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WHY YOU WILL PAY MORE FOR YOUR NEXT CAR TRUCK OR SUV  (IF YOU

WAIT)  (WHAT YOU DON?T KNOW COULD COST YOU MONEY)

 

a.       Auto companies are decreasing inventories. Auto companies once dominated by out producing their competition. This strategy failed in a big way and they have learned their lesson, production that meets demand is the responsible strategy. No more big rebates to move excess inventory.

b.      They are under pressure to show a profit, the boards are looking for higher stock prices. The major auto companies have announced their intention to decrease supply to meet demand.

 

Huge pent up demand.

a.       The pre 2008 sales rate for autos in the US was averaging around 14 million              units per year.

b.      The rate of sales since 2008 has been 9.2 million to 11.4 million sales per year resulting in a pent up demand of 9 to 15 million units. These units will be sold when the economy turns around causing even more demand on a reduced inventory of vehicles. More demand on lower inventory means higher prices.

Retail Sales Jump on Auto Strength

U.S. retail sales surged in October, rising above expectations on robust car sales and solid spending for a broad array of merchandise going into the holiday shopping season. The strong gain is important for the economic recovery. (Read more)
Source: The Wall Street Journal

Five Factors Will Drive Bigger Auto Sales in 2011

U.S. new-car and light-truck sales are headed for double-digit percentage gains in 2011. So predicts Paul Taylor, chief economist of the National Automobile Dealers Association, which explains why in the following: "The auto industry is coming back strong from what has been a difficult economy," Taylor says. "Auto sales are playing a key role in leading the economic recovery." With the average age of cars and trucks on the road today at more than 10-years-old, Taylor says Americans will need to replace their aging vehicles. This fact, combined with low financing rates and wider credit availability, will help boost new-vehicle sales 12 percent this year, he says. Taylor says that higher gasoline prices will also increase demand for the more expensive hybrids that typically languish on dealer lots when gasoline prices are lower. Sales of diesel cars and trucks will increase as well, he says.

 

Historic low interest rates won?t last.

a.       Once again supply and demand will play a role. Today?s rates are the lowest in decades, when the qualified buyers begin to enter the market in numbers; the rates will again begin to rise.

Banks are recovering from the mortgage meltdown, when their balance sheets return to normal they will again be looking for qualified borrowers to again make a profit. Profit means rising rates. Bankrate: Avg. Car Loan Rate of 6.21% Lowest in Decades

Interest rates on auto loans are hitting record lows, a boon to car buyers and a benefit to the nation's recovering auto industry. The interest rate on a four-year loan for a new car averaged 6.21% in the latest weekly survey of major banks and thrifts, according to Bankrate.com. That's the lowest average rate in more than two decades of tracking. "What's really driving our market right now are these low interest rates," says Pete Greiner of Greiner Ford Lincoln in Casper, Wyo. "The national lenders became very competitive." Not only are customers benefiting from the low rates, but the value of their trade-in is up. Both factors lead to higher car sales, says Paul Taylor, chief economist for the National Automobile Dealers Association. Some buyers take advantage of lower rates to buy larger or fancier vehicles. Others just pocket the savings, says Tim Smith, who runs Bob Smith BMW-Mini in Calabasas, Calif. "It goes both ways,"

b.       

c.        

Net income falls on higher interest expense Revenue gains in all areas of the business helped drive up third quarter operating profit for AutoNation Inc., but net income dropped, primarily on higher interest expense

 

Investments in technology, safety and economy are driving up cost and price.

a.       Customer focused technology such as navigation, blind zone alert, back up camera, and power lift gate all add cost to future products.

b.      The cost of increased fuel economy and safety is mandated and every year auto makers are forced to raise prices to support these improvements.

c.       A recent example of the cost of new technology is the electric Chevrolet volt. This car will cost 1.6 times what an equivalent non electric car will cost. Gm forecasts it will loose money on this vehicle for the first 2 years of production even at the higher price.

Electric Cars Need 2 Years of Government Aid: Renault CEO

Electric cars will need two years of government support in developed markets before they can take off on their own, Renault Chief Executive Carlos Ghosn said on Tuesday

 

Monetary pressures will drive up the cost of all automobiles new and used.

a.       Inflation is probably the largest factor in the rising cost of autos. When the economy begins to turn, the supply will once again be outpaced by demand. Every supplier will need to raise prices to keep up with their rising cost. Does anyone remember what happened during the Carter era? Interest rates were at 21% and gas lines around the corner because production did not keep pace with demand. Many Wall Street advisors are recommending investments that are inflation proof. What do they know that we don?t know?

b.      Another monetary pressure is the valuation of the dollar versus other currency. Lower dollar means imports are more expensive, lower dollar means US companies can make more money selling out side the US. Right now the dollar is at an historic low. This makes US products a bargain.

 

Japanese Yens to 1 USD (invert,data)

120 days latest (Oct 22) 81.2258 lowest (Oct 21) 81.0859 highest (May 10) 93.2763

FOR ADDITIONAL CONTEXT, here are a couple more things to consider. First, we are in the midst of the strongest bull market since World War II. Yes, that does seem hard to believe, but here?s the fact. Since the credit-crisis low reached on March 9, 2009, the S&P 500 is up more than 80%, which is the biggest advance at that stage (605 days) among any of the bull markets since World War II, according to Birinyi Associates as reported by CNBC, November 4. By comparison, ?the next most powerful bull began in 1974 and was up just 61% through the very same time period.?

 

PARTS SHORTAGES SHUT CHRYSLER AND FORD PLANTS-(Mike Colias, Automotive News, January 29)

This week Chrysler Group expects to idle its Windsor, Ontario, minivan plant for at least a week because parts are scarce.

And Ford Motor Co. expects to reopen a suburban Detroit plant that builds the F-series pickup after a shortage of parts for V-6 engines forced a weeklong shutdown.

On Friday, Ford also closed its Kentucky Truck plant because of a parts shortage. That factory builds the F-series Super Duty pickups, Ford Expedition and Lincoln Navigator. As of late Friday the shutdown had not been scheduled to extend into this week, a spokesman said. .

Ford also took an additional week of downtime at its Chicago assembly plant -- which builds the in-demand redesigned Explorer -- before and after the traditional Christmas shutdown. The parts shortages already have had an impact on dealers. Jack Kain, who owns Jack Kain Ford near Lexington, Ky., says he has delivered only five Explorers, "but we could have sold 15 to 20 if we had the availability."

Many suppliers who cut capacity to the bone during the downturn either can't ramp up quickly enough or are gun-shy about adding equipment and workers amid the fragile recovery, industry observers say.

"I see tremendous capacity constraints throughout all tiers of the supply chain," said Sharkey, the Detroit lawyer. During the downturn, many suppliers were stung when customers' volume projections fell woefully short, Sharkey said. Now many subsuppliers in particular can't keep up as automakers and larger suppliers increasingly put in short-notice orders that far exceed original forecasts.

Tier 1 suppliers have had an easier time adjusting to the rebound in demand, said Bill Kozyra, CEO of TI Automotive and chairman of the Original Equipment Suppliers Association. "I would have no problem handling 14 or 15 million units of production tomorrow if that were to occur," he said.

At Chrysler's Windsor plant, which makes about 1,500 minivans a day, about 4,400 workers on three shifts will be idled this week, said Rick Laporte, president of Canadian Auto Workers Local 444. He blamed shortages of multiple parts and raw materials. Laporte and another plant employee said aluminum materials from a Chinese supplier were among the problems.