laatste update: 06-2022
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The automotive industry crisis of 2008 destroyed hundreds of billions of dollars within months. Automakers worldwide struggled to survive a massive decline in sales. The US government bailed out GM and Chrysler while Ford had to secure a line of credit from the government. Toyota experienced the first loss in 70 years and Honda saw its car sales drop 31.6%. Dealerships dropped like flies and were forced to make permanent changes. The $2.8 trillion automobile industry fell apart overnight, but what if I told you that our current situation is two times worse? That’s what a leading indicator is showing and the CEO of Ark Invest, Cathie Wood, has spotted these problems. Serious trouble lies ahead and the world is about to wake up to a complete disaster.
The University of Michigan Consumer Sentiment Survey is known as one of the most reliable surveys in the financial industry. One of the key components that the survey includes is the following question: “Speaking of the automobile market — do you think the next 12 months or so will be a good time or a bad time to buy a new vehicle, such as a car, pickup, van or sport utility vehicle?” This question has been asked since 1961, which gives it an extensive data set to compare to. As you can see from this graph, the percent of respondents indicating that it’s a bad time to purchase a vehicle has increased to record heights. This level of negative consumer sentiment is the highest that it has ever been in the history of the survey. Contrary to what this graph is showing, Automakers are claiming that the demand for vehicles is robust, but that’s not the case at all. The rising automobile prices are all due to a lack of supply rather than a lack of demand. Dealer inventories have dropped to record lows and that is causing prices to increase drastically. Just like the level of inventories, the consumer demand for vehicles is at an all-time low. Automakers are rapidly attempting to order new semiconductors for their vehicles, but the consumer demand likely won’t be there by the time the chips arrive. The automobile industry is undergoing an accelerating shift towards electric vehicles that is keeping consumers on the sidelines for new developments. Top that off with the fact that car prices just keep on increasing year after year and the automobile industry is in serious trouble. The average new car price has increased by $11,000 in the past three years, which is hurting consumer sentiment. The University of Michigan survey cited the primary reason for the low consumer sentiment as high prices. That demonstrates that car prices are not sustainable at the current price level. The Manheim Used Vehicle Value Index perfectly demonstrates the decelerating growth of car prices. Everyone knows that the exponential price increase in the auto industry can’t be sustained. There’s a massive price bubble and the supply is starting to catch up. As supply increases disproportionately to decreasing demand, automakers and dealerships worldwide could be left in a glut. A glut is when there is an oversupply of a good that leads to a massive crash in prices. Elon Musk, Lisa Su and GM have all been saying that chip supply constraints are starting to dissipate. Everything that I just described is what Ark Invest has been focusing on, particularly analyst Sam Korus. Automobile sales are already showing signs of a rebound from the chip shortage. Total vehicle sales recently came in at 15.5 million vehicles in January 2022, which was up almost 20% from the prior month. That is obviously a substantial increase and is likely fulfilling the remaining consumer demand from the supply shortage. Once the consumer demand for higher priced vehicles is satisfied, urgent demand problems will likely appear. Cathie believes that all of these factors are building upon each other to instigate the biggest price crash in the history of the auto industry.
The impending crash of the auto industry is not just specific to automobiles, but rather goods in general. Total business inventories are starting to increase significantly. In December of 2021, the inventories to sales ratio increased to 1.29, which was up 3.2% from the previous month. A 3.2% increase might not seem like much, but that’s a 38% increase when annualized. Such a rapid increase is a sign that new supply plants are starting to ramp up. AMD CEO Lisa Su explained this before at a conference. Lisa Su stated that because of the supply shortages, many businesses have invested in new supply plants. The problem is that those supply plants don’t go into production immediately.