Ford (F) took the proverbial dump yesterday, falling $1.05,
or 6%, to $15.65, and, so far, the carnage continues today. Most of the drop was attributed to the
company’s warnings of problems in Europe and South America along with the
weakening yen and the attendant fierce competition in the North American car
business. Ford has already cut back on
production of its Focus and Fusion models, so there is doubtless something to
the latter argument. Some analysts
piled on and talked of Ford’s “stale” product line, but the same people are
currently falling all over themselves lauding GM’s “terrific” product line. (See my 6/7/13 post, “I BETWHEN YOU BUY THIS CAR YOU GET FREE MAINTENANCE…LOOKS GOOD ON YOU, THOUGH”
for an earlier counterargument.) A Malibu
or a Fusion? A Cruze or a Focus? While you might make the Ford stale, GM
terrific when discussing the pickup truck market or the luxury car market, the
former will soon be rectified with the new F-150, leaving the latter the only
area in which one could make that argument with a straight face. GM’s product line is fine, but it’s not
terrific; Ford’s remains the better of the two, or at least is far from
“stale.” The lesson here is don’t assume
that all Wall Street car analysts know anything about cars. But I digress.
Who knows what makes a stock go up or down on any given
day? Certainly not the people who make
a living telling us why a stock, or stocks, go up or down on any given
day. But since everyone seems to want to
get in on this artificially lucrative fun, I may as well chime in, at least
partially.
I have been saying for a long time, incorrectly, as it has
turned out, unless yesterday is indicative of a trend (See, for example, my 5/23/13
post THE CAR SALES BUBBLE: “JUST TELLME WHAT YOU WANT AND THEN SIGN THAT LINE AND I’LL HAVE IT BROUGHT DOWN TO YOU IN A HOUR’S TIME”), that the car stocks have gotten way ahead of themselves. Why? Because
no industry, other than housing, is more dependent on cheap money than the
automobile industry. So the industry has
naturally benefited from the force feeding of cheap money that yours truly
calls Ben Bernanke’s War on the Elderly.
All this talk of “pent up demand” is largely bullroar; all that pent-up
demand would remain pent up if money weren’t so cheap, given that the modern
car, with reasonable maintenance, can give hundreds of thousands of miles of reliable
and more than satisfactory service.
Two days ago, we received proof of my thesis: Trans-Union reported that the average car
loan currently shows a balance of $16,942, an all time high and only slightly
less than I paid for my current car, a 2007 Honda Accord approaching 100,000
miles and still running like the proverbial top. The average amount “financed” (the somehow
respectable term for “borrowed”) on a new car is $26,719, obviously a heck of a
lot more than I paid for my current terrific and running like new automobile.
Simply put, it’s cheap money that’s making the car business
seem like such a money machine. If the
cheap money somehow gets cut off, the car business is going to head south and
rapidly so, especially given the sales numbers put up in the last few years.
Of course, if we are to believe SuperBen and his disciples,
and they are half as smart as everyone supposes them to be, maybe we can have
cheap money, at least at the short end of the curve, forever, so we can drive cars
we otherwise can’t afford in which we can drive our parents to the supermarket
so they can buy the cat food Mr. Bernanke’s policies will make the staple of
their diets. The intergenerational
transfers that have supposedly enriched our generation are now running in two
directions, but, again, I digress.
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