MIXED BLESSING: Soaring used car prices has been a big driver of inflation, sign of snarled auto supply chains, and has given automakers, dealers, and renters some rare pricing power. This is starting to change (see chart) as consumer wallets are squeezed. This is a mixed blessing, curbing inflation fears but starting to pressure some auto stocks. New and used car prices have a 7% weight in the US consumer price basket and have made up to 1/3 of price increases. CarMax (KMX), the biggest US used car retailer, recent earnings miss on lower sales volumes and higher bad debt shows the consumer limits. US Manheim used car price rises have fallen sharply, and UK AutoTrader price rises are stabilizing. Drivers are the consumer squeeze, late US tax refunds, higher gas prices. EV prices are more resilient than ICE models, with thirsty pickups down most.
FORECASTS: Global car production forecasts have been cut on the back of the lost demand and supply chain disruptions (palladium, neon, wire harnesses) from Ukraine crisis, higher oil prices, and higher interest rate outlook. Chinese lockdowns introduce further downside risk. But over 82 million cars will likely be built globally this year, a double-digit increase versus 2021, and with pent up demand estimated near 10% of global production despite pressured consumers.
STOCKS: Automakers are in a sweet-spot of recovering volumes and strong pricing. This is forecast to drive profits growth three times global averages this year, and is needed to fund the pricey pivot to EV’s. See @AutoIndustry. But the broader industry, from retailers, like CarMax, lenders like Ally (ALLY), and renters like Avis (CAR), may have seen their best momentum.
All data, figures & charts are valid as of 18/04/2022