He'll need it. By the way, Tesla diluted the value of its shares by issuing more to raise money to increase production.
This year appears to be a solid year, but projections of 18m units sold will fall far short of expectations. I believe another 16m vehicles will be achievable. One thing the auto industry has going for it is the fact that the average age of cars on US roads is 11.4 years old.
Having said that, there are quite a few other problems.
at dealerships are building above normal and wrinkles are forming on far heads. This is nothing new for dealerships. Car sales are a lot like the oil business - boom and bust. The present solution has Mike Jackson, CEO of AutoNation, in fits. He has spoken out against auto leasing to reduce inventory and create sales. He knows those same vehicles will return in one to three years to form a glut and competition for new car sales. According to, leasing accounts for 31.3% of all new car sales in March 2016 and 31% of all auto borrowers have negative equity in their vehicle. This is similar to the financial housing crisis when homeowners owed more than their home was worth.
Time Payments
the value of outstanding auto loans rose pass $1T in the first quarter. If those same customers get a flat, the repercussions of loan defaults could effect not only the dealership, but banking and the nation. This is very troubling because consumers have over $952B in credit card debt. The only time credit card debt passed $1T, we had a recession in 2008. Together, this points to a tapped out consumer.
Leasing sales is a tough problem. It is good because it keeps the manufacturing side busy by providing work. However, it clouds the horizon for the industry and nation. Dealers have 3.8m in inventory. This is the most in 10 years according to Wards Auto. Experian reports 1.8m leased cars will be returned this year. That means car deals will soon be forth-coming. Dealers need to make space for the 2017s.
Another problem is the duration of time payments with sales. Too many deals call for 84 monthly installments. When fully paid, the vehicle will be old with too many miles under the hood. Like I said, this bright spot in our economy is reaching an inflection point. If the wrong consequences come about from this leasing policy and lengthy payment plan, the industry could suffer as well as the economy.