Monday, April 1, 2013

Auto Sales A Spooky Signal

Sometimes I must cover my ears as the noise from the markets is becoming to loud to handle. I would like to suggest that surging auto sales might be interpreted as a spooky signal as to what is really happening within our economy. At first glance we see they are on a roll, but we should ask what is driving this market. Pent up demand as cars simply wear out and low interest rates account for much of it, then add consumers wanting to reward themselves after a few hard years. An issue that should not be ignored is that the percentage of retail sales attributed to automobile sales has soared.

Many of the new cars hitting the road are really leases which show up as a sale, and many of them may be motivated because an automobile owner faced with a costly repair may be oping for this alternative verses putting money they do not have into their current ride. This allows someone in a weak financial position, such as those living on disability or student loans, to kick the can down the road while putting themselves into an ego boosting vehicle, one that they cannot in reality afford, or need. I contend that super low artificial interest rates are making much of this possible. If I'm correct, much of the idea of "so called pent up demand" is secondary.

On a day to day basis I deal with many small business owners it is troubling that they are not buying new vehicles for their personal use. I also think that unlike 2007 when auto and truck sales peaked, individuals are making up a larger portion of these sales then before, with businesses experiencing slow growth they are less excited about adding to their fleets. When looking into car sales it is important to take into consideration that more and more of these automobiles are being produced outside of America, this adds to the trade deficit and creates few jobs here, because of this the benefit to our economy is greatly limited and reduced.

This does not necessarily mean sales are reaching some giant bubble and will crash. Vehicles have a limited road life and are always wearing out, but what it may mean is that the upside for more sales to consumers who are not enjoying raising incomes may be waning. This is happening while the ability to produce more cars across the world is increasing, expect margins to fall. Also spelling problems for American car companies is the falling yen. Expect that in the future the recent tailwind from this sector to our GDP may begin to fade.

Footnote; I have similar thought as to what is currently driving housing. What make the housing situation more of a problem in the number of "empty" housing units in America.While commentators often talk about the number of units "on the market", they ignore those sitting vacate or in legal limbo. If you have time please read, "What Happens When The Momentum Ends"


1 comment:

  1. Nearly 85% of new-car buyers in the second quarter signed up for a loan or lease to fund their purchase, according to data released this week by credit bureau Experian. That’s the highest level since it began tracking the sector in 2006.

    That means that these consumers will not have any money to purchase other goods. They also could have problems with the low payments promised going higher if they miss or have a late payment. Plus, there may be charges in the way of loan origination fees.