Displaying items by tag: autos
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.
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.
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.
Many might not think of it this way, but automotive stocks are good leading indicators of the economy. Between the top car companies and auto parts suppliers, the car business creates a little shy of $3 tn in sales per year. But the market is not well at the moment. Big car company shares are down 13% this year, while suppliers have fallen 24% (not one of the top 25 has risen). Interestingly, though, vehicle sales have not fallen yet and are still strong, as they often are when unemployment is falling and consumer confidence is high. The trouble may be in China, where sales are weakening, but the key point is that there is a lot of pessimism on auto shares.
FINSUM: It is important to remember that aside from the economic factors, car companies are under a disruptive threat from technology (e.g. self-driving cars and Silicon Valley), which may be contributing to the poor performance.
Another tumultuous week for Tesla is in the books, but for the first time in a while, it looks the company may be headed in a positive direction. Last week, the SEC sued Elon Musk for fraud based on his tweets about taking the company private, which sent the stock plunging. However, on Saturday, it was announced that Musk had reached a settlement with the regulator, agreeing to give up his chairmanship of the board, in addition to a $20m fine, but remaining CEO. This news sent the stock soaring in pre-market trading.
FINSUM: This seems like a better operational and governance structure for Tesla and we hope it will prove a positive development.