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Is There Safety in the Truck and SUV Sector?

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Hertz - The Final Nail in the Coffin

By Daniel Ruiz

Blinders Off, LLC
As a disciplinarian in the automotive sector, my focal point is concentrated on the study of used vehicle values and how they affect the automotive industry as a whole. 
Measure the Cause to Predict the Effect There are several subcategories that help predict the trajectory of used vehicle values that I use as leading indicators. For example, there is a very strong correlation between the performance of Hertz stock and used vehicle values. In June, while the stock was trading at multi-year lows due to excessive pessimism, I witnessed used vehicle values begin to stabilize. I also noticed the amount of vehicles available from Hertz at auction fall drastically. These events made me believe that a strategy change was at hand. Was Hertz reducing the size of their fleet as they have in the past during difficult times? Would Hertz focus on better utilization rates and other cost saving measures? My suspicions proved to be correct. The benefits of stabilizing use…

The Perfect Storm 2 - Autonomics

By Daniel Ruiz Blinders Off, LLC
To better understand why the automotive industry is in the middle of a perfect storm, first go back and consider the also perfect set of events that led to a robust recovery and a record setting 2016 sales year.
Our Last Recession In 2009, the automotive industry faced a great challenge. New light vehicle sales dropped to 10.4 million, GM and Chrysler went through bankruptcy reorganizations, retail dealers closed and many folks lost their jobs. The US  government felt the need to act in order to support the very vital automotive industry (3% of GDP & 10% of manufacturing). The Fed also stepped in to help stimulate the overall economy by reducing interest rates.
Consumer Purchasing Power For the purpose of this piece, the central focus will be placed on the purchasing power of the consumer. With no bottom in sight for falling new vehicle sales, our government attempted to stimulate demand by approving the 3 billion dollar Cash for Clunkers program begin…

A Train Wreck Of Inventory

By Daniel Ruiz

On May 10, 2017, there were 145,763 new 2016 vehicles unsold. Today, 2016 new car inventory stands at 112,310. At the current rate of sale, we will not sell through the new 2016 inventory till the last week of August.
Why this matters Dealers always focus on selling their oldest vehicles first. This is because the majority of dealers floor plan their inventory. As a vehicle gets older, the interest expense grows larger. Because of this, the oldest inventory always gets the prime real estate at a retail dealer location for maximum visibility. Newer arrivals are usually staged in lower customer traffic areas and not discounted as much in efforts to sell the oldest vehicles first. This method of inventory control works great as long as supply doesn't overwhelm demand.

More Supply Than Demand Is Our Current Reality
Here's a visual representation of this in action. On the way to a local park, I passed a dirt lot previously used as farm land now filled with cars.  I looked…

CarMax Fights Outside of It's Weight Class

CarMax Fights Outside of It’s Weight Class

By Daniel Ruiz Blinders Off, LLC

Carmax is undoubtedly the most efficient and dominant used car retailer in the US. They outsell the next 3 volume leaders combined.



However, something has changed. Please consider the following:

Will the inventory turn at CarMax outpace the depreciation?

This is a snapshot of CarMax’s inventory on March 22nd 2017:

As of May 20, 2017, their inventory has grown by over 18%.



Will CarMax report an 18% increase in volume for Q2? In 2016, there was a 4% volume increase from Q1 to Q2.  If sales velocity is lost, CarMax will be left holding excess inventory while new car manufacturers put massive pressure on used vehicle values.  

No longer just competing against other used car dealers.

The day supply problem created by new car manufacturers is now a used car retailer’s greatest threat.



To better understand the effect, we need to put ourselves in the shoes of the consumer.