With the loss of quality manufacturing jobs each month and year due to the lie of free trade, it is imperative that we keep a close watch on car sales. The revived auto-manufacturing industry and the ability to sell those vehicles has been the one true bright spot in our economy.
Sales
rose to 17.4m in 2015 after a strong 16.4m in 2014. The new kid on the block, Tesla had a breakout response in deposits in anticipation for its Model 3. However, Tesla faces many problems among which is the ability to get their product to customers. 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 cover the increase in production.
This year appears to be a solid year for car sales, although the projection of 18m will fall far short. I believe another 16m year will be the final number in the books. 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...
Inventories
at dealerships are building above normal and wrinkles are forming on far heads. This is nothing new to dealerships as the industry is a lot like the oil business- boom and bust. It is the process that causes the frowns. Mike Jackson, CEO of AutoNation is very outspoken against returning to the playbook of leasing for sales. He knows these same vehicles will return in one to three years to form a glut and compete with new car sales. According to Edmonds.com, leasing accounted for 31.3% of all new car sales in March 2016 and 31% of all borrowers had 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 just rose pass $1T in the first quarter. If those same customers get a flat, the repercussions of loan defaults could not only effect 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.
Conundrum
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 WardsAuto. Experion reports that 1.8m leased cars will be returned this year. That means deals will be forth coming. Dealers need to make space for 2017s.
Another problem is the duration of the monthly payment plan. Too many are for 84 monthly installments. When fully paid, that new car 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 due to the leasing policy and lengthy payment plan, the industry could suffer as well as the nation. Buy American - if you can.
Read more by Sebastian4U
