Gordon T Long
Global Macro Research | Macro-Technical Analysis
SII
AUTO SECTOR
HERTZ SKIDDING ON THE EDGE OF BANKRUPTCY WITH AIRPORTS DESERTED
- AUTO SECTOR: Before the CoronaVirus market turmoil the financially vulnerable auto Industry was confirmed to be in the early stages of a major Cyclical downturn. Global Light-Vehicle Sales peaked in late 2017 and had been falling rapidly on an annualized basis ever since (see chart below).
- The CoronaVirus triggered market collapse has reduced new auto sales to levels last experienced at the lows of 2008 Financial Crisis.
- Global new car sales fell 38% in March and are expected to be even worse when April results are published. Sales in South America fell 27% in March, 50% in Western Europe, and 80% in China (in February).
- In an attempt to shore up falling sales the industry has shifted to longer term leases (72 months), heavy discounting and incentives. As a result of demand pull forward, there are fewer new buyers and are typically “upside down” on new loans further limiting their ability to upgrade.
- There is little doubt that some major players will not survive this cycle in their current form.
- 2019 US new car sales were 17.1 million units. March’s US annualized rate is 11.2 million units. It is a serious question whether an already troubled auto industry has the financial capabilities of surviving this historic degree of collapse.Falling Fleet Sales have made bad situation even worse.
- All six auto sub-sectors within MATASII’s tracking show major concerns. The biggest near term concern is in Auto Fleet Sales.
- Already heavily impacted by a consumer preference shift towards services like Uber and Lift, the complete stoppage of travel has pushed a tenuous situation into “FULL RED”.
- According to the Wall Street Journal this week, Hertz is rumored to already being forced to consider filing for bankruptcy after failing to make a lease payment.
- Hertz: “We are reducing expenses, deferring capital expenditures and adjusting fleet levels and staffing based on the significant in travel demand. Importantly, conversations with our leaders are ongoing and we remain in discussions with the US Treasury”.
- Hertz has $17B in debt and is under a grace period until May 4th.
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