Tag Archives: Automobile industry

The Manufactured Chip Crisis, by Eric Peters

The car companies’ chip crisis wouldn’t be nearly as severe if cars didn’t have so many unnecessary chips. From Eric Peters at ericpetersautos.com:

The trade publication Automotive News reports that new car buyers are “losing patience” with the dearth of new car inventory caused by the dearth of new “chips” needed to run the systems all new cars are afflicted with.

This problem could be solved at a stroke – by building cars again, rather than very pricey (and very disposable) mobile phones.

Cars don’t need “chips” – to be cars. They have them. This is an important distinction. They have “chips” – the Lego Blocks of computer-controlled cars – so as to control the car’s systems with computers, which now spider-web the entirety of the car’s systems.

The very first “chips” were simple – and local. They were transistorized modules that began to replace mechanical ignition contact points within the distributor that timed and transmitted the spark that fired the air-fuel mixture within the engine’s cylinders.

This made ignition systems more reliable and greatly reduced the need for regular maintenance, since it was no longer necessary to regularly check and adjust the clearance between the contact points – or replace the points when they wore beyond specification. Some people lamented the passing of points into the history books (along with road draft tubes) but, on balance, the changeover was a clear boon for most people.

The next step was computer-controlled fuel delivery, first of carburetors – this was in the late 1970s and early 1980s – and then by getting rid of carburetors altogether in the late ’80s and replacing them with electronic fuel injection. This entailed electronic control of the fuel injection and ignition system, which had to work together to work effectively.

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“Seriously Delinquent” Auto Loans Surge, by Wolf Richter

The latest canary in the coal mine is surging auto loan delinquencies. The upturn in the auto industry cannot withstand a credit retrenchment. From Wolf Richter at wolfstreet.com:

The New York Fed, in its Household Debt and Credit Report for the fourth quarter 2016, put it this way today: “Household debt increases substantially, approaching previous peak.” It jumped by $226 billion in the quarter, or 1.8%, to the glorious level of $12.58 trillion, “only $99 billion shy of its 2008 third quarter peak.”

Yes! Almost there! Keep at it! There’s nothing like loading up consumers with debt to make central bankers outright giddy.

Auto loan balances in 2016 surged at the fastest pace in the 18-year history of the data series, the report said, driven by the highest originations of loans ever. Alas, what the auto industry has been dreading is now happening: Delinquencies have begun to surge.

This chart – based on data from the Federal Reserve Board of Governors, which varies slightly from the New York Fed’s data – shows how rapidly auto loan balances have ballooned since the Great Recession. At $1.112 trillion (or $1.16 trillion according to the New York Fed), they’re now 35% higher than they’d been during the crazy peak of the prior bubble. Note that during the $93 billion increase in auto loan balances in 2016, new vehicle sales were essentially flat:

No way that this is an auto loan bubble. Not this time. It’s sustainable. Or at least containable when it’s not sustainable, or whatever. These ballooning loans have made the auto sales boom possible.

To continue reading: “Seriously Delinquent” Auto Loans Surge

US Auto Industry In Crisis Amid “Inventory Bubble”, by Tyler Durden

Automobile inventories are climbing, which means that production will have to slow. From Tyler Durden at zerohedge.com:

Despite record U.S. auto sales last year, the number of vehicles on car-dealer lots remains near record highs, and, as J.D.Power analyst Thomas King warned this week, 2016 ended with an inventory “bubble” that will require less production or more incentives to clear.

With near record high inventories of 3.9 million vehicles…

U.S. auto inventory finished 2016 at about 66 days supply, up from 60 days a year earlier. Inventory would last 2.23 months at the November sales pace, according to the latest available data from the Census Bureau. The stock-to-sales ratio in 2016 is extremely elevated compared to historical norms…

More problematically, King warns, about one-third of inventory were older model-year vehicles, rather than more typical level of less than a quarter.

Of course this massive stockpile hits just as President Trump pressures the auto-industry to onshore more jobs and more production…

But as the industry automates, factories don’t create jobs like they used to, said Marina Whitman, a professor of business administration and public policy at the University of Michigan.

“The American auto industry last year produced more cars than it ever had before, but they did it with somewhere between one-third and one-half the number of workers that they had decades ago,” said Whitman, who was an adviser to President Richard Nixon and GM’s chief economist from 1978 to 1992.

“The last thing the auto industry needs is more capacity.” she said.

So – produce more to employ more people and please President Trump (only to dramatically worsen the inevitable collapse), or cut workforces and productin further (as we have already seen) and face the wrath of Trump’s tweets?

http://www.zerohedge.com/news/2017-01-27/us-auto-industry-crisis-amid-inventory-bubble

Soaring Lease Returns Set To Wreak Havoc Used Car Pricing and Auto Industry Profits, by Tyler Durden

The debt and lease-financed automobile “boom” has just about run its course, if it’s not already over. From Tyler Durden at zerohedge.com:

For months we’ve warned that declining used car prices could spell disaster for subprime auto securitizations (see “Slumping Used Car Prices Spell Disaster For Subprime Auto Securitizations“). While it’s always difficult to predict the exact timing of when bubbles will burst, a combination of record-high lease returns in 2017 and 2018, combined with rising interest rates could imply that the auto bubble is on the precipice.

As Bloomberg recently pointed out, strong used car pricing is a critical component required to prop up the overall auto market. While American’s love their brand new cars, if used car prices become too soft then substitution can hurt new car sales. Add to that the impact of falling residual values on the finance arms of the auto OEMs and you have all the ingredients required for an auto market meltdown.

A glut of used vehicles has started to depress prices. That trend will intensify as Americans will return 3.36 million leased cars and trucks this year, another jump after a 33 percent surge in 2016, according to J.D. Power. The fallout has already begun, with Ford Motor Co. shaving $300 million from its financial-services arm’s profit forecast for this year.

“Ford is the canary in the coal mine,” said Maryann Keller, a former Wall Street analyst who’s now an auto industry consultant in Stamford, Connecticut.

This drag may be hitting the rest of the industry, too. A National Automobile Dealers Association index of used-vehicle prices declined each of the last six months of last year. If used values weaken more than anticipated, it can lead to losses across the industry, hitting carmakers, auto lenders and rental companies.

To continue reading: Soaring Lease Returns Set To Wreak Havoc Used Car Pricing and Auto Industry Profits

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Chart Of The Day: The Auto Boom Is Petering Out, by David Stockman