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A Clean Bill of Health

A Clean Bill of Health
By Daniel Ruiz


If you’re familiar with my work, you know that I approach automotive analysis a bit differently than most. Many years of experience and research have unveiled used vehicle values as the main driver of retail sales velocity. In my professional opinion, proper management of residual values is an absolute must in order to maintain healthy replacement cycles.   


Many are concerned about the massive wave of lease maturities that lies ahead, present company included. While I can assure you the concerns are valid, it’s important to note that exposure to this problem is not shared equally by all manufacturers. As you can see in the chart below, Ford’s securitized lease maturities peaked in the 4th quarter of 2016 perfectly matching the bottom in 36-month auction values.




Ford was one of the first manufacturers to publicly voice concerns about falling used vehicle values and the residual risk associated with it. They chose to manage the situation by reducing the number of lease originations in order to stabilize the value of their used vehicles. This decision gave some of their less prudent competitors an advantage at times but the strategy is yielding the desired result. In the long-term, what was once a disadvantage will likely turn into a significant advantage as competitors struggle on the frontside of their lease maturity curves and Ford rests comfortably on the other side.


I believe that Ford’s decision to not sacrifice long-term stability in the pursuit of unsustainable short-term growth is somewhat underappreciated and misunderstood by the investment community. From my perspective, Ford’s outlook is positive and the current stock price is very attractive for a long-term hold.  

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. For help with your automotive research, please contact me here.

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The Perfect Storm









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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…