Photo: Getty Images (Getty Images)
The basis of Carvana’s success seems questionable, the pandemic is still a headache for dealers and Tesla. All of that and a lot more in this Monday edition of The morning shift for 08/16/2021.
1st gear: The cars stay big
At least in America, at least for this decade, according to Reuters. The reason is pretty simple. Big trucks and SUVs are what sells, and that’s the only thing that is really important to automakers, despite all the other assertions.
Automakers in North America plan to build more large pickups and sport utility vehicles than electric vehicles by the late 2020s, tracking sales trends that run counter to the Biden government’s goal of halving the electric vehicle market by 2030, according to them the internal production forecasts from Reuters.
Also: Bidens 40 percent EV target by 2030 sure seems like a real big joke whose bum is the fate of the planet.
In a joint statement on August 5, the three automakers named Biden’s goal of increasing electric vehicles to 40-50% of production by 2030 as a “common goal”. That goal would mean increasing the annual North American production of electric and plug-in hybrid electric vehicles to 7 million vehicles or more.
However, according to AutoForecast Solutions (AFS), which compiles production estimates, the entire industry plans to build only 2.6 million battery electric vehicles (BEV) and another 585,000 plug-in hybrid electric vehicles (PHEV) across the industry in 2028 widespread.
If automakers stick to these plans, electric cars would account for only 15% of total North American production in 2028, while plug-in hybrids account for another 3.4%.
In that case, automakers would have to more than double EV and PHEV production within two years between 2028 and 2030 to hit Biden’s bottom 40% target.
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I don’t want to be a broken record here, but it’s all incredibly weak. Our response to climate change was really a preview of our response to the pandemic, wasn’t it? America only shrugs in the face of pressing issues that require rapid collective action.
2nd gear: Tesla’s autopilot is being examined by the federal government
Well, look at this, it turns out that the Feds are not entirely toothless when it comes to regulating the auto industry, because Bloomberg reports that the NHTSA is finally taking a good look at autopilot.
The U.S. opened a formal investigation into Tesla Inc.’s autopilot system after nearly a dozen collisions at accident sites with first-aid vehicles.
The National Highway Traffic Safety Administration research covers an estimated 765,000 Tesla Model Y, X, S, and 3 vehicles from model years 2014-2021. The regulator – which has the power to hold cars defective and order recalls – said it opened the investigation after 11 accidents that resulted in 17 injuries and one death.
“Most incidents occurred after dark and the accident scenes that occurred included scene control measures such as first-aid vehicle lights, torches, an illuminated arrow board and road cones,” the document says. “It was confirmed that all vehicles involved were either using autopilot or traffic-aware cruise control during the approach to the accidents.”
A penny for Elon’s thoughts this morning, although there are no tweets at the time of writing.
3rd gear: Carvana’s profit model is unusual
Used car dealer Carvana makes less than half of its profit selling cars, according to The Wall Street Journalwith the remainder of the profit coming from the sale of loans and other income. That’s why people graduate in business administration to develop profitable businesses that are beyond comprehension. The more complex the better, because then it’s less likely that investors will look up and ask, “Hey, what the hell is going on here?” As long as the profits come.
When Carvana grants a car loan to a buyer, it bundles them with other loans and sells the debt to investors. While other auto lenders also sell loans to investors, they usually keep the debt on their books, making gains and losses over time. Carvana, on the other hand, does not keep the debt and immediately takes profits on the cash sales.
For the time being, this will boost income. Critics warn the practice could leave the company vulnerable if conditions in the debt market change or the loans Carvana grants turn sour.
Indeed, loan sales revenues fell when the securitization markets closed in the first half of 2020. A linchpin of the deal is that Carvana can sell its auto loans to investors at a premium to their face value.
“If credit goes wrong, investors will no longer be willing to pay the same premium in the future and profitability will be affected,” said Seth Basham, an analyst at Wedbush Securities.
Of course, short sellers also appear.
“If the market softens a little so that people are paying face-value on these new loans – God forbid a discount – well, you will get rid of 30% of Carvana’s revenue right away,” said Jared Rose. an investor at Gravity Partners Capital Management Inc. in Toronto who said he had options on the falling stocks.
Carvana says there is no known evidence that profits from loan sales are unsustainable.
4th Gear: US dealers still struggling to do business despite vaccines being freely available
Automotive news this morning has a story with the headline “Virus Issue Returns To Showrooms” that I had to read twice to believe it was real because when is the “Virus Issue” left for each of us? The real story is about how traders may or may not deal with mask and vaccine requirements or both for their employees after new outbreaks among the unvaccinated.
The growing virus has prompted more traders to revive the mask requirement and to implement or consider vaccination incentives – even mandates – for their employees. Many wrestle with how to balance some employees ‘opposition to public health policies with others’ concerns for their own safety. Much is at stake in a tight labor market.
“You’re trying to figure out what to do,” said Kevin Troutman, a partner at Fisher Phillips employment law firm, which advises traders.
One of the country’s largest dealer groups, Asbury Automotive Group Inc., started mandating COVID-19 vaccinations for all new hires this month, but has not mandated or encouraged vaccinations for current employees. Asbury officials said the retailer continues to adhere to recommendations from the U.S. Centers for Disease Control and Prevention, which means that it has instructed vaccinated workers in locations with high infection rates to regain control under the CDC’s revised policy in late July to mask.
A Group 1 Automotive Inc. executive said he was encouraging, but not escalating, precautionary measures. Used car giant CarMax Inc. said it was following updated guidelines from the CDC.
Neither Asbury nor Group 1 offered any incentives for employee vaccinations. CarMax said employees who get vaccinated can receive a financial incentive through its welfare program.
Four of the other listed dealer groups did not respond to requests for details on their policies.
These traders fear that encouraging or asking them to vaccinate will lead some of their employees to call them libtards or something? I agree, this is how the best companies are run.
5th Gear: The used car market is still bad, although this may be the best way to get a car if you need one
The Wall Street Journal has a long history this morning filled with useful tips for navigating the current market, which is severely overheated due to the low number of new cars. We’ve covered most of that here, like not selling your car just to sell it, as that means you’ll have to buy one too and you probably won’t see much net profit. Conversely, if you have an extra car, now is probably a really good time to sell it.
However, here’s a tip I haven’t seen anywhere else, highlighting from me:
[Ivan Drury, an automotive analyst for Edmunds.com] urges consumers to review the terms of their vehicle lease before attempting a sale.
Some auto finance companies have tightened the rules on how long lessees have to wait before unloading their car or truck, forcing some lessees to buy the car directly first, he says. Contact the finance company and familiarize yourself with the terms.
If a dealer can work with a finance company, they have an incentive to offer cheaper terms as they can get payment to set up your loan for the purchase of the car. But Drury advises consumers who are currently leasing and wanting a new vehicle to just go back and do it all over again.
“That will probably be the absolutely cheapest way to get a lift now,” he says. “Slide in the cheapest lease you can to hold on until the inventory gets right on its own, and then you can find this sell-off and all the things we’re used to.”
That makes sense when you think about it!
Back: Behind every car there is a fraud
Some more successful than others!
Neutral: How are you?
My mom refused to get the vaccine “until it’s safe,” which is rooted in a belief that it’s unsafe, a belief she has based on videos she reviewed on Facebook, none of which of course has doctors. because what do you know. I told her to notify me if she was vaccinated so that I could be home for the first time since all this since it’s so terrible not to have to make a mandatory trip to Ohio once a year. I definitely miss driving through Pennsylvania on Interstate 80 only to end up in a state where the fast food options are a bit expanded and the police will stop you if you turn left of downtown.
