🔴 Subprime Crisis Building In Auto Sector | Real Vision™

TL;DR

The US auto industry is facing a crisis with declining sales, increasing subprime loans, and an oversupply of both new and used cars.

Transcript

Hi, I'm Grant Williams. About a month ago, in Things That Make You Go Hmmm, I wrote a report called "Car Trouble" about the US auto industry. And I wanted to flesh that story out for you today because it's something that is happening right now, and it's a lot bigger story than people think. To do this, I'm going to enlist the help of a couple of pe... Read More

Key Insights

• 😀 The US auto industry is a significant contributor to the economy and employment, but it is currently facing challenges.
• 😨 The industry is experiencing declining sales, particularly in passenger cars, and an oversupply of both new and used cars.
• 😮 Rising subprime auto loans and the potential increase in default rates further exacerbate the problems in the industry.
• 🚗 The impact of technology and changing consumer behavior, such as the rise of electric cars and ride-sharing services, adds to the uncertainty and potential disruption in the auto industry.
• 🤑 Stocks of automakers, particularly GM and Ford, may be dead money due to the challenges and headwinds facing the industry.
• 🤪 Companies associated with the auto industry, such as finance and auto parts companies, may also face difficulties as the industry goes through structural changes.

Questions & Answers

Q: What is the significance of the US auto industry in terms of its contribution to the economy and employment?

The US auto industry represents 3% of GDP and employs 5% of the US workforce. It is the largest export sector, surpassing aerospace, and is a key contributor to research and development globally.

Q: What has been the impact of Cash for Clunkers on the auto industry?

Cash for Clunkers gave the industry a $3 billion boost in sales volume during the post-Great Recession period. However, it has also pulled forward a significant amount of demand, leading to an eventual decline in sales.

Q: How are subprime auto loans impacting the industry?

Subprime auto loans have reached over a trillion dollars, surpassing pre-credit crisis levels. The fastest-growing sector within this is once again subprime. Delinquency rates are projected to hit 15%, posing a major problem for the industry.

Q: How are falling used car values and oversupply affecting the industry?

Falling used car values have a negative impact on trade cycles, sales velocity of new cars, and the profitability of dealerships. The oversupply of new and used cars is leading to heavy discounting and an affordability issue for consumers.

Summary & Key Takeaways

• The US auto industry represents 3% of GDP and employs 5% of the US workforce. It is a major export sector and a significant contributor to research and development globally.

• Car sales have been rising for six straight years, but the industry is now experiencing the backside of the demand surge and the impact of subprime auto loans.

• Falling used car values and the oversupply of new and used cars are driving down sales volume and putting pressure on the auto industry.