Crisis Building in Auto Sector

Featuring Michael Lewitt, Daniel Ruiz, Grant Williams

The Big Story in the auto sector examines what’s behind the slide in used car prices, which are the foundation for an industry facing unprecedented challenges on the technology front, while sub prime delinquencies reach levels last seen in the great recession. With the help of industry analyst Daniel Ruiz and credit strategist Michael Lewitt, Grant Williams digs deep into the auto sector to see what the future holds and the likely impact for the US economy. Filmed on June 15 in the Cayman Islands and May 26,2017, in Arizona.

Published on
22 June, 2017
Topic
US Economy
Duration
39 minutes
Asset class
Equities
Rating
27

Comments

  • GG

    Glenn G.

    22 12 2017 03:57

    1       0

    "Crisis in the Auto Sector"....We are 6 months down the line from when that segment was originally produced and I would really like to see a follow up because the crisis certainly hasn't translated to the stock prices of HTZ, CAR, CACC, SC, GM, KMX....... they have rocketed up in fact in most cases over the last 6 months. What I would like to know is whether or not we are just fattening up these Christmas turkey or will we see a dramatic fall off with yearend earnings ? Following Daniel Ruiz's work and Twitter feed it seems that there is still lots of evidence of problems in the auto sector. Thanks in advance for any work that could be done on that.

  • yd

    yon d.

    10 11 2017 23:47

    0       0

    Grant is a great interviewer.....able to summarize his less articulate guests into a very coherent story.

  • TF

    Terry F.

    31 8 2017 08:36

    1       0

    Grant, I read today that approximately a half million vehicles were lost in Houston to the hurricane Harvey flooding. Those will need to be replaced (new and used), not to mention dealer inventories now under water (no pun intended). How might this affect one's decision to short GM or Ford?

    http://money.cnn.com/2017/08/29/news/harvey-half-a-million-cars/index.html?iid=surge-story-summary

  • XZ

    Xriva Z.

    4 8 2017 18:01

    1       0

    So when is best time to buy used car ? Now while prices are low . . . or wait for the spike in defaults during the up coming recession ?

  • dp

    darius p.

    19 7 2017 21:26

    0       2

    Great video, but i think about 8 months too late. Everybody on tv were talking about sales peaking Since November December. Markets started to price it in long time ago.

  • kb

    keith b.

    17 7 2017 13:41

    0       0

    Wonder how the confluence of factors affecting auto finance and oil are going to play out if/when it all hits at once.

  • TC

    Trey C.

    2 7 2017 15:06

    0       0

    I'd be interested to see the effect on upstream manufacturers (i.e. ADNT) that don't have a majority of sales based on U.S. consumption.

  • tb

    trevor b.

    1 7 2017 19:28

    0       0

    Chart on the seriously delinquent auto loans like a little bit off. year 2016 is in there twice.

  • PV

    Peyton V.

    27 6 2017 20:06

    2       0

    How does this play out with the new deals announced with apple and hertz and google and avis? Does that flow through to manufacturers?

  • DL

    Derek L.

    27 6 2017 16:36

    0       0

    I'd be curious to see what the experts say about companies like FANUY, KUKAY, and YASKY as this plays out. Will robotics thrive on cost cutting and layoffs by big auto, or will they get hosed by diminished capex?

  • DY

    Damian Y.

    27 6 2017 04:55

    0       0

    Maybe a good time to buy a new car in a year or so when this mess starts to unwind. There should be some really good bargains around.

  • TS

    Todd S.

    25 6 2017 21:39

    1       0

    Weakness is AZO, AAP, and ORLY is unrelated to the aggressive financing environment, high inventories, used car values, etc. It has to do with fear of AMZN and poor quarterly results mainly driven by a warm winter (i.e. harsh weather is bad for cars but good for parts retailers) and delayed tax returns. More used cars on the road and low gas prices (i.e. more miles driven) should help these companies. AMZN is a threat but with low inventory turns this does not seem like a great industry for AMZN.

  • SS

    Sam S.

    25 6 2017 16:44

    6       0

    Great to see the countryside of the Cayman Islands. Since you drive on the left, like the UK and others, will they have oval track racing with right turns only? I watched the other video on the autos few days ago, and the next day used the info as recapped in this video, to buy a 2014 Lexus ES350 loaded with options only 12,700 miles for Trade-In Wholesale Price! The government will again add more debt to save the auto industry? Only thing missing from this fantastic video is----carpool karaoke----get Grant, Raoul all singing Pink Floyd "money". All the best!

  • AH

    Andreas H.

    25 6 2017 10:44

    0       1

    Again, I take the opposite opinion: this is not comparable to 2008 at all (this is even said in the interviews!) Interest Rates are low and they will be for longer (at least not spiking up over 2%-2,5%). 30% discount on certain models have been in the market for 20 Years (on certain models, at least here in Europe), if you buy a new car and get less then 10%-15% off the official price of you have been ripped of (also for at least 20 Years at least in Europe). GM might be in trouble, but even they will muddle trough. The margins on a new car (ex F&E for the following new model) is huge (30-50%!), so just hit the break a bit on F&E, produce less for 6 Months and you are fine! Not comparable to housing at all! But I do see the technology thread, but then just get long the disrupters...

  • NT

    Nicolas T.

    25 6 2017 09:05

    1       0

    This was great ! Really the kind of presentation that makes RV what it is ! Good job guys !

  • RA

    Robert A.

    24 6 2017 23:54

    0       0

    A great concise and interestingly formatted presentation on a relevant and timely topic Grant! Daniel and Michael did a great job. Ally, Capitol One, and Synchrony Banks continue to sport the very highest offered CD rates----make sure to stay under the FDIC limit if you participate, IMO.

  • MH

    Matthew H.

    24 6 2017 17:43

    0       0

    If there is a follow up video, I'd love to see the impact on rental companies, are they not largest seller of second hand vehicles? But the model attempt to yield a positive carry as they rotate stock

  • MH

    Matthew H.

    24 6 2017 17:41

    0       0

    I often feel it can be misleading quoting nominal numbers when the denominator is a growing quantum. Loan book is over $1 Tn, but the base is larger? I'm sure it is larger proportionally too though.

  • CM

    Chris M.

    24 6 2017 16:14

    0       0

    Just bought a new GM car with a big discount. My trade-in was below blue book, which substantiates comments about weak used car pricing as this vehicle was in good shape and a desired model. What is playing out in auto market is already showing up in retail stocks in general.

  • AB

    ARIEL B.

    23 6 2017 18:36

    5       0

    Great video. Intimidated by Michael Lewitt's library! Great work guys.

  • FH

    Fai H.

    23 6 2017 10:14

    1       0

    This fits well with the demographic pressures now coming over the horizon.

  • ag

    amin g.

    23 6 2017 05:51

    7       0

    Can we get Grant to film while driving a car on the right side of the road in mumbai traffic? That would be epic

  • Sv

    Sid v.

    22 6 2017 21:32

    0       0

    always excellent! thanks.

    Looks like its about time to buy a new car!

  • PC

    Pedro C.

    22 6 2017 20:56

    2       0

    Such a great program this one. Nice work!

  • EA

    Ellen A.

    22 6 2017 20:19

    4       2

    Hey Grant...here in the States we have cities passing laws against cell phone usage while driving....I think "video chatting" will be next. DON'T DO THAT!! We need you here on Real Vision. I kept waiting for that vehicle coming at you from the side like in the movies. :>) Just sayin'.
    Besides that, I'll be waiting to buy my next used car.....

  • MC

    Minum C.

    22 6 2017 17:52

    1       1

    This was a great presentation with lots of good charts and easy to understand material.

  • KJ

    Kulbir J.

    22 6 2017 14:57

    9       0

    What about Student Loans/Debt. That is another big story

    • EH

      Edwin H.

      24 6 2017 18:19

      0       0

      Keep in mind government backs a good Student Loans.

  • bf

    bart f.

    22 6 2017 12:05

    0       0

    Of course be linked to the secular shift imposed by automated car which puts 7mm driver jobs at risk in US alone, knocks on other sectors (rental, dealers, insurance, emergency services) and adds to downward pressure on oil

  • DA

    Daniel A.

    22 6 2017 09:50

    1       0

    Great informative video! I'm in the UK and need to buy a car as we have a baby on the way. Should I rent for a year and then buy used car next year? When is best time to buy? Cheers!

    • MS

      Matt S.

      24 6 2017 17:19

      0       0

      why not buy a £700 banger and run it into the ground? Anyway...are these auto problems extending across the pond? Not necessarily.

  • JO

    John O.

    22 6 2017 08:51

    18       0

    I found it humorous that while Grant was talking about the US auto sector heading in the wrong direction; he was driving on the wrong side of the road.

  • ns

    niall s.

    22 6 2017 08:31

    10       0

    Nice to see Grant talking about something other than Gold and very good he was , as were his guests. More like this please .
    He will likely be very right about gold in the long term , but at present actionable trade ideas are much more interesting IMO and add more value to RV.

  • AG

    Alexander G.

    22 6 2017 07:49

    3       0

    very nice! Learned quite a bit.

  • IC

    Ibrahim C.

    22 6 2017 07:24

    0       0

    Grant, Safety is first. We need you in RV!
    Smart Analysis does not need recognition at all..

  • HJ

    Harry J.

    22 6 2017 03:35

    1       0

    Have a car coming off lease in one year. The plan is to offer substantial discount to residual value.
    Will see what happens in the M/Benz stores.
    Even they won't be immune to this coming wreck.
    Great

  • us

    ujjwal s.

    22 6 2017 03:09

    4       0

    Something like this on commodities would be appreciated. Great presentation.

  • RT

    Rune T.

    22 6 2017 00:56

    5       0

    I don't see how people who had their car repossessed would not require a replacement car - so their demand would merely shift to the cheaper market for used cars. That would push back a bit on the whole price drop in the low end. In Europe we see that cars under say $USD 5000 equivalent or thereabout sells like hot cake for cash -- but you're hard pressed to sell a used car over $15-20000 simply because everyone is so damn used to buying on credit/lease/loan whatever and nobody has that amount of cash lying around. Hence the good deals are in the private higher quality market of used cars around 4 years old. This is when the people who purchase these new are looking to replace with the latest model. Think Audi A8, BMW 7-series, Mercedes E-class, Porsche and such.

    • MS

      Matt S.

      24 6 2017 17:15

      1       0

      I'll take a 4 year old Porsche Cayman S thanks! ;)

  • RR

    Raj R.

    22 6 2017 00:15

    8       0

    Have been waiting for prices to drop. Bought an old Ford Focus last year and my family keeps thinking I'm broke. They will know when I buy a 2016 Audi later this year!

    • EF

      E F.

      22 6 2017 13:23

      3       0

      2003 Focus here, high five, millenials really not gonna help this industry...

  • RB

    Roy B.

    21 6 2017 21:35

    2       0

    I'm in the railroad business and we keep hearing about 17 mm vehicle years. Ain't gonna happen and here's why. Stephanie Pomboy nailed it on RV months ago.

  • dd

    darrell d.

    21 6 2017 21:21

    0       0

    What a great take. Pinpoint. However the SUV that Grant was driving and the music (perfect) was a little out of synch

  • WE

    William E.

    21 6 2017 20:22

    7       0

    Many thanks.. Great presentation! And, while I can't always implement your investment advice I have just decided that I will wait until cold Feb. day in 2018 to buy a car; new or used ...Yet to be decided.!

    • dd

      darrell d.

      21 6 2017 21:35

      1       0

      I like to time car buying to cycle of local economy and auto cycle. Always worth the effort to save $$$,

    • EF

      E F.

      21 6 2017 21:47

      4       0

      friend of mine got a 24k GBP full spec family car for 8k at 3 year 3 month old, this was about 18 months ago just walking in without really bargaining... apparently certain models suffer a particularly sharp depreciation

  • AG

    Amir G.

    21 6 2017 20:20

    14       0

    Short, sweet and very useful. I just love these videos than instead of ranting on and on get directly to the point.

  • FA

    Felix A.

    21 6 2017 19:49

    2       0

    Wow eye opener.

  • SW

    Sebastian W.

    21 6 2017 19:34

    8       0

    Ive been waiting for this interview for a long time ! Excellent insight about the industry

  • sm

    stephen m.

    21 6 2017 19:33

    21       0

    love to see more industry experts and analysis good work

  • LA

    Linda A.

    21 6 2017 19:01

    4       0

    Excellent! Grant, I was waiting all morning to look under the hood of the auto industry. The wheels have started to come off all the auto parts and lenders. Hedge fund recently bought a 5% stake in Carmax but that will eventually turn out to be a bad investment. Starboard in Advanced Auto. I could not understand the valuation of auto parts. Starboard valued aap at $350- I was befuddled. All he had to do was go in these stores. They are practically empty so I shorted last year and I am finally making out. Looking forward to tomorrow! Thank u all! Credit Strategist is a sweetheart- such a lovely son!

    • EF

      Eric F.

      25 6 2017 16:15

      0       0

      Re CarMax - is this a good short target in relation to this? I understand F & GM as shorts but will CarMax be impacted as much?

  • RM

    Richard M.

    21 6 2017 18:30

    1       0

    Wow - scary stuff!!! If we do see big defaults in auto sub-primes that could just be one of the catalysts that will kick off a bigger economic downturn (and market stumble) in the general overall economy. As I said, scary stuff!

  • RM

    Ronald M.

    21 6 2017 18:21

    0       0

    Couldn't agree more!

  • TS

    Tyler S.

    21 6 2017 18:04

    0       0

    I dont even know you but I it makes me happy to see your face :o)

    • RD

      Ryan D.

      21 6 2017 22:47

      6       0

      Good presentation! Nice to see Daniel Ruiz on RV, he has been killing it on Twitter and his site. Was a little worried that Grant might crash that SUV and not finish the presentation ; ). I did notice that Michael Lewitt referenced 1 T in subprime auto debt. Is that global? I believe total US Auto Debt is 1.2, with roughly 25% being subprime. I am short Carmax and think it will be interesting to see how this develops.

    • D

      Daniel .

      22 6 2017 09:48

      2       0

      Best thing you have done so far on RV. Would have been interesting to have had someone from the "other side" in the video. I.E spokesperson for Ford or a big dealer. But great video.

    • CB

      Chris B.

      23 6 2017 17:24

      1       0

      This wasn't mentioned in the segment but it's worth mentioning... Average maturity for new auto loans have been pushed out further and further over the last few years, which to me is a clear sign that buyers are getting over-levered and can't truly afford the cars they are buying, so they are pushing out the maturities to bring down the monthly payments:
      https://fred.stlouisfed.org/series/DTCTLVENMNM

    • AL

      Alfonso L.

      28 6 2017 15:30

      0       0

      I'm curious about how much demand self-driving vehicles would create? Something like demand for iPhone 8 kills the value of past iPhones. For cars it could be similar because a low tech 2009 vehicle might be junk when compared to the new model -- feature upgrades have been limited from 1985 to 2005 (for instance) as a car is 4 wheels, AC and a stereo. But, self driving is a new game -- something I think people would step up and pay big for -- thereby helping the MFG and really hurting used car values.