Kelley Blue Book expects U.S. auto sales to fall 3.6% in June to 1.46M units. "With manufacturers continuing to announce production cuts at their plants following weaker consumer demand, it all but solidifies 2017 as a down year," notes KBB analyst Tim Fleming.
The LMC Automotive/J.D. Power forecast is for a 2.3% drop during the month to 1.48M units, although the overall diagnosis is equally cautious. "While the retail selling rate has declined in four of the first six months, the broader concern remains the negative health indicators behind the sales results," notes J.D.'s Deirdre Borrego.
During a conference call yesterday with analysts, GM CFO Chuck Stevens said the company expects U.S. light vehicle sales to be in the low 17M unit range for the year, a downward revision from the autmaker's original forecast for a 17.55M unit mark. Stevens highlighted the "very very conservative" pricing in the industry and "rational" stance on incentives.
The common theme from insiders and analysts is that automakers are now focused on profitability over volume and market share. Recent actions from the Detroit Three support that assertion.
Also in the mix for the industry is the rapid pace of partnerships between auto players and tech giants. Yesterday, the Avis-Waymo and Hertz-Apple deals were small in nature, but giant in implications for investors. The GM-Lyft partnership is already in second gear, while Tesla, BMW, Volkswagen and Toyota all have tech/mobility initiatives revving up.
Intel (INTC -0.4%) predicts the new "passenger economy" will grow to $7T by 2050 as autonomous vehicles go mainstream.
The company predicts that mobility-as-a-service will disrupt long-held patterns of car ownership, maintenance, operations and usage. The first "green shoots" of autonomous driving are expected to be in the business-to-business sector - not from soccer moms, sports car enthusiasts or pickup drivers giving up the wheel.
"Companies should start thinking about their autonomous strategy now," says Intel CEO Brian Krzanich.
"Less than a decade ago, no one was talking about the potential of a soon-to-emerge app or sharing economy because no one saw it coming. This is why we started the conversation around the passenger economy early, to wake people up to the opportunity streams that will emerge when cars become the most powerful mobile data generating devices we use and people swap driving for riding," he adds.
Predictions from an Intel study: (1) business use of Mobility-as-a-Service is expected to generate US$3T in revenues, (2) consumer use of Mobility-as-a-Service offerings is expected to account for US$3.7T in revenue, (3) $200B of revenue is expected to be generated from rising consumer use of new innovative applications and services that will emerge as pilotless vehicle services expand and evolve, (4) 585K lives can be saved due to self-driving vehicles in the era of the "passenger economy from 2035 to 2045, (5) reductions in public safety costs related to traffic accidents could amount to more than $234B over the 2035 to 2045 time period.
Stanford University economist Tony Seba continues to draw attention this month with a paper predicting that a global shift to self-driving EVs will create a death spiral for Big Oil (USO, OIL) and major automakers caught asleep.
Seba, known for calling the solar energy boom in advance, sees a tipping point when EVs of under $30K can deliver 200 miles of range on a mass production basis. Some of the key snippets from his paper are posted below.
"Savings on transportation costs will result in a permanent boost in annual disposable income for U.S. households, totaling $1 trillion by 2030."
"70% fewer passenger cars and trucks will be manufactured each year. This could result in total disruption of the car value chain, with car dealers, maintenance and insurance companies suffering almost complete destruction. Car manufacturers will have options to adapt, either as low-margin, high volume assemblers of A-EVs, or by becoming TaaS providers."
"The impact of the collapse of oil prices throughout the oil industry value chain will be felt as soon as 2021."
The auto sector is taking the election news out of France very well. Centrist candidate Macron's first-round victory is seen as a positive for EU trade, and thus supportive of automobile sales. In mid-day European trading, BMW (OTCPK:BMWYY) is up 3.3%, Daimler (OTCPK:DDAIF) is 2.6% higher, Volkswagen (OTCPK:VLKAY) trades up 2.6% and it's a 5.3% pop for Renault (OTC:RNSDF).
Notable gainers in U.S. trading include SORL Auto Parts (SORL +3.8%), Fiat Chrysler Automobiles (FCAU +4.3%), Ferrari (RACE +3.1%), Tesla (TSLA +1.2%), Honda (HMC +1.3%), Ford (F +1%), Autoliv (ALV +3.5%), Lydall (LDL +1.9%), Gentherm (THRM +2.1%), Meritor (MTOR +2.4%) and Delphi Automotive (DLPH +2.9%).
Profit guidance from Ford (F -1.4%) for Q1 is sending off some alarm bells in the automobile sector. The company sees Q1 EPS of $0.30 to $0.35 vs. $0.47 consensus and $0.68 a year ago. The positive spin might be that the company is being proactive in adjusting to the changing landscape in auto.
The slide deck from Ford's presentation today includes a few interesting nuggets.
The company expects profit pressure in North America from commodities, emerging opportunities investments, lower volume and F/X. Ford Credit is seen facing lower residual values and tighter margins. Pricing is a concern in Asia.
The presentation also delves into the impact of higher interest rates, NAFTA, tax reform and infrastructure spending in some themes with broad implications for the industry.
Also, remember the term TaaS (transportation as a service). Ford is betting billions on the concept.
Reports of GM talking to PSA Group about a potential sale of its European business could have a ripple effect with supplies. While consolidation could strengthen the overall European automobile industry, suppliers might be pressured on pricing amid a rationalization push. Goldman Sachs warns on Valeo (OTCPK:VLEEF, OTCPK:VLEEY) and Durr (OTCPK:DURYY) in particular, while other auto parts makers could be in the mix if M&A activity heats up more broadly (source :Bloomberg).
Lydall (NYSE:LDL) completed the acquisition of MGF Gutsche GmbH & Co. KG on December 30, for $58M in cash.
The Company used $32M of borrowings from its existing revolving credit facility and the remainder was paid from cash on hand.
Dale G. Barnhart, Lydall’s President and Chief Executive Officer, stated, “I am very excited to have completed the acquisition of Gutsche as it combines two complementary companies in the industrial filtration and technical materials markets. With the addition of Gutsche, we gain an experienced management team and an attractive footprint to serve Europe as well as secure a strong filtration position in the fast growing waste-to-energy incineration market. In addition, we are able to complement our China-based sales with a focus on the greater Asia-Pacific export markets. Gutsche is a well-known leading brand in the industry with an excellent reputation for high quality products and a proven culture of innovation.”
Japanese automakers (OTCPK:NSANY, TM, HMC, OTCPK:MZDAY, OTCPK:SZKMY, OTCPK:FUJHY, OTCPK:MMTOF) are reconsidering strategy in the U.S. after taking in the strong preference by American buyers for SUVs and trucks. The shift in sales mix has contributed to the rising incentive spending needed to clear inventory.
Top execs at Toyota say the company will have to be "very careful" with the North American market going forward.
"It’s a peak and we don’t see a potential for further growth," said Nissan co-CEO Hiruto Saikawa.
Toyota reported earlier today a sharp drop in FQ2 operating profit. Last weekend, news broke that the company may make a serious pure EV commitment.
The shifting ground in the automobile industry has long-term implications for suppliers as well.