AN - AutoNation
This is my personal opinion, do your own research, yada yada yada.
Im going to keep this brief and continue to add more as the research continues. Im also going to update the post with current indicators as they move so it is easy to see any trends all in one place.
Ive been looking into the auto market for the last few weeks and I believe there are challenges that the market has not priced in yet.
My opinion is that the auto industry is due for a haircut due to macro conditions. (If you are still not completely up to speed on the current macro landscape, start with the inflation leading to stagflation post then head over to the stagflation leading to recession Kodiak Bear Thesis. I know you have to chew through them, but the analysis in the comments from many members in Valhalla is where the real value comes from IMO.)
There are a few statistics I want to share about the auto market that led me to AN.
American’s currently hold over 1.4 trillion dollars in auto loan debt. This has continued to climb since the GFC in 08. For a comparison, this number in 2010 was 670 billion.
Of that 1.4 trillion in debt, 46% are underwater.
That surprised me, but even more so when you consider that used cars YoY have been up over 30%.
According to bankrate here is the breakdown of average car payments currently in the US.
[Screenshot_20220606-192746_Chrome]
Both new and used monthly payments show double digit percentage increases YoY, this is obviously concerning because regardless of what heppens in the economy, Americans will have this payment for awhile. The average maturity on an auto loan right now is just shy of 6 years. While the average purchase price has climed to $37k, a new ATH.
As we know, American’s personal finances have been getting squeezed from inflation. We now have the lowest saving rates in the US with the highest ever consumer debt. We can see this already impacting the auto lending world.
According to Experian as of last month, Sub prime auto defaults are at the highest levels since covid April 2020, while the broad auto lending market just saw its first increase in default rates since April 2020.
The federal reserve also plays a big role in the auto market. Everytime the fed raises the fed funds rate, auto interest rates obviously move up too. This is the main tool they use to lower demand and it instantly affects the auto market.
As I was trying to figure out how lenders could easily roll old loan balances into new loans on a car, usually one of the fastest depreciating assets, I came across something interesting in the Dodd Frank Act of 2009.
The Dodd-Frank Wall Street Reform and Consumer Protection Act was inacted in 2010. You can read about it here:
There are alot of pieces to Dodd Frank but the main purpose was to limit risk in our financial markets by inacting widspread regulations and opening up transparency for the consumer. One of the key pieces was to regulate the preditory lending practices we …
I did a little write up on the auto industry, currently loans sits near 1.4 Trillion, with an average payment on a new vehicle sitting around $700/month.
Edit: I tried just sending the link, not sure why it expanded like that, my apologies
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