This Iconic U.S. Industry Is in Early Innings of a Major Crisis…
Ford is in free fall. The second-biggest US carmaker is down 12% since mid-March, and trading at its lowest level since 2012. General Motors (the largest US carmaker) is now trading at its lowest level since November. Both stocks tanked after reporting huge declines in sales.
Toyota’s US sales fell 4.4% last month; Fiat Chrysler’s fell 7%; Honda’s fell 7%. The entire US auto industry is unraveling.
As a whole, auto industry sales declined 4.7%. April was the fourth straight month that auto industry sales have declined. That hasn’t happened since 2009.
Investors aren’t used to seeing this. After all, US auto sales have climbed for seven straight years. Last year, the industry sold a record 17.55 million vehicles.
If you still own car stocks, take this warning seriously. The auto industry hasn’t just hit a rough patch; it’s in the early innings of a major crisis.
Building cars is a major operating cost. Because of this, companies that can’t move their inventory end up losing a lot of money.
Look at what’s happened to Ford. Last spring, it was building more cars than it could sell, and its profits fell for four straight quarters. Its share price has plunged 18%. Now, the same thing is happening to other carmakers. Bear in mind that car companies are cutting production at the fastest rate since 2009.
Car companies are offering low-interest loans, discounted leases, and cash-back offers. The average new car is selling at a $4,000 discount to its retail price, an all-time high. But none of this is working, and inventories are stacking up at the fastest rate since the last global financial crisis. Unless this changes, there will be major problems.