The Massive Prop Barely Holding up the US Economy Cracks
The debt-fueled growth of this economy is already fizzling. On Friday, first quarter GDP growth was revised down to 0.8% on an annualized basis. “Annualized” means that if this awful pace continues, growth for the year will be 0.8%! Second quarter growth was a meager 1.2% annualized. For the first half, annualized growth amounts to 0.9%, the worst in four years.
Business investment in equipment and structures, residential investment, and government investment all declined. Trade added a smidgen. But the inventory draw-down we’ve warned about for over a year, given how business inventories have bloated to crisis levels, has arrived with a vengeance, slashing 1.2% from GDP growth.
What kept GDP growth from falling into a hole was a big bout of consumption (up 2.8%), led by debt-fueled consumer spending.
Now, the auto sector, which has propped up GDP growth for years, is slowing down. For the first six months, total car and light truck sales, at a seasonally adjusted annual rate (SAAR) of 17.5 million vehicles, are lagging behind last year by 100,000 units. Over the first half, fleet sales to rent-a-car companies and big fleet buyers were up industry wide. But retail sales fell 2%.
On Thursday, it was Ford that waved a red flag. Global sales were up 6% in the second quarter. But they’re struggling in the US, where it paid out 28% more in incentives to move the iron. So cost of sales and other expenses rose 8%, and net profit fell 9%.
It added some nuggets:
On Friday it was AutoNation, the largest auto retailer in the US with “373 franchises and 263 stores in 16 states, representing 35 manufacturer brands,” as it said during the earnings call. Ford might get tripped up by a company-specific problem, but AutoNation is a gauge for the entire industry.
It reported that second quarter revenue inched up 4% to $5.4 billion. Quarterly net income fell 2.6% to $112 million. Because it repurchased 1 million of its own shares, earnings per share rose 0.8% to a record $1.08. So what were some of the big factors in this 4% sales increase?
Dealership acquisitions (its business model) and price increases.
New vehicle sales in the quarter, including sales from newly acquired stores, edged up a tiny 0.5% to 85,654 vehicles. The average revenue per vehicle retailed rose 3%. So much of the gain in dollar-sales of new vehicles came from getting a higher dollar figure per vehicle.
But same-store new-vehicle unit sales dropped 4.5%; and used vehicle sales fell 1.3%.
The company is trying to “manage” costs, it said during the earnings call (transcript via Seeking Alpha). It cut new-vehicle inventories to get ready for leaner times – by 6,000 vehicles in the quarter, lowering same-store new-unit supply from 76 days to 70 days. The goal is to cut this further.
And then there are the ballooning incentives to prop up sales in a slowing market. AutoNation lashed out at automakers for “irrational behavior in the marketplace,” particularly volume-based incentive programs. During the earnings call, the word “irrational” to describe manufacturers’ incentives and volume expectations was used nine times.
COO William Berman added the words “unreasonable” and “unattainable.”
Auto loans with super-low interest rates, maturities up to 84 months, and loan-to-value ratios of well over 100% have made everything possible, including higher prices and record sales. This debt-fueled buying binge caused total auto loan balances outstanding to skyrocket:
But at some point, consumers are gasping for air, banks get leery, bank regulators, such as the Office of the Comptroller of the Currency, begin to fret over these loans, and subprime auto loans are starting to cause indigestion.
The white-hot auto sector is a large component of retail sales and of manufacturing. It impacts transportation by ship, rail, and truck. It includes services and finance. The auto sector is huge and spreads across the entire economy. When it slows down, it will pull the rug out entirely from under this already languishing economy.
Numerous brick-and-mortar retail chains have already collapsed and gone bankrupt this year. Now Claire Stores is heading that way. As in so many cases, it’s owned by a private equity firm, which is now scheming to get unstuck. Read… Another Retailer Leveraged Buyout Bites the Dust
http://wolfstreet.com/2016/07/29/autonation-ford-sales-decline-auto-loan-bubble-us-gdp-growth/
by Wolf Richter • July 29, 2016
“The so-called car recession”: Ford, AutoNation wave red flags
It was the second warning in two days: auto sales – last year one of the few booming sectors in the US economy – are exiting the freeway and turning south on a road full of potholes. And that would come at the worst possible time.The debt-fueled growth of this economy is already fizzling. On Friday, first quarter GDP growth was revised down to 0.8% on an annualized basis. “Annualized” means that if this awful pace continues, growth for the year will be 0.8%! Second quarter growth was a meager 1.2% annualized. For the first half, annualized growth amounts to 0.9%, the worst in four years.
Business investment in equipment and structures, residential investment, and government investment all declined. Trade added a smidgen. But the inventory draw-down we’ve warned about for over a year, given how business inventories have bloated to crisis levels, has arrived with a vengeance, slashing 1.2% from GDP growth.
What kept GDP growth from falling into a hole was a big bout of consumption (up 2.8%), led by debt-fueled consumer spending.
Now, the auto sector, which has propped up GDP growth for years, is slowing down. For the first six months, total car and light truck sales, at a seasonally adjusted annual rate (SAAR) of 17.5 million vehicles, are lagging behind last year by 100,000 units. Over the first half, fleet sales to rent-a-car companies and big fleet buyers were up industry wide. But retail sales fell 2%.
On Thursday, it was Ford that waved a red flag. Global sales were up 6% in the second quarter. But they’re struggling in the US, where it paid out 28% more in incentives to move the iron. So cost of sales and other expenses rose 8%, and net profit fell 9%.
It added some nuggets:
Since Wednesday morning, Ford shares have crashed nearly 10%.[T]he competitive environment has increased as growth has slowed and the retail industry demand has weakened. This has resulted in higher industry incentives, with a retail industry sales rate that has declined in three out of the last four months.
T]he plateauing of industry volume and the so-called car recession are having an effect on incentive levels overall that goes beyond what we had expected.
This is combined with an overall industry level in the United States that we now believe will be lower than we had planned, driven by lower retail sales. As a result, we now expect to see lower industry volume in the second half of 2016 compared with 2015.
On Friday it was AutoNation, the largest auto retailer in the US with “373 franchises and 263 stores in 16 states, representing 35 manufacturer brands,” as it said during the earnings call. Ford might get tripped up by a company-specific problem, but AutoNation is a gauge for the entire industry.
It reported that second quarter revenue inched up 4% to $5.4 billion. Quarterly net income fell 2.6% to $112 million. Because it repurchased 1 million of its own shares, earnings per share rose 0.8% to a record $1.08. So what were some of the big factors in this 4% sales increase?
Dealership acquisitions (its business model) and price increases.
New vehicle sales in the quarter, including sales from newly acquired stores, edged up a tiny 0.5% to 85,654 vehicles. The average revenue per vehicle retailed rose 3%. So much of the gain in dollar-sales of new vehicles came from getting a higher dollar figure per vehicle.
But same-store new-vehicle unit sales dropped 4.5%; and used vehicle sales fell 1.3%.
The company is trying to “manage” costs, it said during the earnings call (transcript via Seeking Alpha). It cut new-vehicle inventories to get ready for leaner times – by 6,000 vehicles in the quarter, lowering same-store new-unit supply from 76 days to 70 days. The goal is to cut this further.
And then there are the ballooning incentives to prop up sales in a slowing market. AutoNation lashed out at automakers for “irrational behavior in the marketplace,” particularly volume-based incentive programs. During the earnings call, the word “irrational” to describe manufacturers’ incentives and volume expectations was used nine times.
COO William Berman added the words “unreasonable” and “unattainable.”
CEO Michael Jackson explained:Despite industry retail sales being down in the second quarter, certain manufacturers – in particular, Ford, Chrysler, and Nissan – set double-digit growth targets that were unattainable. Where we felt these targets were unreasonable, we did not pursue them.
So are consumers maxed out? They’re not reacting appropriately to all these incentives. They should be buying more. But they’re buying less. Is this, as Ford had put it so eloquently, “the so-called car recession?”So if I look at how the first half of the year has developed, well, from a market point of view, that’s exactly where it is, with retail in the second quarter down, let’s say, 2% at retail. But it took considerably higher incentives for that to happen.
Auto loans with super-low interest rates, maturities up to 84 months, and loan-to-value ratios of well over 100% have made everything possible, including higher prices and record sales. This debt-fueled buying binge caused total auto loan balances outstanding to skyrocket:
But at some point, consumers are gasping for air, banks get leery, bank regulators, such as the Office of the Comptroller of the Currency, begin to fret over these loans, and subprime auto loans are starting to cause indigestion.
The white-hot auto sector is a large component of retail sales and of manufacturing. It impacts transportation by ship, rail, and truck. It includes services and finance. The auto sector is huge and spreads across the entire economy. When it slows down, it will pull the rug out entirely from under this already languishing economy.
Numerous brick-and-mortar retail chains have already collapsed and gone bankrupt this year. Now Claire Stores is heading that way. As in so many cases, it’s owned by a private equity firm, which is now scheming to get unstuck. Read… Another Retailer Leveraged Buyout Bites the Dust
http://wolfstreet.com/2016/07/29/autonation-ford-sales-decline-auto-loan-bubble-us-gdp-growth/
Today at 8:52 am by Rocky
» utube 3/28/24 MM&C Iraqi Dinar - IQD Update - SWIFT - Purchasing Power - Urban Renaissance - Releas
Today at 8:51 am by Rocky
» Al-Mandalawi: Iraq is witnessing competition between major companies...and the House of Representati
Today at 8:49 am by Rocky
» The President of the Republic stresses the importance of the role of programmers in developing the w
Today at 8:46 am by Rocky
» The Minister of Industry and Minerals follows up on the technical and production performance of the
Today at 8:45 am by Rocky
» The Minister of Finance is following up on the field the progress of the newly implemented ASYCUDA s
Today at 8:44 am by Rocky
» Statistics: There are more than 15 million bank accounts in Iraq
Today at 8:42 am by Rocky
» Representative: One paragraph hinders the passage of a general amnesty within the House of Represent
Today at 8:37 am by Rocky
» Parliamentary Finance: “The draft federal budget law will be devoid of new job grades.”
Today at 8:36 am by Rocky
» Parliamentary action to resolve the fate of “food security contracts” in 15 governorates
Today at 8:35 am by Rocky
» 300 factories turned into "iron scrap" in Diyala
Today at 8:34 am by Rocky
» A deputy expects the dollar exchange rate to reach 140 Iraqi dinars
Today at 8:32 am by Rocky
» Al-Yasiri: The American administration is working hard to destroy the Iraqi economy
Today at 8:31 am by Rocky
» Infographic: The highest annual salaries of leaders of Arab countries
Today at 8:30 am by Rocky
» Communications announces that the electronic signature project has reached advanced stages
Today at 8:29 am by Rocky
» Parliamentary Integrity presents a file related to Kuwaiti violations of Iraqi oil
Today at 8:27 am by Rocky
» Parliamentary move to include amendments to Parliament’s internal regulations on the agenda (documen
Today at 8:25 am by Rocky
» The Iraqi President urges the Minister of Finance to expedite the payment of salaries to the Kurdist
Today at 8:23 am by Rocky
» Central Bank of Iraq sales exceeded $251 million at today’s auction
Today at 8:21 am by Rocky
» The Foreign Minister questions the "Iraqi resistance" attacks against Israel: the other side did not
Today at 8:20 am by Rocky
» The Minister of Labor announces progress in the electronic payment system
Today at 8:17 am by Rocky
» Interior Ministry: For the first time, we controlled the smuggling of petroleum derivatives by 98 pe
Today at 8:16 am by Rocky
» International companies offer offers to invest in the Dhi Qar marshes.. What distinguishes them?
Today at 8:15 am by Rocky
» “Tough” comments on interest rates raise the dollar globally
Today at 8:14 am by Rocky
» Iraq is the fifth largest oil supplier to South Korea in a month
Today at 8:12 am by Rocky
» Recovering more than 100 billion as a result of more than 200,000 employees on social welfare
Today at 8:11 am by Rocky
» The Sudanese consultant announces the completion of Baghdad Metro track designs
Today at 8:08 am by Rocky
» Al-Sudani stresses ending the problem of triple-shift schools
Today at 8:07 am by Rocky
» Iraq begins building two new tankers to transport petroleum products
Today at 8:06 am by Rocky
» Forming a council for “competition and preventing monopoly”
Today at 8:04 am by Rocky
» Features of an Iraqi-Turkish agreement regarding the status of the Kurdistan Workers’ Party
Today at 8:02 am by Rocky
» {Al-Buzrajiya} between the hammer of fraud and the power of the owners
Today at 8:01 am by Rocky
» Ministry of Oil: The gas sector is witnessing great development
Today at 7:59 am by Rocky
» An agreement with Britain in the field of securities
Today at 7:58 am by Rocky
» Discussions between Baghdad and Ankara to open a new port
Today at 7:57 am by Rocky
» Trade: About 11 million citizens updated their new card information
Today at 7:56 am by Rocky
» Electronic payment is sustainable growth
Today at 7:55 am by Rocky
» Experts: Iraq qualifies to be an important tourist country
Today at 7:54 am by Rocky
» Amending the Health Professions Law “robs” scientists of the central appointment 3 years after it wa
Today at 6:20 am by Rocky
» Is the “blessings package” that Erbil paid to the citizens of Kurdistan related to the elections?
Today at 6:19 am by Rocky
» Exceeded 5,000 projects.. Allocating 10 trillion dinars to support governorate reconstruction plans
Today at 6:18 am by Rocky
» “His need no longer exists.” Parliamentary Finance confirms the necessity of returning the retiremen
Today at 6:17 am by Rocky
» To communicate with the bases... 12 directives from Al-Sadr, including blocking numbers for non-gove
Today at 6:15 am by Rocky
» In an interview with "Baghdad Today"... an Iranian researcher reveals the importance of Haniyeh's vi
Today at 6:14 am by Rocky
» After it was 63 trillion in 2023... the 2024 budget deficit will rise to 80 trillion dinars
Today at 6:13 am by Rocky
» Parliament reveals the date of the first evaluation of the governors and determines the party respon
Today at 6:11 am by Rocky
» The President of the Republic informs Al-Araji and Al-Basri: Momentum must be mobilized to eliminate
Today at 6:10 am by Rocky
» Can the Federal Court sue others? A legal clarification of its response mechanism to abuse
Today at 6:09 am by Rocky
» Despite promises to soon stop burning gas.. What is the secret behind Iraq renewing the Iranian gas
Today at 6:07 am by Rocky
» Advisor to Al-Sudani: The dollar is on the way to further decline, and 70% of Iraqi traders have ent
Today at 6:06 am by Rocky
» Iraq exported more than 99 million barrels of oil last February
Today at 6:04 am by Rocky
» Barzani “gives good news” to Kurdistan employees: salaries, land, and loan exemptions
Today at 6:03 am by Rocky
» Alia Nassif: Nour Zuhair returned to the port of Umm Qasr to make deals.. An influential Shiite forc
Today at 6:02 am by Rocky
» The Prime Minister announces the movement of nearly 500 stalled projects
Today at 6:00 am by Rocky
» A government strategy to enhance investments.. Iraq is on the verge of a new era of economic develop
Today at 5:59 am by Rocky
» Ranging between 20% and 50%.. The Kurdistan government decides to reduce service fees, customs dutie
Today at 5:58 am by Rocky
» Al-Sudani: The reform approach in the security services is an integral part of reform in other secto
Today at 5:56 am by Rocky
» Everyone in Iraq wants the Sudanese visit to Washington to be successful, even the factions!
Today at 5:55 am by Rocky
» Sources and experts expect the agenda.. in his bag is the Baghdad dollar and the factions’ truce, bu
Today at 5:54 am by Rocky
» The decision to raise gasoline prices arouses the ire of drivers...a reminder of the large demonstra
Today at 5:53 am by Rocky
» Parliamentary services: 3 important hospitals in Baghdad will enter service at the end of the year
Today at 5:52 am by Rocky
» Iraq signs a contract to supply Iranian gas for a period of five years
Today at 5:50 am by Rocky
» Parliament adds a voting paragraph on amending the Penal Code to its agenda
Today at 5:49 am by Rocky
» His political advisor: We are not afraid of Sudanese entering the elections alone
Today at 5:48 am by Rocky
» Parliamentary services explain the reasons for the rise in real estate prices in Baghdad
Today at 5:46 am by Rocky
» Attia, criticizing the government's decisions: "The citizen's feathers will be ruffled without servi
Today at 5:45 am by Rocky
» Parliamentary Communications: Zain Iraq and Asiacell did not pay their debts
Today at 5:44 am by Rocky
» The Governor of Karbala announces the imminent establishment of the largest industrial city in the c
Today at 5:43 am by Rocky
» A government determination to end the issue of displaced persons in the middle of this year
Today at 5:42 am by Rocky
» Iraq buys gas from Kurdistan to generate electricity
Today at 5:41 am by Rocky
» Parliamentary signatures to include an amendment to the internal regulations to decide the choice of
Today at 5:40 am by Rocky
» In Basra.. a demonstration against foreign workers in Iraqi companies (video)
Today at 5:38 am by Rocky
» Al-Samarrai: Presidency of Parliament is an entitlement to the constituents, and calling it a “frame
Today at 5:36 am by Rocky
» Electronic food supplies in 6 governorates... covering 11 million Iraqis and “writing off” about 700
Today at 5:34 am by Rocky
» Corruption of the Ministry of Transport.. Representatives express their surprise at the minister’s s
Today at 5:32 am by Rocky
» The biggest supporter of the invasion of Iraq.. The death of former US Senator Joe Lieberman
Today at 5:31 am by Rocky
» Iraq is ranked “late.” A list of the most and least safe Arab countries for women
Today at 5:30 am by Rocky
» The Council of Ministers exempts the Gulf Interconnection Authority from guarantee fees: it is a gov
Yesterday at 8:48 am by Rocky
» The Iraqi government raises the size of the 2024 budget, and Parliament is “surprised”
Yesterday at 8:46 am by Rocky
» Popular Movement: We have many economic options away from American hegemony
Yesterday at 8:42 am by Rocky
» The Oil Parliament stresses the need to transfer part of the revenues to the producing governorates
Yesterday at 8:41 am by Rocky
» It will cover 14 regions in eastern Iraq.. A deputy reveals the “border electricity” project
Yesterday at 8:40 am by Rocky
» Experts Warn Mass Migration Threatens US Food Security
Yesterday at 8:37 am by Bama Diva
» Al-Fateh: America occupies Iraq through agreements
Yesterday at 8:37 am by Rocky
» Anger in Iraq over a "sudden decision"... and a reminder of a "general strike" that paralyzed the co
Yesterday at 8:34 am by Rocky
» Parliamentary Committee: Parliament is discussing today a decision that “disturbed” the Iraqis
Yesterday at 8:33 am by Rocky
» Ministry of Electricity: Our production will reach 27 thousand megawatts by May
Yesterday at 8:31 am by Rocky
» Diagnosing the “most important” problems in the oil file between Baghdad and Erbil.. What is the rel
Yesterday at 8:30 am by Rocky
» The Iraqi Fiqh Academy and the Sunni Endowment issue a fatwa to pay Zakat al-Fitr
Yesterday at 8:28 am by Rocky
» The National Bank of Iraq continues its digital transformation by launching its new banking system a
Yesterday at 8:26 am by Rocky
» Parliamentary Investment and the Central Bank are discussing the housing initiative
Yesterday at 8:25 am by Rocky
» The Prime Minister announces the restart of 500 suspended projects
Yesterday at 8:23 am by Rocky
» Al-Barti assesses the region's employees: Your salaries are insured and will be paid after resettlem
Yesterday at 8:21 am by Rocky
» Iraqi-American discussions in anticipation of the Sudanese visit
Yesterday at 8:20 am by Rocky
» Iraq and Turkey hold meetings in Ankara to discuss technical issues related to the development road
Yesterday at 8:17 am by Rocky
» A government parliamentary agreement to support budget revenues and governorate allocations for inve
Yesterday at 8:16 am by Rocky
» Oil: The gas sector is witnessing great development
Yesterday at 8:15 am by Rocky
» A Kurdish-French agreement to develop trade and economic relations
Yesterday at 8:13 am by Rocky
» Exchange companies in Mosul demand that they be entered into the currency selling window
Yesterday at 8:12 am by Rocky