Seeking Alpha

The Big Three look to incentives to clear dealer lots

  • Though the pricing trend in the auto industry has been strong, there are some storm clouds gathering: The Big Three (F, GM, FIATY) all ended January with over 100 days supply of vehicles.
  • General Motors is in the process of boosting discounts in the full-size pickup segment in an effort to clear inventory off of dealer lots. A generous President's Day sale run by GM aims to boost demand for the 2014 Chevrolet Silverado and 2014 GMC Sierra
  • Ford and Chrysler have also been pushing the incentives lever harder, but still trail GM's average incentive per vehicle.
  • Channel checks indicate February traffic at dealerships is a bit light. Mother Nature might have something to do with that.
Comments (31)
  • Remford
    , contributor
    Comments (106) | Send Message
     
    The present inventories expressed as "days supply" is an important forward indicator because each stocked vehicle represents revenue already reported and future incentive and production liability. But it's also highly-distortable because it only considers the previous month's sales without adjusting for disruptions like last month's record weather which will simply push back much volume rather than representing a trend.
    Ford DID have a brief Q4 glut which it cleared quickly in December. There's no evidence that Ford has returned to flooding floorplans to shore up top line revenue. It's maintained better production AND incentive disciple than GM which seems to have a far harder time breaking its dependency. Furthermore, GM has resorted to systemic stair-step, family pricing and gift card promotions which aren't reported as traditional "rebates" but are incentives nonetheless. One of the most problematic challenges for GM has been its inability to exempt its newest, and presumably strongest models.
    All bets are off for Ford in terms of comparative metrics with such a quantum changeover of so many key products like F-150, Mustang and its record pace of new or updated designs. More volume and less incentives are always better, but Ford can incentivize outgoing fully-amortized models far more profitably than its competitors' current new product. Ford has also been playing at a far higher price and margin strata overall - earning more from making fewer.
    Chrysler is winning volume and share with record low incentives, but it's yet to deliver a decent ROI despite one of the lowest cost structures which is only assured through the current UAW contract. Without VEBAs GM and Chrysler ownership stakes, the sweetheart era is likely winding down.
    Days' supply is indeed important, and makers may need to become more aggressive managers of their output, but very little can be derived from the current inventory levels based upon January's weather-driven anomaly alone.
    8 Feb, 07:25 PM Reply Like
  • R K
    , contributor
    Comments (63) | Send Message
     
    Feb weather is not much better , pent up demand in March could mean a "blow-out" month, no question F is well positioned for a strong second half .
    8 Feb, 07:41 PM Reply Like
  • Tdot
    , contributor
    Comments (3741) | Send Message
     
    "2014 Chevrolet Sierra" ... Silverado, not Sierra.
    8 Feb, 08:38 PM Reply Like
  • bibol11
    , contributor
    Comments (63) | Send Message
     
    I belong to several organizations. That have reduced pricing except for Ford. Which means the other ones have to have discounts. So when Ford has discounts they might be bigger.
    8 Feb, 08:50 PM Reply Like
  • omarbradley
    , contributor
    Comments (966) | Send Message
     
    Tesla is heading to 200 and simply put..."that kid has WON."

     

    Wonderful to see...truly is.
    Forget "Big Three"...there is just The One now.
    We'll see how KNDI does going forward from here as well.
    Nissan posted fantastic numbers too.

     

    I will be monitoring the State of Michigan for any moves by the State into the Hydrogen economy. California is already there it's just a question of production.

     

    Another interesting approach would be to power a vehicle with a turbine engine
    http://bit.ly/1chcYNu.
    Believe it or not Chrysler actually did this.
    http://bit.ly/1chcYNv
    Obviously that would be very bullish for General Electric.
    In theory you could literally "print" the engine.
    http://invent.ge/1chcYNy
    http://bit.ly/1chcYNA
    Not as simple as a battery or a fuel cell...but no chemistry issues either...and obviously far more reliable than an ICE. Fuel mileage might be an issue but the fueling stations (natural gas) are being deployed at a rapid clip now.
    of course with a turbine engine you can use any fuel you want actually.
    It would end any range anxiety with a Tesla...or any other all electric vehicle...as well.
    8 Feb, 09:04 PM Reply Like
  • grateful908
    , contributor
    Comments (37) | Send Message
     
    OmarBradley- REALLY ????
    8 Feb, 09:28 PM Reply Like
  • omarbradley
    , contributor
    Comments (966) | Send Message
     
    yep. really.
    we don't need 16 million cars a year.
    just one that will last a million miles.
    that's why these vehicles are so massive...they're designed to breakdown.

     

    I think Ford is on the right path using aluminum but this back up in inventories is truly spectacular.
    You have to order your Tesla before you get it.
    Sure those orders can get cancelled...but they don't have a problem on the lot.
    "an all electric skateboard."
    8 Feb, 10:35 PM Reply Like
  • cbroncos
    , contributor
    Comments (982) | Send Message
     
    GM recalled all new 2014 trucks a few weeks ago. That is why they need incentives to sell more.
    8 Feb, 09:55 PM Reply Like
  • 13limited
    , contributor
    Comments (17) | Send Message
     
    Tdot--what's the difference when you're talking Chevy or GM> They're the same thing with different badges on them, and have been been for 100 years. I believe GM was in business before Chevy in the first place. The Frenchman was crazy.~~~~~~~~
    8 Feb, 10:04 PM Reply Like
  • Tdot
    , contributor
    Comments (3741) | Send Message
     
    13 - - the original report said "2014 Chevrolet Sierra and 2014 GMC Sierra". I provided the correction, and the article was fixed. You probably missed all that...
    -
    You are welcome.
    9 Feb, 09:43 AM Reply Like
  • 1980XLS
    , contributor
    Comments (3332) | Send Message
     
    Price wars heating up.

     

    Will wind up hurting all of them.

     

    http://reut.rs/1fN7tsl
    8 Feb, 10:39 PM Reply Like
  • cbroncos
    , contributor
    Comments (982) | Send Message
     
    They are called loss leaders. That is because when someone comes in they are told we had 1 truck like that and we sold just sold it! I have had that happen to me more than once. In my area they are advertising $7,000 off and that is down about $1,000 from late December.
    9 Feb, 10:44 AM Reply Like
  • kevinconway
    , contributor
    Comments (1983) | Send Message
     
    My auto related post from one month ago:

     

    7 Reasons Why Ford Is My Favorite Long [View article] If you take a look at the US dealer new automotive sales for the past 10 years you will see on the chart where we are now...anyone expecting great growth in 2014 for the entire industry is likely in for a letdown. I see auto stocks to be very high risk in 2014...and I have owned most of them from time to time. The recent growth is filling pent up demand from the crisis and is absolutely abnormal.

     

    I do not believe that there will be enough available consumer discretionary income available for vehicle purchases in 2014 and the industy projections will not be hit...margins will drop on what is sold..but one of the big companies will likely get hit badly.

     

    No plan B....this happens then the dominos start to fall.
    8 Feb, 11:15 PM Reply Like
  • ted lujan
    , contributor
    Comments (626) | Send Message
     
    Ford is on a roll. the new aluminum F150 will blow all the competition away. The fact that it weights 700lb less and proved that it could finish the Baja race with no serious problems and 30mpg says a lot about this truck. Can any one enlighten us with a truck with similar specs?

     

    9 Feb, 01:33 AM Reply Like
  • fuzzymc
    , contributor
    Comments (107) | Send Message
     
    Insurance cost and body repair costs for the new F150 may be something to consider!
    9 Feb, 04:57 AM Reply Like
  • Tdot
    , contributor
    Comments (3741) | Send Message
     
    Fuzz - Ford says that the radical redesign of the upcoming F-150 pickup will be easier and cheaper to repair than the outgoing model, helping hold down insurance costs for buyers. So yes, you are correct, that is something to consider.
    -
    http://reut.rs/1eFzfKD
    9 Feb, 09:52 AM Reply Like
  • graham downunder
    , contributor
    Comments (143) | Send Message
     
    I tend to agree with kevinconway .I believe when people look at what Obamacare is costing them ,the lack of real estate increase ,the lack of job security , inflation that really affects them (higher cost of living ) ,high debt level including student loans and the fact that they have little real net worth they will be reluctant to buy new vehicles in the next 12 months .So I think yearly sales may be 15 million which may disappoint the industry ,management will have to hold their hand on discounts to avoid the double whammy ,lower sales and lower margins .I think both GM and Ford are smart enough to avoid a discount war ,but they cannot fix a slow economy that has had so much support already from Government and Fed . Ford will probably have some ups and down with stock price ranging from $13.50 to $20.25 , my plan is to buy on dips sell on rips via longterm options .
    9 Feb, 06:36 AM Reply Like
  • Tdot
    , contributor
    Comments (3741) | Send Message
     
    Graham - Ford and GM and Fiatchrysler are not interested in trying to artificially prop up sales using incentives if overall market demand drops - they know all that does is kick the problem down the road a month. They will ultimately adjust production to match overall demand projections, and only use incentives to try to preserve and maximize profits by balancing transaction price with market share volume.
    9 Feb, 09:57 AM Reply Like
  • cbroncos
    , contributor
    Comments (982) | Send Message
     
    What Obamacare costs them? Dude what do you read Faux news? Obamacare has lowered costs for millions. Do some people pay more? Yes a few percent do pay more because now all plans must have basic healthcare in them. These few percent of folks had terrible catastrophic policies that if ever needed would cost them tens of thousands. These folks can now get a yearly physical that just might find some problem that saves their life. So are these new insurance policies are worth a few additional dollars.
    But I must say again most are paying less and this will give them more money to make a car payment and if the buy a Ford it will also save them at the fuelpump.
    9 Feb, 10:52 AM Reply Like
  • Engineer&Far
    , contributor
    Comments (107) | Send Message
     
    Dude, I read the Economist and it agrees with Graham. Do you get all your info from Twitter and Muffington Pissed?
    11 Feb, 10:24 AM Reply Like
  • geschoch
    , contributor
    Comments (5) | Send Message
     
    Ford is the only automobile company with a winning strategy.
    9 Feb, 07:09 AM Reply Like
  • nautor42
    , contributor
    Comments (188) | Send Message
     
    I'd agree that uncertainty facing middle class families, the few that are left, will cut into auto sales. The 800 lb gorilla in the room is that the 40 million or so that got the one tear delay on Ocare still don't know what impact it will have on their budgets, but they are fearing the worst. If they own one of these 11 year old cars, well, they'll likely keep it one more year until the health care dust settles. The new mantra should be, " if you like your old car you can keep your old car, period." I think F realized this in their downer December guidance and the stock got hammered. Hopefully, that negativity is priced in already and F finds a flooro of $15.s
    9 Feb, 07:24 AM Reply Like
  • cbroncos
    , contributor
    Comments (982) | Send Message
     
    Huh?
    9 Feb, 10:55 AM Reply Like
  • Tdot
    , contributor
    Comments (3741) | Send Message
     
    It can also be noted that the automakers are designing the cars to last much longer with minimal repairs and maintenance.
    -
    Thirty years ago if a car lasted all the way to 10 years or 100,000 miles it was considered remarkable. Most folks sold or traded in the car, or passed it down to a kid, after the thing was paid off and the warranty expired; and they usually required major engine overhauls and repairs after 5 years or so. As soon as the car was paid off, and repair bills started to climb after the warranty expired, that car was headed to the junk yard, or else to some poor unlucky schmuck down the road.
    -
    Today vehicles are designed to last relatively trouble-free for original and subsequent owners to at least 10 years and 150,000 miles, with little more than routine maintenance. And people are noticing that the car is aging better and more reliably, and it is safe to keep around and use longer than they might have thought. And they are passing them down to their kids, or buying them good used cars, rather than buying them a new one when they turn 16 or graduate. This at least partially explains the rising average age of vehicles on the road, which has been trending upward since the mid 1990s.
    9 Feb, 12:11 PM Reply Like
  • fuzzymc
    , contributor
    Comments (107) | Send Message
     
    It can also be said that a new truck is now the same price as a house years ago!
    9 Feb, 02:21 PM Reply Like
  • jdl51
    , contributor
    Comments (236) | Send Message
     
    My son is driving our hand me down 2003 Escape with 150,000 miles. So far no major problems and it still looks relatively good. I'm driving a 2002 F-350 and have had no major problems other than replacing the ball joints and shocks, if you want to call that major. Maybe living in South Florida helps a bit.
    10 Feb, 11:20 PM Reply Like
  • graham downunder
    , contributor
    Comments (143) | Send Message
     
    Got to agree with you Tdot . car do last much longer . Rust was a problem in the 60's and 70's they greatly improved that so its no a major problem . Engine reliability has greatly improved with electronic fuel injection ignition fault detecting better manufacturing tollerances better oil and cooling systems. This has lead to Ford taxis in Australia being able to do 350-400,000 miles before they replace the engine . Cars are not showing great leaps and bounds like they did 30-40 years ago ,it is just slight improvements . People are also changing ,young ones are not as wrap in new cars as they were when I grew up .People in Australia now fly much more than drive long distances ,I just booked a return ticket of 1200 miles for $80 yes $80 why would I drive as fuel alone would cost me $400 .
    12 Feb, 08:26 AM Reply Like
  • donareed
    , contributor
    Comments (13) | Send Message
     
    I think Ford ($F) should buy $KNDI. Likely to see KNDI out do Tesla as China is bigger than US market, and China government is paying KNDI to build EV's
    9 Feb, 12:17 PM Reply Like
  • gatorj
    , contributor
    Comments (18) | Send Message
     
    I am not certain why anyone would NOT expect a large inventory at this date. Record snows, cold temps, ice storms into Dixie. Lets get real here. On the Positive side, older cars that were totaled either by accidents or trees will have to be replaced. Don't laugh at this, because a record number of accidents have been registered in the states with bad weather. The fiasco in Atlanta tallied several hundred accidents, most involving more than one vehicle.. Auto insurance companies are still trying to get a handle on all the claims. Body shops in several large cities are looking at a 45-60 day supply of work.
    9 Feb, 12:53 PM Reply Like
  • Snoopy1
    , contributor
    Comments (1110) | Send Message
     
    Yes, there's higher inventories and discounting. The smart investor is ignoring the short-term noise and asking what's the fair value for GM and F.

     

    It seems that GM should be at least $43 in a year when 2015 profits are more clear. That's 25% including dividends. I own the shares and have a risk reversal call spread options strategy (short Jan '15 27 puts and long 35/45 call spread).
    10 Feb, 10:40 AM Reply Like
  • Tradevestor
    , contributor
    Comments (4073) | Send Message
     
    Five reasons why Ford is interesting here http://seekingalpha.co...
    10 Feb, 11:51 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector

Next headline on your portfolio:

|