Combine May auto sales at a weaker-than-expected 13.8M and the latest dismal U.S. job...


Combine May auto sales at a weaker-than-expected 13.8M and the latest dismal U.S. job statistics, and many analysts are rethinking their optimism about auto sales this year. But auto makers remain confident; Ford's (F) Ken Czubay says dealers tell him they're having "excellent traffic... There is significant pent-up demand in the marketplace."
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Comments (8)
  • winningtrader
    , contributor
    Comments (2459) | Send Message
     
    This is an interesting market to understand. I read that the lending has become very relaxed and subprime borrowers form a large portion of the buyers. I wonder if it would end up like the housing subprime. My guess is that it will but this one is much smaller of course. I think that executives are trying to get big sales at any cost with the hope of getting another year of fat bonuses. Then, if the subprime market collapses, we are going to see them heading for Washington again asking for help. Of course, the idea is that they will keep the bonuses. Cars are a big ticket item and with employment weak, there is no way demand would be strong going forward. Would be very useful to learn where the credit risk of the auto loans is. Who keeps most of the risk?
    1 Jun 2012, 06:02 PM Reply Like
  • Tdot
    , contributor
    Comments (8421) | Send Message
     
    You seem to be assuming that automakers have something to do with how banks and savings and loan outfits (etc.) provide and service loans to folks that are purchasing automobiles. They don't. The banks decide who is worthy of car loans, based on their income and credit ratings and other factors.

     

    Automakers simply build cars and sell them to dealerships, and hope for the best. True - automakers sometimes provide dealerships with some extra cash incentives to move slow-selling products, and to clear old inventory when a new model year approaches.

     

    Now, as far as banks are concerned, in the post-Great Recession period, previously closed or contracted credit markets have opened up a little, well, ok, considerably, with no small part of that being due to massive taxpayer bailouts of those same banks, but that is what we have. Banks decide what they do to invest their money, subject to regulations of course.

     

    Now, Ford Motor Company is in a unique position in that it holds an in-house Credit Corporation (a wholly owned subsidiary) which does provide loans to dealerships to acquire inventory, and to consumers to purchase cars. Thus Ford Credit operates like a bank, and is responsible for managing its own loans and generating its own profits (some of which is paid back to the parent Ford Motor as a dividend).

     

    Ford Credit's profits come from and depend on consumers and dealerships paying back on those loans, and defaults result in losses and messy, expensive repossessions and such. So it is in Ford Credit's interest to provide high quality loans. Ford Credit does have a cash reserve provision for random defaults, and the amount of that reserve is defined by regulations as a minimum. That default reserve, and Ford Credit's careful lending practices before the Great Recession, together were sufficient in Ford's case for Ford Credit to weather through it, unlike a great many other banking entities, and Ford Credit managed to provide Ford Motor with a little extra bit of cushion for the pair to stay out of bankruptcy, unlike the other two of the Big Three, which sold off or lost their in-house consumer banking operations.
    2 Jun 2012, 07:53 AM Reply Like
  • TwistTie
    , contributor
    Comments (2429) | Send Message
     
    Imagine how interesting the market is to me, since I don't understand it at all.
    4 Jun 2012, 01:59 PM Reply Like
  • davidlwhite
    , contributor
    Comments (4) | Send Message
     
    Mr. Czubay is right, Economists and Analysts don't buy Fords,
    so they don't have a clue.

     

    Cutting Costs
    For people driving ten-year-old cars getting 15 mpg at $4/gal with annual repair bills the equivalent of car payments, buying a new
    car can significantly reduce the monthly budget. Millions of these people are in showrooms looking for nice, cost-cutting solutions -- they will buy when they find cars that meet that criterion.

     

    Will Ford End Up in 3rd Place?
    The only question is: Can Ford put those cars in the showroom --
    or will Toyota, VW, GM, Kia, Mazda, Suzuki, etc. beat them to the punch?

     

    Elasticity of Demand
    The auto industry as a whole may have a 14 million year, but for the few who have the correct product in the showrooms, it's
    an 18 million year.

     

    1 Jun 2012, 06:34 PM Reply Like
  • Venerability
    , contributor
    Comments (3043) | Send Message
     
    It's a simple matter of practicality and general Market Mechanics.

     

    Since the Moody's upgrade to Investment Grade last week, Ford becomes an exceptionally low-conviction kind of Short. There are probably very few passionate, high-conviction Shorts left in the stock at this point, compared to practically the entire rest of the S&P.

     

    Ergo, if Worldwide Shorts United are persuaded one way or the other into heavy-duty covering this coming week, Ford will be one of the quickest and most dramatic covers, simply because most Shorts don't care much about holding onto positions for dear life. They will logically retreat into those positions they truly remain passionate about, and this just isn't one of 'em.
    3 Jun 2012, 03:01 AM Reply Like
  • Carbon1
    , contributor
    Comments (11) | Send Message
     
    Ford Motor Company is not something to joke about. Ford F Series trucks have an over 40 years history of best selling truck in North America. How many Auto company's can say that today. I have been buying Ford vehicles for the last 20 years. If you are loyal to your country, you should buy things build in your country. Most foreign cars that are put together here get their parts from their country, and after they are sold here, the money go back to their country.
    3 Jun 2012, 05:57 AM Reply Like
  • Venerability
    , contributor
    Comments (3043) | Send Message
     
    Ryan - BOO!

     

    Autos are the quintessential "Let's Support Growth Again" sector, so the Short side in the general market has made it one of their key battlegrounds.

     

    I believe the Shorts are going to lose big on this thesis - and on their bets in the Autos - very soon now.

     

    Meanwhile, Ford stock is still "owed" over a dollar, IMO, on the Moody's upgrade to Investment Grade last week. If it had happened a month ago, the stock would be at least a dollar higher right now.

     

    (Of course, Cramer's constant hating on the stock hasn't helped. Since we all dislike Cramer, shouldn't we all be supporting Ford to spite him?)
    4 Jun 2012, 07:11 PM Reply Like
  • Ryandan
    , contributor
    Comments (1594) | Send Message
     
    Well V

     

    You have finally given me one reason to invest in Ford. The anti-Cramer purchase. Inspired......!

     

    As for buying auto stock to bring America out of the abyss, I'll do you one better, I'll help vote the idiot in the white house out of office and bring everybody back to life.
    5 Jun 2012, 10:19 AM Reply Like
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