On May 3, industry analysts are pumped up April 2016 to be the best April in history for car sales. Some analysts expect record sales for the entire year.
I doubted that then and I doubt that even more now.
Please consider an email from “FW” a 15-year electrician at Ford who chimes in with some relevant anecdotes and a more recently, a communication bulletin from the plant where he works.
On April 27, “FW” pinged me with these comments …
Hi Mish
Like I stated in my last email, I work for Ford. I work in a high volume assembly plant. We build Ford Escape and Lincoln MKC. We build over 700 vehicles a shift and work two 10 hour shifts a day. We also work a lot of Super Sundays (weekend extra production)
About month ago we went through model change. After the model change it is normal for the volume to go down in order to work out all unexpected problems. Also for the first 3 weeks of the new model we don`t ship any new cars to the dealers in case there is some issues discovered.Just now we starting back our normal volume and normal shipping.
I expected that once things go back to normal we will be working a lot of Super Sundays to make up lost production. I knew of at least 13 Super Sundays that were schedule in next few months. However I just learned from production manager that all 13 had been cancelled.
Maybe it is just the normal slow down and it will pick right back but I am not very confident.
Sincerely
FW
Letter From Plant Manager
Yesterday, FW forwarded me this.
Let’s Communicate!
Indeed, let’s communicate.
Sales are so hot, we need to cancel second and third quarter scheduled overtime.
US Auto Sales Back on Track? Another Record Year?
On May 3, I reported US Auto Sales Back on Track? Another Record Year?
Motor Vehicle Sales
“North American-made vehicle sales for April are running a little higher than March, at a 13.5 million annualized rate vs 13.3 million.”
Given that April had five full weekends, an extra selling day, and Easter came in March, is a 0.2% pickup over March for the big three such an amazing feat?
Record Sales?
Forget about it. GM sales were lower and Ford is canceling scheduled overtime shifts.
By the way, sales are recorded not when consumers buy cars and truck. Rather, sales are recorded when cars and trucks are shipped to dealers.
Inventory Piling Up
The lots are a cram packed with inventory piling up.
Not only are new car lots stuffed to the max, so are used car lots.
In case you missed it, please consider Peak Preowned: Used Car Inventory Hits Record Level; Congratulations, You Are Qualified.
To tie everything together, reader “FW” is the person who emailed me on April 10 asking How do I Short the Subprime Auto Sector?
Addendum:
I was not familiar with the term “door marmac losses”.
Here is the explanation: “It was a break down of the equipment that caused 8 hour shut down of the production.”
Mike “Mish” Shedlock
I heard a few months back that about 35% of all new car sales are actually leases. This means that at some point in the future (typically 2, 3 or 4 years), those leased cars are going to come back to the dealers and be resold.
Should leased cars be counted as a new car sale? I think not.
I worked in the industry… we actually consideted using the term “temporary sale” In the end, it doesn’ t really matter. They know they are creating the problem and prefer to live for todsy.
Yes, it’s a sale. The dealer makes money and then gets to sell it again in three years. The amount collected should be equal to or greater than the depreciation during the lease. The lease is based on list price, not cost. The economy sees affordable recent model used cars for sale, filling a specific need.
BTW, I feel smug. In early 2015 I bought a 2015 Subaru (Japanese) at a big discount. I think I hit the big yen BOJ discount at the time. The yen/$ was about 120 at the time. Thanks Kuroda. I saved thousands + on a loaded new car that’s rarely discounted much.
Many here forget an auto sale is when the finished vehicle hits the dealers lots. This is different then the sales from dealers.
Its not about what you can afford, its what you can finance. Used car prices are headed for the ditch, which includes a ton of leases. The used car dilemma will end up being the auto industry’s big problem.
LOL!! Used car prices are at or above Kelly blue book with no negotiation room. Literally this is the price take it or leave it. maybe they will take off the doc fee which is about $400 now in Massachusetts. Like with housing & rental apartments, it is definitely a sellers market in the new & used car market.
Remember to add the sales tax & dealer & registration fees. In NYC, sales tax is 8.875% on the purchase price.
Greg is right. You are wrong.
It is ALL about the financing. And when it Blows Up (it will) it will take used car prices with it.
Edmunds for 2015 has used car average term of 66.2 months @ $376/month
INSANE
Nick if you can pay cash fro a used vehicle it still talks. I bought a F150 and got 10k off the asking price on a used one. Cash actually sucks for new vehicles as they will not give the incentives you see on TV. They want it financed period. I was floored to be honest as we pay cash for our vehicles. We save money until we can afford one and walked in like we have done for decades to buy a new one and did not get squat so we bought a nice used vehicle. I have only bought Two new vehicles in my life. The wife and I thought buying a new one this time and it would be our last at our age. No deals period.
Greg, is there anything preventing the USA from becoming an exporter of used or pre-owned cars?
Also, would not the canceled overtime mean a higher profit margin per car manufactured? So, less volume but higher profit per car offsetting lower sales volume.
What country would want used US cars?
Other than that, nothing.
Mish
Maybe the Islamic State will buy only pick-ups….
Mish,
Compare this to vehicle inventory building up and the massive increase in using subprime lending for vehicle sales.
Walk or take the bus until gas comes down to thirty nine cents a gallon.
LOL. there aren’t any buses or even sidewalks in many suburbs. I live around 20 miles north west of boston. The closest train station is a good 20-30 minute walk. other than that even finding a cab takes 30-60 minutes to come
No problem Nick, just call Uber! or ~
Slick layout! Looks great!
That layout change was accidental
I am looking at a layout for a photography blog and accidentally set it here
Still not recovered correctly
I, for one, am not expecting more “encouraging” employment numbers tomorrow, and apparently neither is the bond market.
What will Zandi say then??
Following March’s payroll report he uttered his infamous ‘the economy is doing very well, ignore GDP’
If one traded on the information given by the insider Ford employee and internal memos then doesn’t that violate the SEC insider trading regulations?
Was not insider information – but if it was – yes
What I find perplexing in the Auto industry is the recent flurry of 20% cash back on new car purchases?
I hope you got permission to post that internal document with names on it…..
Short Credit Acceptance Corporation (ticker CACC). They specialize in used sub-prime auto loans. Elliott wave count indicates it is in about to have a VERY sharp price drop. They made these loans under the assumption depreciation of used cars would be MUCH less. With a glut of off-lease vehicles, there is less value backing CACC’s subprime loans.
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My guess is that new car requirements and cheap financing for drivers joining Uber, Lyft, ect., has provided a meaningful demand for US autos over the past few years. This equipment ramp up for a significant size industry is unlikely to repeat in future years (especially if driver defaults on this cheap financing spike).
I know of at least 500,000 people who will be shopping for a new car in the next year or so, thanks to VW’s scandal. I happen to be one of them. I really hope I can put off the buyback or whatever happens to my TDI until the automobile market cools off a little.
In other news, the vehicle I’d like to replace it with, the new Honda Ridgeline, is nowhere to be found on US soil (except maybe at the factory). It was supposed to be available by now. Perhaps they need to “rework” the software on their emissions control system?
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Mish,
I was at a Ford dealer in Sarasota FL on March 31 at 6 PM to buy a Ford Escape. This dealership is owned by Congressional Rep. Vern Buchanan.
I got a hell of a deal on a 2016 Ford Escape plus a great offer on my trade. I didn’t hardly have to deal. Very unusual after years of experience buying cars. They needed to make that last day of the quarter sale for sure. I think that showed that sales were slow and they needed sales at whatever the cost to make quarterly numbers to get their kickbacks from Ford. Then this article suggesting they will be slowing production and not needing to have makeup hours or any overtime! Both these suggest to me they are seeing slower sales overall. Future sales numbers will be interesting to say the least! Alan
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