Displaying items by tag: suvs

(Detroit)

By all accounts, the US car industry should be doing well. Vehicles sales have been good, unemployment is low, and gas is cheap. However, US car companies are closing factories and laying off workers and acting like we are in a big recession. Why? The answer is that their product mix and manufacturing capabilities are seriously out of touch with the market. In particular, they have far too much sedan manufacturing infrastructure in a market that no longer has much use for sedans. This is a huge problem because overcapacity is what doomed car companies in the last recession.

FINSUM: The good thing here is that the car companies are trying to be proactive in adjusting their facilities ahead of a broader downturn. However, closing factories and laying off workers following such a good run is getting a lot of negative political attention.

(Detroit)

The auto sector has had a pretty wild ride since the Financial Crisis. The first half decade after the bailout was pretty strong for autos, with sales growing and high margin SUVs jumping in volume. However, the shift to SUVs and away from cars has grown so great that it is causing the industry some headaches. Further, self-driving cars are a new source of opportunity, but also anxiety. A new survey shows the car industry is likely to join energy and retail as the most embattled sectors this year. Sales are widely expected to fall across the industry, putting further stress on car companies.

FINSUM: In great industry-speak, the threats facing the industry are currently called the “Bermuda triable: unfavorable economic conditions, disruptive forces, and changing consumer preference”. We can’t help but agree.

(Detroit)

Ford reported earnings this week, and they speak not only to its own weakness, but to the headwinds facing the US car industry. Full year 2018 earnings declined considerably from the previous year on weak North American sales, as well as a poor performance in Europe and China. Ford’s CEO continues to promise that plans for a major restructuring will be released soon, but as yet, investors have been given little more than promises for change.

FINSUM: Ford is hurting worse than GM, but both companies are facing product lineups that are mismatched to current customer demand, which means the next couple of years are going to be challenging.

(Detroit)

The US auto industry has a huge problem, and if you’ve ben paying attention, you should already be starting to become aware. Consider this: the US economy has been doing great and the employment market is tight, yet US automakers are closing factories and cutting their workforces left and right. The disconnect comes down to an important issue—US auto factories are not aligned with customer demand. Traditional sedans are rapidly losing market share, yet US auto plants are set up to produce them. SUVs are taking over American car purchases, but automakers aren’t equipped to meet demand.

FINSUM: This is an eye-opening issue, but surely the problem of shifting demand is better than demand falling in aggregate. It does seem like there are going to be some rough years as automakers play catch up.

(Detroit)

The Wall Street Journal has published that we consider an important and engaging piece about the US auto industry and its disconnection with the direction of the rest of the world. While other major markets, like Europe and Asia, are moving to an ever-cleaner, ever-smaller, ever more electric paradigm, the US is moving further into the “bigger is better” mantra and cutting fuel standards. The disconnection has at its heart two components—the first is Trump’s very different view of climate change and environmental regulation, and the other is cheap gasoline.

FINSUM: We don’t think this disconnect is any cause for alarm in the near-term, but investors should consider that if political winds change (such as in the mid-term elections), then regulations could change quickly, leaving US automakers with a bad product mix.