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Auto Sales: Hype Versus Reality, You Decide
Submitted by Lance Roberts of STA Wealth Management,
It was interesting yesterday to watch the media explode in a frenzy of reporting over the "stronger than expected" auto sales. The increase in auto sales to 16.9 million units was certainly a welcome number. However, was it really the "long awaited" sign of economic recovery that it was portrayed to be yesterday?
"These are stunning numbers, especially since the industry is in the midst of some massive, highly publicized recalls," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.
We would view this as a strong sign of a consumer sector emerging more confident with pivotal positive implications for spending and growth later in the year."
Is this really the case? Do these numbers finally foretell the long awaited economic revival? For that answer, we need to look deeper into the data rather than at a specific data point. As I have stated so often in the past, it is the "trend" of the data that is vastly more important that a single data. Let me give you an example.
The Bureau Of Economic Analysis (BEA) provides a large dataset on motor vehicle sales going back to 1976. The most recent tally of 16.77 million motor vehicle sales for May was a whopping 8.3% increase from May of 2013 which was only 15.48 million units on a seasonally adjusted annualized rate. However, if we look back at the data the comparisons are going to be far tougher in August, November and next March and April as total unit sales all topped 16 million. In other words, May's sales figures were not much better than any of those previous months. In fact, the last three months of reported data have 16.4, 16.04 and 16.77 million units. The increase in sales followed very sluggish sales from December through February as extremely cold winter weather suppressed car shopping activity to around 15 million units per month.
The single data point of 16.8 million units is better than it was in 4th quarter, but about the same as it was in previous months which doesn't tell us much about overall activity. However, what is often missed by the media in the scramble to produce a headline is to provide "context" around the data. By analyzing longer term data trends, "context" is created to provide a deeper understanding of what a single data point actually means.
This series of charts should help provide some "context" to help formulate your own conclusions about the strength of auto sales and the economic recovery.
The chart below shows total motor vehicle sales (seasonally adjusted) back to 1976. The red dashed line is the current level of total sales. The last time that total sales were in a rising trend and reached 16.8 million units was in July, 1998. Current levels are more closely correlated with prior peaks in sales.
As we discussed yesterday with regards to the ISM report, we can remove some of the obfuscation of the "seasonal adjustment" process by using a 12-month moving average to smooth the otherwise volatile non-seasonally adjusted data.
Note: Notice that the early summer months ALWAYS experience a sharp jump following low points of sales in January.
The annualized growth rate of unit sales is on the decline. The red dashed line denotes a 0% change in annualized unit sales. A decline to a -10% annualized rate of change has historically denoted the onset of recessions.
While motor vehicle production has certainly ramped up in recent years, the question is whether or not current sales are keeping up with production. The charts below relate to inventory. High levels of inventory are not a sign of a healthy environment as "inventory gluts" lead to a myriad of other problems. However, if sales are stronger than production, the ratio should be at lower levels which is a sign of a healthy environment.
One of the most important points that is continually missed in the discussion of unit sales is how it relates to the overall population. If 10 units are sold to a population of 100 that is one thing. However, if 10 units are sold to a population of 200, it is an entirely different story. The chart below shows the number of units sold on a per capita basis. I have only used the working age population of 16 years and over which covers all potential domestic drivers.
(Note: It is interesting to note that auto sales per capita did not decline much during the recession of 2001. This was due to the fact that most of the economic impact was centered around the decline of the Nasdaq stock market. However, the decline in sales during economically centered recessions was a far different story.Currently, sales per capita has only recovered back to levels that were only witnessed at the troughs of previous economic recessions. Unfortunately, it appears that the growth in unit sales is entirely due to increases in population, and replacement needs, as opposed to substantially stronger economic health. The historic average for unit replacements has run at about 6% annually. The chart below shows the total increase in population, ages 16 and over, plus unit replacements reduced to 5% as compared to the total increase in unit sales since January 2009.
Lastly, while the media remains focused on total light vehicle sales as a sign of economic recovery; would not "heavy trucks" be a better overall indicator of economic health. If the economy is indeed getting stronger, the increasing level of demand on businesses for production should be reflected by a rise in the demand for trucks. (The red dashed line denotes current level of heavy weight truck sales.)
It is clear that motor vehicle sales have recovered since the financial crisis and along with it a modicum of economic growth. However, it is also important to note that the recovery has been weak at best which leaves little "wiggle" room for an exogenous shock of any kind.
Then there is the question of sustainability. The current level of unit sales has risen from its lows but now appears to be reaching a potential saturation point. At the bottom of the financial crisis, the quantity of sales suggested that the average American would keep their existing vehicle for 25 years. Today, that is no longer the case and much of that excess replacement need is likely filled.
Furthermore, with dealer inventories reaching extreme levels, financial incentives to move cars out of the showroom will continue to become an ever more pressing need. Subprime auto loans are already back in vogue along with little or no money down deals. Since that worked out so well last time, why not do it all over again?
The important point is that "context" is much more useful in the decision making process than the headline driven "knee-jerk" reactions to isolated data points. The motor vehicle data may be telling us a different story than headlines would suggest. If that is the case, the headlines will state that analysts are "shocked" by the "unexpected" outcome.
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Pass the stuffing.
The MSM gives a number and we’re supposed to believe it?
Sold to who? Probably sold for scrap to build more cars for channel stuffing.
If I recall, the recession of 2001 was when interest rates dropped to zero on new cars, so the lack of a sales drop isn't surprising.
And we all got a check from President Bush to go spend. Remember that? Wasn't it like $1,000. Shit thats enough for a down payment on a house now....
As I said before. this is bullish for thew repo men business when these "buyers" with 84 month loans learn the resale value of their car is way underwater and they stop payments on it.
The "Repoman Recovery"
A "Repoman Economy"
An awesome movie too:
http://www.youtube.com/watch?v=DLGrXGEMOSo
Sales are probably way up because of hedonics. Each car now counts as ten old cars. Comparing a 2014 Mustang to a 1964 Mustang shows that the new one is worth ten of the old. Now we have air bags, satellite communications, 89 microprocessors, and almost no emissions. </sarc>
Channel Stuffing Chevy, isn't that a country tune?
They roll off from production
A hard day's work for sure
But tell me who's a buyin
That Chevy on the showroom floor?
It looks nice and shiny
But I can't find money for rent
Those channel stuffed Chevys
Are all stuck behind that fence
Those channel stuffed Chevys are stuck behind that fence...
'Guitar solo'
Drove past the the local Chevy dealer last weekend, lot full of cars and no customers. GO TEAM AMERICA!!!
Just bought a used Buick Enclave. Very nice. We'll see if it has a crap load of recalls or reliability issues. But, the buick was less than the ford, eurobrands and asian brands. We'll see if we bought a lemon. Regardless, it's way fucking nicer than the Dodge Grand Caravans we've owned. And it sure as hell can't have as many issues as that POS had. Chevy/GM may suck, and be rolling death traps, but they're better than dodge. Holy crap did those crap boxes suck. I guess that's why they're half as much as a toyota or honda or any other minivan brand.
"Chevy/GM may suck, and be rolling death traps, but they're better than dodge."
LOL - where do I sign up?!
"GO TEAM AMERICA!!!"
Yay Government Motors...
I work at a Chevy Cadillac dealership in New England, selling cars to folks who inquire over the internet.
Jan and Feb was very slow (weather really did have a lot to do with it) March was awesome, April was really good too and so was May.
Our channels are not bad. Everything is moving and getting sold little by little. (Except Cadillac ELR! Haven't touched one of those yet, luckily we only have 4)
I've been selling GM since 2010 and I've been doing good. The view from here isn't bad.
Facts make my head hurt.
Last year we sold 10 cars for $30,000 apiece, and this year unit sales soared 20% and we sold 12 cars for $20,000 apiece. Times are good.
Next year sales may grow even more - and especially of Obumma gives out more cash for clunkers...
Next Move: Roll these Q1 car purchases into a tradeable product and call them CBS's - car backed securities.
Grow that economy - ew-ah!!
New "Heavy trucks" will be used to carry unsold cars from place to place. GS will sell Chevy Cobalt futures, and GDP will skyrocket.
The whole exercise is to make sure POTUS looks good until some white devil is elected then it's all his/her fault.
Party Pussy shit.
I don't know how to interpret this chart. It's not green, and isn't going up and to the right. These make no sense.
whatever it takes to get this fraud stock mkt up...we've gone an order of magnitude beyond "full retard" at this point...full "fantasyland" to be more accurate
I thinking the seasonally annualized adjusted revised numbers will be better.
promotions and zero down bullshit to subprime yuts and minorities ? see a huge default on the horizon and how can you reposess from Mexico
Why would they go back to Mexico? https://www.youtube.com/watch?v=1B9tvkB9yqQ
It really pisses me off seeing them in their late model pickup trucks full of kids on welfare at the grocery store buying food with their EBT card.
Hope you also get pissed off when you see bankstas rolling 'round the 'hood in their Lamborghinis, Rolls, Porsches, and Maseratis...and buying caviar with rolls of higher denominated FRNs (Benjamins...), because you know how the one (TPTB), leads to the other (dependency class utterly beholden to TPTB...) Not to mention corporate and military contractor welfare queens - they piss me off too...lazy bums...with the Pimps at the top (CEOs), and just going back for more and more of the fed goobermint's teats...don't they know when to stop (having kids and sucking gooberment teats)?! What's WRONG with these people?
Sold to whom? The local dealership lot to slowly rust into the ground waiting for a buyer?
Offer car loans at negative interest rates, a la Draghi. Inventory problem solved.
I wish I gave a shit. Just more numbers and what I think, be it right or wrong, will make no difference whatsoever in how the markets react, and which its relevance is only the timing of its eventual crash back to reality, most likely crushing all of us in its fall, participants or not. Damn them all to hell.
Those mother fucking "reporters" that spew out tele-prompter bullshit make me sick...
does TOTAL MV Sales include the used SUV we just bought?
We haven't bought a new car in years. Way too Frigging expensive.
Years ago I could buy a new car and drive it til it needed expensive repairs to keep going. Now, I buy used and try to make it last as long as the new one did. I pay just as much for a used car now as I did for a new one then, and I tack on a crapload more for expensive maintainance and repairs.
Just another example of our lower standard of living.
Most of the people I know who are buying vehicles are buying used three years or older venicles.
At some point our much older vehicles(13 or more years) have to be replaced. But that does not mean going hog wild.
The MSM can play "Happy Days are here again...", but those of us using our own dollars know better.
Just bought a 2014 Cadillac XTS vsport platinum. Only stickered at $70,000.00 dollars! With GM family purchase (-7,000.00) and incentivess (-2,000.00) Car was only $65,000.00 out the door with Mi. 6% sales tax. so after putting 20 grand down (12K trade in plus 8K cash) and with .9% financing for 36 months My payment is ONLY $1,267.00!!!!! And the best part is, The Cadillac dealer here at Cadillac of NOVI, MI. Is so BUSY You pratically have to take a number for a salesman!! They are the busyest Cadillac Dealer in America. I ask the finance person about business and she said that 98% of all their sales are LEASES!! She has never seen anyone take a payment like mine. They only want the lowest payment possible and stretch it out to 84 months.. Do You think these cars might be grossly over priced?
I remember about 10 years ago the sticker was like $48k.
If your payment is $1,267, how much is your auto insurance?
While I think the "rich" are forced to subsidize almost everything else, at least in auto insurance is there some semblence of a break given (given the care taken and presumably the lessened accident risk)? From a cost/benefit abnalysis, it's the cost of full coverage auto insurance that prevents me from drving anything that would require such, but maybe I'm mistaken.
That's crazy. Bought my house wiith 3 acres of land for 57,500 in 1995. House was built in 1971
Lance, great article. clear, concise, factual.
What is missing from the data is the number of sales attributed to corporate, government and rental fleet sales. With ultra low borrowing costs, the carry forward on these groups must be enormous. A walk around my neighborhood does show a fantastically high number of temporary sales plates, especially in relation to the number of almost non-existant home 'for sale" signs. With a new car and a refinanced house, these are the halcyon days of "net interest to income" days.
I live within earshot of a factory that stamps out metal widgets for new autos.
The plant runs 24/7 for the last 18 months, only stopping for maintenance.
The thing is, I know the channel is stuffed and this factory is running on bank
loans via QE. What a way to run an "economic recovery". So what is a Zerohedger to do?
Well I'm glad you asked, spend the weekends working on the remote property for when SHIF time comes.
"spend the weekends working on the remote property for when SHIF time comes."
I spend nearly every day working on my property (have a farm started). I LIVE where I plan to be when TSHTF. Don't wait! If there's a community you want to be somewhat established there, and when TSHTF you won't want to look like someone just dropping in.
8 year old pickup, 10 year old car, 34 yeor old motorcycle. Tsk, I guess I'm a piss poor American consumer and the government stormtroopers will likely send me to the re-education camps first.
23 year-old car. 21 year-old truck: diesel, no electronics- can work on it myself. My tractor's my newest vehicle (8 years old).
15 year old Chevy Silverado
7 year old Mustang GT
20 year old Honda Magna VF750.
Mustang has a few electronics but damn it sounds as good as my V4 muscle bike :)
I have a 13yr old Lexus LS430 I bought for cash and it continues to run a like a champ at 175k miles. My attitude toward the purchase of anything "new" (with the exception of PMs) has undergone a seachange since 2008. I refuse to play the bankster game on their own playing field and will never get back on the consumer debt hampster wheel. I make plenty of fiat paper every year but don't need all the shiny toys to make my pecker feel bigger. Give me liquidity, hard assets and a nose for buying good stuff on the cheap from overlevered/overextended sheeple.
According to MSM this Lance Roberts is just a dirty communist.
Been thinkin' about tradin' in my '57 Chevy sedan-delivery on a new Turdmobile but the wife won't let me. What should I do?
Use it to haul stuff (as it was designed to do) or trade it in on a tractor. Working assets... got rid of "collectable" stuff years ago.
I have buddies in this sector. A ridiculously high percentage of the "sales" are people trading in on leases and leasing another $600 per month payment. Very few actually buy the car with financing or buy it straight up like I do. They want the lowest payment possible and with leasing they can "afford" to go big. As for me, I will never have a car payment. Don't miss them at all.
Just give free GM cars with defective parts and GPS tracking to terrorists.