Join our community of smart investors

The next car crash waiting to happen

Do you really want to buy a new motor?
November 21, 2019

The auto industry is struggling this year, and is it any wonder? Flogging antiquated, filthy internal combustion engines masquerading as a luxury product, lying about emissions and the damage vehicles cause to life and the planet, the people’s backlash has started. Electric and hybrid are well on their way in, but still account for a fraction of wheels on the road. Then there’s regulatory approval, where cities and councils keep changing their minds on congestion charging, parking and refuelling.

Japanese manufacturer Nissan (Jap:7201), whose profits in fiscal first-quarter 2019 fell by 99 per cent, will axe 12,500 jobs and is trying to pin the blame on jailed chairman Carlos Ghosn. German mass-market car maker Volkswagen (Ger:VOW3) this week announced that sales and profits will be quite a bit lower over the four years to 2020, CFO Frank Witter adding, "it is fair to say that the very best of the party is over". Jaguar Land Rover blames Brexit, of course, while Fiat was finally flogged to PSA group after spending way too long on the shelf.

So, I thought I’d have a stab at finding car companies that were a bit more successful. Toyota (TYT), one of the first to develop hybrids, supplies aspiring Uber taxi drivers with the Prius. The chart of the share price is more positive than I would have thought, suffering like most other companies at the turn of the millennium and again in 2008’s great financial crisis. Recovering strongly between 2013 and 2015, triangle consolidation since then is probably preparation for a rush to new highs – and soon.

General Motors (US:GM), the biggest of the US’s ‘big three’, has been remarkably stable between $33 and $42 for most of the past six years; not too shoddy for one of the two auto-makers (the other was Chrysler) that filed for bankruptcy protection in the third quarter of 2009. We see it continuing to hug its mean regression line next year.

The chart of Daimler AG (Ger:DAI) looks top-heavy once again, to the point that I’m wondering whether it will ever manage to hold above €100. In fact, I find it very worrying that when prices fall, they fall so far and for so long. Avoid.

South Korea’s Hyundai Motor Co (Kor:005380) did fantastically between 2009 and 2012, its share price up sixfold – but it’s been downhill since. Slowly, and consolidating on the way down, I don’t think a base is in place yet.

Worrying data published by the New York Fed last week show that US sub-prime auto loans seriously delinquent total $62bn, or 4.71 per cent of the $1.32 trillion outstanding on all classes of motor financing. Arrears are just shy of 2010’s record 5.27 per cent, but unemployment today is less than half (4 per cent) of 2009’s peak (10 per cent). As sub-prime accounts for around 22 per cent of the market, this means that roughly one in five of this type of loan is going sour. Yet specialists lending in this field are still only too eager to advance more than enough money for a punter to buy a car of his or her choice. The reason is that interest rates are sky high, dealers make commissions and brokers take a cut; big bucks all round – until the music stops. Sound familiar?