Bottom-Up Automotive Analysis

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 i...

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 corre...

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...

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 ...

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 ...