Displaying items by tag: GM

(Detroit)

Will the robotaxi model come to dominate the car landscape or will the current ownership model persist? Will electric cars come to dominate? These are big questions for the US automotive industry. However, the answer is that it likely won’t matter because Detroit will win either way, especially GM. While Tesla would have no backup plan if electric cars didn’t become mainstream, GM could continue on with its main business line. Further, GM has a valuable self-driving card division, Cruise, which could do very well if robo taxis become the predominant model.

FINSUM: A couple things to note here. Firstly, GM is the cheapest stock in the S&P 500 on an earning basis, so it has a lot of upside. Secondly, we don’t think the robo taxi model will take over as the cost per mile to the end consumer is likely 2-7x the current cost, which means there would need to be massive changes to make it competitive.

(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.

(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.

(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.