Total sales came at around 17.47 million units, breaking the previous record of 17.35 million from the year 2000.
In December alone, Fiat Chrysler (FCAU) recorded a 13% year-over-year rise in sales. Nissan Motors (NSANY) reported a 44% gain. Toyota Motors (TM) reported a 10.8% gain. Ford (F) saw an 8.3% gain. General Motors (GM) reported a 5.7% rise.
And you know what happened in the wake of this news? Auto shares all tanked.
GM broke to a three-month low of $32.43. Ford dropped another 1.8%, extending its losses from the 2014 peak to 24%. Car dealers like AutoNation (AN), Group 1 Automotive (GPI) and CarMax (KMX) are also continuing to trade like death warmed over, down 16%, 26% and 31% from their peaks.
|Year 2015 was a big one for the auto industry.|
What gives? The “Peak Auto” theory, that’s what. Investors are collectively deciding that the best news is behind the auto sector — and that things are only going to get worse from here.
Take those December sales figures I mentioned earlier. While the year-over-year gains look strong on the surface, several of those percentage increases actually lagged analyst forecasts. Sales figures from the major auto dealers are also starting to miss targets.
Then there’s the biggest elephant in the room, as I see it: More auto lenders have extended more auto loans to more auto borrowers than ever before — even as those borrowers have been less deserving of cheap credit than at almost any point in history.
A few startling statistics: Auto debt outstanding topped $1 trillion in the third quarter of 2015, the highest ever. But more than 19% of today’s loans are going to subprime or “deep subprime” borrowers — and total volume for lower credit score borrowers is just shy of its 2005 record.
Indeed, lenders are basically giving loans to anyone with a pulse. The New York Fed recently found that application rejection rates have dropped to 3.3% from more than 10% a few years ago. The average loan now stretches out to a record 67 months, while 27% of U.S. loans sport terms of six to seven years. That’s because buyers can’t afford their monthly payments any other way.
|“Lenders are basically giving loans to anyone with a pulse.”|
Personally, I see some troubling similarities between what the auto lenders have been doing recently to what the mortgage lenders did back in the mid-2000s. So I’m concerned the auto industry will ultimately face a toxic combination of slowing sales momentum here in the U.S., ongoing weakness in key foreign markets in Asia and Europe, and a potential surge in future auto loan delinquencies and defaults.
Bottom line: If you own auto stocks or stocks leveraged to the auto industry, sell them. Or if you’re more aggressive, you may want to target them with select investments that rise in value as stock prices fall.
I put just such an auto-focused position on recently in my Interest Rate Speculator service, and it’s already paying off nicely for my subscribers.
It’s good to be back in the saddle after spending some quality time with my family these past few days. Of course, I always closely follow the markets for you when I’m on vacation anyway — and as you know, it was one heck of a rocky start to 2016. Many of the same problems that hurt stocks in the back half of 2015 clearly didn’t go away just because the calendar flipped.
That shouldn’t come as a surprise, as it’s precisely what I wrote about a few days before the ball dropped in Times Square. Some of you also weighed in with related concerns, suggesting this kind of troubling action could persist.
Reader James C. said: “Growing international capital flows set the stage for devastating currency crises in the 1990s and for a globalized financial crisis in 2008. The growth of the shadow banking system, without any corresponding extension of regulation, set the stage for latter day bank runs on a massive scale.
“These runs involved frantic mouse clicks rather than frantic mobs outside locked bank doors, but they were no less devastating. What we are going to have to do clearly is relearn the lessons our grandfathers were taught by the Great Depression.”
Reader Chuck B. said: “I read elsewhere something from the ‘Stock Trader’s Almanac.’ It says that over the past 65 years, January has been an accurate indicator for the following year, nearly always. And the first five trading days show how January will go 87.7% of the time.
“Every down January since 1950 preceded either a bear market, a 10% drop, or a flat market. Is yesterday’s big drop telling us something?”
Reader 151 added: “I think this will be a harbinger of things to come. I looked back at the prognosticators from the firms below from last year. All were wrong: TOO HIGH.
“Goldman, Barclays, and Credit Suisse were at 2,100. A bit high, but not too bad. But you also had Citi at 2,200, UBS at 2,225, MS at 2,275, Oppenheimer at 2,311, and RBC at 2,325.”
Thanks for sharing. Forecasting can be a tough business, as the “misses” you chronicled make clear. Suffice it to say here that I continue to see troubling signs behind the scenes in the equity, currency, and bond markets — and that’s why I have reiterated a cautious outlook over and over again since the early summer.
Do you think that caution is warranted? Or is 2016 a year where the markets will shine? Tell me about it in the comment section below.
Faced with a hideous start to trading in 2016, China’s Communist leaders started throwing money at the markets overnight. State-backed funds started buying stocks, while Chinese regulators suggested the ban on large insiders selling shares could be extended beyond its planned expiration on Jan. 8. The People’s Bank of China also conducted so-called reverse repo operations to increase market liquidity.
Why is there so much oversupply in the materials business — and why aren’t miners cutting back production even more aggressively? Blame “supermines,” huge new facilities designed to produce more copper, iron ore, zinc, and other commodities than ever before, according to the Wall Street Journal.
Global mining firms planned and started developing these mega-properties a few years ago when pricing was much better. They can’t just turn that supply off without losing even more money and potentially defaulting on even more debt. So they’re continuing to overproduce despite lackluster demand and lousy pricing.
Having health insurance is better than having no insurance. But a New York Times story notes today that even the insured can face financial ruin in the event they get very sick. That’s because insurers have jacked up deductibles and other out-of-pocket costs for consumers in recent years. Interesting survey data on this trend can be found in the linked story above.
What do you think about China’s latest attempt to manipulate … er, calm … the domestic stock market? How about the continued weakness in commodities, and the lack of a more aggressive supply response? And if there’s anything you’d like to add to the health care insurance debate, I’d love to hear about that below, too.
Until next time,