Skip to main content

Is There Safety in the Truck and SUV Sector?


By Daniel Ruiz
Blinders Off, LLC

Until this point, a lot of what I've shared with you is theoretically based on my knowledge and experience of used vehicle values and how I believe they affect new vehicle sales velocity. Today, I am going to share some some hard data that I've been researching with a great deal of effort.

 I genuinely believe that used vehicle values have a very significant effect on new vehicle sales velocity. I have explained it on Twitter and on a previous blog post through the concept of trade cycles. Because of this, I am certain that used vehicle values can be used as a leading indicator for inventory management at the manufacturing level, at the retail dealer level and certainly as an investment tool. However, I humbly hold that current used vehicle value indexes sources are not good enough.

 There is a very specific group of vehicles that can be monitored in order to better project results.The Manheim and NADA index both have too much noise in the data. For example, the Manheim Index has no model year restrictions and includes new vehicle price inflation in the calculations. NADA goes up to 8 model years. Both average the data over multiple months and include vehicles which, in my opinion, have little to no impact on new vehicle sales velocity. Therefore, I have decided to make my own index. 
For now, I'm going to use Ford as an example please ignore the red residual line until later. 

 I have said numerous times that passenger vehicles are at a different points in the value cycle than trucks and SUVs.



 This is common knowledge at this point, and most have placed their faith on trucks and SUVs. This includes manufacturers shifting production and rental car companies changing their fleet mix to the better performing SUV and truck sector. Most analyst are looking at fuel prices to mark the top of the SUV and truck market. Here's what they've missed:





 Here's WHY this matters:



 Now back to residuals. What I want to drive home, in simple terms, is that assuming no change in demand, supply precedes price changes. When used vehicle values underperform residual values, the return rate of leases goes up. The opposite is also true. Less vehicles returned means less auction volume supporting higher prices. More vehicles returned means more auction volume supporting lower prices. Look at the charts again and note the acceleration of used vehicle value declines when used vehicle values fall below residual values. So where do we stand today? You tell me if this looks supportive of higher used vehicle values:



 You might wonder what will stabilize used vehicle values going forward. Consider this, a used vehicle is nothing more than a new vehicle transaction that drove off the dealer's lot. 

The answer, years of declining new vehicle sales and we are just getting started.
If you feel that my insight might be a useful part of your investment decisions in the automotive sector, I offer phone consultations as well as in-person presentations through GLG.

These are my opinions and the content contained in or made available through this article is not intended to and does not constitute investment advice. Your use of the information or materials linked from this article is at your own risk.

Comments

  1. Looks like as a consumer its time to try and get two more years out of thee beater ;-)

    ReplyDelete

  2. Great trends charts, this was super helpful. I work in the auto insurance industry and believe that SUVs and trucks are two of the safest vehicles you can own. For student drivers this type of vehicle is always my recommendation. For sedans, I usually recommend the Volvo which has an incredible safety record.

    - J.O. from KW Car Insurance in Medford MA

    ReplyDelete

  3. You provide such a great service. People can get good information from your article and sell a junk car to any right cash for unwanted cars brisbane company and get good cash for their cars.

    ReplyDelete

  9. Hello admin! This is the remarkable article as well as it is valuable for the entire person and I want to say that I would like to write on this subject too. You have an interesting written on this topic.
    cash for scrap cars
    cash for junk cars
    cash for cars
    junk car removal
    car removal brisbane
    scrap car removal
    cash for cars ipswich
    cash for cars brisbane
    cash for cars caboolture
    cash for car logan

    ReplyDelete

Post a Comment

Popular posts from this blog

Used Vehicle Values - The Foundation For The Automotive Industry

The Perfect Storm By Daniel Ruiz Blinders Off, LLC

Please start with the following video to better understand my analysis:
Auto Market Projections


The following topics all have their part in fueling the storm to come:


1) Trade Cycles and How They Affect New Vehicle Sales Velocity

Used car values determine in large the velocity of new car sales. Most new car transactions involve a trade. The level of equity in the trade oftentimes determines whether a new vehicle transaction will be successful or not. Inclining used car values lead to faster trade cycles while declining used car values lead to slower trade cycles. Dismal new car sales volume during our last recession created a shortage of used cars. This created a large supply and demand imbalance that made used car values soar from 2009 till 2014 as seen on this chart.


This time period was extremely favorable for new car sales because consumers found themselves in an equitable position on their vehicles in a very short period of time. To illu…
33 comments
Read more

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.

16 comments
Read more

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…
17 comments
Read more