Bloomberg: Ford to Idle Four Factories as Slowing Sales Bloat Inventory

[RichardJensen]

 

Ok, I don't have much experience with traditional banks though, I've always used credit unions for banking services including the mortgage on my home. Do you have examples of banks like you described?

 

Not sure though how the housing and mortgage markets in 2006 relate to Ford idling factories in 2016, or Ford's, Chevy's, and Toyota's 2016 market shares in the car market.

 

First of all, none of the big banks anticipated the bursting of the mortgage bubble in 2007, that's why I said, "imagine".

 

Secondly, it should be quite clear how the mortgage bubble relates to the cyclical nature of the car market.

[Anthony]

 

Imagine the housing bubble c. 2006. Imagine what analysts would've said about a bank that stopped aggressively marketing mortgages, that raised underwriting standards and saw loan originations drop while other banks saw theirs continue to increase.

 

Imagine what analysts would have said, in 2006, about such a bank.

 

 

The mortgage company I worked actually did that very thing (surprisingly smart management team who saw the impending doom long before others). While our originations did drop initially, the lower default rates raised the availability in our warehouse line of credit and made our portfolios much easier to sell on the secondary market.

 

Buuuuuuut.......

 

We still went out of business when the credit lines froze everyone out and everyone stopped buying MBS. We ended up not being able to sell a loan portfolio and the very next day we received notice from our warehouse lenders that “events of default” had occurred under their agreements. Chapter 11 and bye bye 10 years of climbing the corporate ladder.

 

¯\_(ツ)_/¯

 

Bones Epilogue: I made a complete career change and ended up smelling like roses in the long run.

Edited October 21, 2016 by Anthony

[rperez817]

 

His point was that what if a bank had "batten down the hatches" so to speak before a downturn and was prepared for it to happen and wasn't put in a position to collapse because of that. That's what Ford is doing now.....a downturn is predicted (the degree of which we obviously don't know), but they're preparing now for it to be in a stronger position when it does arrive. As opposed to other companies which will have to panic and take more drastic measures when it arrives and catches them off guard.

 

 

 

First of all, none of the big banks anticipated the bursting of the mortgage bubble in 2007, that's why I said, "imagine".

 

Secondly, it should be quite clear how the mortgage bubble relates to the cyclical nature of the car market.

 

Ok, thanks for explaining. Automotive industry is cyclical, that is true. Going back to the Automotive News data that Harley Lover shared, Ford increased market share in the first nine months of 2016, while Chevy's and Toyota's market shares declined in that time frame.

 

I think those market share movements more are a result of each of those companies' strategies, rather than the cyclical nature of the car business. Last year, GM focused on reducing fleet sales dramatically, and they did that well into 2016. GM made it clear they would give up market share in the short term in order to focus on improving margins and brand image and keep production better aligned with real demand. Since Chevy accounted for most of GM's fleet sales (Buick, Cadillac, and GMC fleet volumes were relatively low), it makes sense that GM's strategy would result in lower market share for Chevrolet this year. Going by GM's 2Q 2016 financials, their strategy paid off! Here's an Automotive News article explaining GM's strategy http://www.autonews.com/article/20150730/RETAIL01/150739983/gm-pulls-back-on-rental-fleet-sales-seeks-better-margins

 

Ford was heavy into fleet sales in the first half of 2016 which explains in part its increase in market share; Toyota has traditionally been more retail buyer focused than GM and Ford with lower and relatively stable proportion of fleet sales; Toyota's market share decline is most likely due to supply and demand dynamics on the retail side.

 

It will be interesting to see how things play out as the car market as a whole declines in the years to come.

Edited October 21, 2016 by rperez817

[jpd80]

while GM boasts about having lower fleet sales, that came from a mixture

of eliminated daily rental sales, those outdated Cruze, Malibu and Impalas

as well as Captivas as well as its ending of the express 150 and 250 vans,

Colorado and Canyon then replaced those commercial van sales with retail sales,

new versions of Cruze and Malibu sold almost exclusively into retail as well...

 

The big mover in Ford's fleet sales has been the Transit in commercial and Utilities in daily rentals,

Those vehicles are giving Ford good margins in fleet sales that showed up in Q1 last year.

At the moment, it's like Ford is steadying production now to avoid a slight excess in inventory

as we go into the quieter months before fleet sales pick up.

 

I don't know what GM's plan is with larger inventory numbers, do they really think sales will

stay strong for them through to January? This is where they are most exposed and will need

to work finance to the max to get all those retail sales done....

 

and that's where Richard's analogy springs from, it's how GM is getting those retail sales,

the added incentives, all the 0% longer term financing and optimistic trade in values to

get the lowest possible repayments is really subventing problems for about 3-4 years.

Edited October 21, 2016 by jpd80

[akirby]

Toyota does a lot of fleet sales on Camry and Corolla - as much as Ford does with Fusion and Focus IIRC. But Toyota does not have the commercial and government fleet volume that Ford and GM enjoy and those are very profitable segments.

 

Honda is the only major player that has virtually no fleet sales.

[RichardJensen]

 

 

 

Ok, thanks for explaining. Automotive industry is cyclical, that is true.

 

The question is, what company is taking the most pragmatic steps regarding the coming slowdown--

[rperez817]

 

The question is, what company is taking the most pragmatic steps regarding the coming slowdown--

 

Subaru. They prospered during the last slowdown, and took lots of pragmatic steps from that time until now: Subaru refreshed or did model changeover for its entire U.S. model lineup in the last three years; their products are consistently rated well; their customer base along with Honda has the highest average income of any non luxury brand (important for a pending slowdown because those customers could afford more expensive cars but buy Subaru because they want to); they have managed growth carefully; they have the lowest average Days to Turn rate in the industry according to Edmunds.

[jpd80]

 

Subaru. They prospered during the last slowdown, and took lots of pragmatic steps from that time until now: Subaru refreshed or did model changeover for its entire U.S. model lineup in the last three years; their products are consistently rated well; their customer base along with Honda has the highest average income of any non luxury brand (important for a pending slowdown because those customers could afford more expensive cars but buy Subaru because they want to); they have managed growth carefully; they have the lowest average Days to Turn rate in the industry according to Edmunds.

 

In terms of automotive companies, Subaru is a small player globally and in North America,

it is exposed to currency shifts and external suppler issues that can cause huge reductons

in profit.

 

Last quarter Fuji Heavy Metals took a $248 Million charge over defective Takata airbags,

Subaru aims to recall around 2 million vehicles this year.

 

 

link

 

Lower N.A. profit

North America, which accounted for about 69 percent of Subaru’s global sales, saw its regional operating profit decline, mostly on the back of foreign exchange losses, Takahashi said. Regional operating profit decreased 9.8 percent to 24.0 billion yen ($234 million).

North American sales, however, remained robust, climbing 11 percent to 170,000 units.

 

Average transaction prices for Subaru in the U.S. dipped 1.4 percent in June, and were flat for the first six months of the year, according to Kelley Blue Book data..

Edited October 22, 2016 by jpd80

[akirby]

The question was between GM and Ford.

[RichardJensen]

 

Subaru. They prospered during the last slowdown, and took lots of pragmatic steps

 

Not the least of which was securing a hefty investment from Toyota: http://www.leftlanenews.com/toyota-to-nearly-double-investment-in-subaru-maker-fuji.html

[atomcat68]

 

The truck plant in San Antonio (TMMTX) has a capacity of 200k units/year and the one in Baja California (TMMBC) is rated for 90k units/year, so you're not going to see Toyota pickup truck production levels comparable to F-Series anytime soon.

 

Nonetheless, in Sept. 2016 Toyota pickup sales set an all time record for the month and YTD. Inventories for both of Toyota's U.S. pickups are very lean, especially Tacoma.

 

My guess is that if the truck was a massive hit, they would have converted a USA car plant (Corolla lets say) to truck production and send the less profitable car somewhere else to mirror what everyone else is doing.