Sales are booming for Ford Motor (F), General Motors (GM) and other automakers–or are they? Morgan Stanley’s Adam Jonas and team aren’t so sure, as they see a disconnect between the monthly data and what they’re hearing from dealers and auto manufacturers.
Getty Images The reason: Easier access to auto loans, which are creating the illusion of higher sales. Jonas offers a hypothetical dialogue to show how auto sales could be inflated by easy credit:
Customer: So I want to buy this SUV. Dealer: Got plenty in stock and can get you outthe door in a base version for $521/mo ($30k
loan, 60 mth term, 1.7% APR). Whatcha say? Customer: Darn… my budget is $500/mth and
I really can't go any higher than that. Dealer: Hmmm… lemme talk with the folks in
finance and see what we can come up with.
(Dealer steps away, comes back 5 minutes later and
hands the Customer a sheet of paper) Dealer: Good news, we got your payment
down to $409/mo ($30k loan, 84 mth term,
4.0% APR). We gotta deal? Customer (looking down at term sheet, a
broad smile forms from ear to ear): Not only
do we have a deal, but now I can get 4WD and
the tech package! How'd you do that? Dealer: They're running a special on 7 year
loans at a modestly higher rate. Everything
else is the same. (Satisfied customer drives away in an SUV with an
ATP nearly 20% higher than the base price).
Jonas doesn’t worry about the use of credit, per se, but how that looks to investors in stocks like General Motors and Ford. “In our view, easier credit is a natural sign of a recovering car market and we think it has a lot of room to run,” he says. “What is less clear is how the stock market will interpret the optics of accelerating pricing into a higher seasonally adjusted annual rate and what multiple it will pay for the associated earnings.”
Shares of General Motors have dropped 0.3% to $36.79 at 2:20 p.m., while Ford Motor has risen 0.2% to $17.24.
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