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The broader auto sector continues to face a difficult road ahead, as inflation headwinds deeply affected what is forecast to be a year of industry recovery and a boom for electric vehicle start-ups. The main focus on The coming months will determine how supply and demand variables play out and impact sales volume counts and automotive margins.
The latest reading on prices is that wholesale used vehicle prices increased another 1.8% during the first 15 days of March from the previous month, according to the Manheim Used Vehicle Value Index. The price increase for the first two weeks of March of the month was partially expected due to the timing of tax refunds. However, the two-week pace was higher than the 1.2% average increase during the pre-pandemic period of 2014 to 2019. Sports cars were the only segment to see lower prices, down 2. 4% since February. Also of note, the average daily sales conversion rate of 68.3% in the first half of March increased relative to the February daily average of 63.8% and was above the March 2019 daily average of 65. ,3%.
In a year-over-year comparison, seven of the eight major market segments posted seasonally adjusted prices that were again lower during the first half of March. By Manheim data, trucks had a year-over-year increase of 0.9%, while only midsize and compact cars lost less compared to the industry as a whole in terms of seasonally adjusted year-over-year changes. The remaining automotive segments lost between 2.4% and 7.7%, with luxury cars at the bottom of the list.
Checking inventory levels showed daily retail and wholesale supply was below normal in mid-March. Days supply decreased 11 days year-over-year and fewer than four days compared to the same week in 2019. As of March 15, wholesale supply was 22 days, down one day from late February, down four days year after year. and four days less than in 2019.
Manheim’s latest check on new vehicle sales data showed an increase of 9.1% m/m and 8.7% yoy in February, even with some price cuts in the EV sector. Analysts have noted that slow production in some auto segments due to semiconductor shortages is still weighing on prices. Looking ahead, new car price inflation is expected to moderate as year-on-year comparisons ease and production grunts improve. Additionally, higher interest rates will be a major factor for new and used car buyers seeking financing on a development that could affect the demand side of the equation for the industry. Auto insurance is also up, which could also affect demand.
Used car prices for March will be included in the next Consumer Price Index report due on April 12.
What to see: For investors, the combination of bid, ask and price wild cards adds to further uncertainty for the final results. Auto dealers seem to be bracing for a down year. “We’ve surveyed hundreds of dealership owners in recent weeks, and most expect profits to decline 10-15% in 2023,” said industry watcher Haig Partners. As for manufacturers, Morgan Stanley believes that a negative review cycle may be important in triggering further austerity within OEMs and suppliers, including scaling back/reducing EV capex plans. Perhaps a surprise in the current climate, but Ferrari (NYSE:CAREER) is the firm’s new “Top Pick” in the automotive sector and the Italian luxury sports car maker is said to have the longest order book, highest earnings visibility and highest pricing power of any car name. Meanwhile, Tesla (TSLA) remains the market cap beast in the auto sector, which has the bull vs bear debate as strong as ever.
Related tickers: Tesla (TSLA), Ford (F), General Motors (GM), Stellantis (STLA), Honda (HMC), Toyota (TM), Nissan (OTCPK:NSANY), AutoNation (AN), Carvana (CVNA), CarMax ( KMX), Lithia Motors (LAD), Group 1 Automotive (GPI), Penske Automotive Group (PAG), Rush Enterprises (RUSHA), ACV Auctions (ACVA), Driven Brands (DRVN), America’s Car-Mart (CRMT), Vroom (VRM), Sonic Automotive (SAH), Asbury Automotive Group (ABG), Lucid Group (LCID), Rivian Automotive (RIVN), Nio (NIO), Li Auto (LI) and Cars.com (CARS).
See Search for Alpha Quant ratings in the automotive industry, including the unique “Buy” rating.
