(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.

Published in Eq: Large Cap
Friday, 14 June 2019 10:20

Goldman Says to Buy This Stock

(New York)

You might not think it is the right time for this stock, but Goldman Sachs says you should. The bank has just come out very positive on Ford. The automotive company has far outpaced the S&P 500 this year, but is still down 16% over the last 12 months. Goldman says that Wall Street is not appreciating how significant Ford’s recent restructuring is, as they think it can unlock “billions in trapped value” by lowering costs in the trucks division.


FINSUM: Basically, Goldman says Ford is going to see a big and sustained pop in earnings that no one sees coming. It is a nice, simple thesis and we like it.

Published in Eq: Value
Tuesday, 14 May 2019 06:33

Buy GM and Ford, Not Parts Makers

(Detroit)

Investors looking at the automotive sector need to think carefully about their allocation. In particular, it might be smarter to put money into automakers themselves, like GM and Ford, rather than parts suppliers. This runs counter to the typical investment strategy of buying into suppliers in major industries rather than producers themselves. Parts maker in autos have outperformed makers over the last several years, but there is a big catalyst for a reversal: auto makers are no longer looking to slash prices to increase volume. Instead, they are shifting to a higher priced margin-oriented model, which favors the makers’ stocks versus suppliers’.


FINSUM: We think the concept of a higher margin business favoring makers is logical.. However, we aren’t sure the customer is actually going to buy into this model, in which case neither makers nor suppliers would do well.

Published in Eq: Value

(Detroit)

The car industry has a big problem on its hands, and it is not something that can necessarily be solved with new technologies or better mpg. The problem is not even that that young people don’t want to buy new cars, it is that they don’t want cars at all. In fact, they don’t even care to have driver’s licenses. In 1983, half of all 16-year olds had licenses. In 2017, it was down to a quarter. Gen Z, those born after 1997, aren’t ageing into licenses and ownership either, as the rates of those who have licenses by 24 is falling. 16-year olds reportedly don’t care about the freedom of getting their own car anymore, as they have Uber and Lyft and increasingly just move from urban area to urban area as they age, where car ownership isn’t as ideal.


FINSUM: Not wanting your own car at 16 sounds almost unfathomable to older generations (including us), but it is a reality that is emerging.

Published in Eq: Large Cap
Friday, 25 January 2019 09:57

Ford’s Earnings Look Bleak

(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.

Published in Eq: Total Market
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