GO AHEAD, DRIVE LIKE AN IDIOT; YOUR LUXURY CAR’S ELECTRONICS WILL BAIL YOU OUT

8/20/14

CNBC, among other networks, has been featuring ads for Lexus of late that highlight Lexus vehicles’ passive electronic safety devices.   In an ad I just saw, a mother driving a Lexus SUV turns around completely to attend to her child seated in a safety seat in the backseat of the vehicle.  In doing so, she wanders into the oncoming lane of traffic and only turns around to face the road when she hears the blaring horn of an approaching semi.  Her Lexus automatically stops, avoiding certain death, or worse, for her, for her innocent child, and for the equally innocent semi driver.  What horrible fate befell those driving behind the frantically breaking semi (and Lexus) is left to the imagination.

Hmm…

The message here is clear:  You can drive your Lexus like a total a—hole, but don’t worry; the car’s electronic gizmos will save you.   So go ahead and drive inattentively. Ignore your primary job when behind the wheel (driving) and attend to life’s more urgent matters, like sending that text, checking that e-mail, gazing at the nav screen, or immediately attending to the slightest hint of discomfort from your child.   Do the sorts of things that normally would put you at risk of life and limb because your car can save you.  Driving no longer requires skill or attention, thanks to Lexus.

Yours truly is only picking on Lexus because that overpriced Toyota brand seems to run this same ad repeatedly and I happen to see it on CNBC.  Other carmakers, and especially “luxury” (whatever that means) car makers use the same approach with varying degrees of fidelity.

The whole “Now you can drive like a moron because the electronics will save you from your utter stupidity and lack of responsibility or concern for anyone but yourself and (maybe) your immediate loved ones” approach genuinely infuriates those of us who simply love to drive.  By “drive,” in this instance, I mean really drive…attentively, safely, skillfully, hopefully manually, and, yes, in a spirited manner.  Slow does not equal safe.   There is no lack of speed that will overcome lack of attention, but I digress.  The ads that embody the “drive foolishly because we have your back” approach encourage the types of imbecilic driving that is becoming increasingly prevalent on the nation’s highways and byways.   More importantly, this inattentive, who gives a rat’s hindquarters what I do because my expensive car will bail me out, approach to driving dramatically increases the danger factor on America’s roads, regardless of the gizmos we pack in our cars.

One of my favorite bumper stickers is

“It’s car, not a phone booth.”

(Incidentally, my favorite bumper sticker is

“Forget world peace; envision using your turn signal.”  But I digress.)

Now we need a new version of the first sticker, something like

“It’s a car, not a phone booth, office, e-mail reception area, restaurant, grooming station, opinion forum, TV room…”

But I fear such a long bumper sticker would be counterproductive, or at least ironic; reading the whole damn thing would require too much diversion of attention from the task at hand.  

TOYOTA’S MARKET SHARE AND THE JAPANESE BUICK

6/13/13

Toyota’s North American boss Jim Lentz said yesterday that Toyota (TM) is unlikely to reach its peak U.S. market share (17% in 2009) this year.   Some observers had expected, or at least hoped, that Toyota could reach this milestone after having a great 2012 after a series of sudden acceleration recalls in 2009 and 2010 and tsunami related supply disruptions in 2011.  These expectations, or hopes, have been dashed as sales have been up by only 5.2% in 2013, not enough to coax TM’s market share beyond the low 14% handle.   The problem seems to have its core in slow sales of the Camry, the Yaris, and the whole Scion line.

So why isn’t Toyota reaching its former market share glory?   The answer is two-fold.

First, Toyota is a successful car company, both here and abroad, because it makes, with a few exceptions, reliable and boring transportation.  In this context, boring is not exclusively a negative; it can be taken in the context of

“This car gets 30 miles per gallon (starts on the coldest of mornings, doesn’t burn oil, never has an electronics problem, etc.) with boring regularity.”

Most people like, or at least will certainly accept, boring with their transportation, and not only in the context of their car providing no surprises.   They aren’t in it for excitement; they want reliable transportation and will accept, or even embrace, boredom for such reliability.   Even though most car guys don’t understand this, this set of preferences is perfectly understandable.   For most drivers, cars are not sources of recreation, or even outright joy, as they are for yours truly.  They are a means of getting around in comfort, a place of temporary much welcomed solitude, and a tool for navigating the roadways of life, literally and figuratively.   They aren’t meant for flinging into curves, apex hunting, rev matching, or other such activities that occupy the time and thoughts of those of us who look to our cars as ways of life, or at least a means of enjoying ourselves.

While those of us who seek outright excitement, exhilaration, and never ending entertainment in our cars constitute a very small minority, there is a substantial subset of people who, while not seeking out excitement in their cars, would certainly tolerate, or even seek out, a little excitement if it requires little or no sacrifice in reliability.   That excitement can come in many forms, be it styling, handling, power, or interior features.  With the vast improvement in cars of late, car buyers are increasingly finding that they don’t have to put up with the boredom of most Toyotas and Lexi in order to enjoy, well, boring reliability.   The Camry and its competitors immediately come to mind.   While the Accord has traditionally been the slightly more fun alternative to the Camry, the Ford Fusion, the Mazda 6, and the Subaru Legacy (See my 5/31/13 piece “OOH, OOH SUBARU…THERE’S SO MUCH THAT CAR CAN DO…”) are all capable of nearly, or completely, matching the Camry in reliability while providing a measure of excitement in styling, handling, power, or some other aspect or combination of aspects of the driving experience.   The same argument can be made to an even greater degree regarding the Lexus ES350 and the BMW 3 series, the Caddy XTS, the Audi A4, and even the Mercedes C Class.

So one doesn’t have to drive a boring Toyota to achieve boring Toyota reliability.

Second, Toyota has been effectively “Buickized,” a phenomenon I’ve been talking about for years.   Toyota is seen by GenXers, GenYers (or millennials or whatever one calls kids born in the ‘90s) as old guys’ cars, much as our generation regarded Buicks.  (Things are changing at Buick in this regard, but not many people seem to notice, but I digress.) This trend was arrested dramatically  in 2012 when the new body style of the Camry, which looks sharper but is still, at least of on a relative basis, a wallowing mattress on wheels, was reducing the average age of its buyers to the mid ‘40s from the (obviously intolerably old!) mid ‘50s.   But that reduction, while dramatic, may prove to be temporary and is reversing in 2013, with the average Toyota buyer’s age stabilizing in the mid 50s.

This is not necessarily a bad thing; there are a lot of people in their mid 50s and we are all getting older (if we aren’t dying) and we all spend money, even if we don’t have it.  (See my 5/29/13 post SAVING FOR RETIREMENT, PAYING FOR EDUCATION, AND TALKIN’ ‘BOUT MY GENERATION.)  Why car buyers feel compelled to constantly go after the younger consumer, even as the legions of older consumers keep growing, is beyond me.   Note, for example, that Pontiac, GM’s division that supposedly aimed at younger buyers, is a memory while Buick soldiers on.   That had more to do with China than the U.S., but that is another story.  The point is that selling to older consumers when the population is aging does not seem to be a bad strategy to yours truly, but those who are smarter, or at least who make a lot more money, seem to think so.

So there are two reasons that Toyota, while seeing increasing sales and consistently being among the top selling manufacturers in the U.S., is not likely to reach its peak 2009 market share in 2013:   more interesting, exciting competitors can match, or nearly match, Toyota and Lexus for reliability and Toyota and Lexus remain old people’s cars.   But don’t make too much of the latter.

“I BET WHEN YOU BUY THIS CAR YOU GET FREE MAINTENANCE…LOOKS GOOD ON YOU, THOUGH”

6/7/13

GM will now offer two years or 24,000 miles of free maintenance on its Chevys, Buicks, and GMCs.  Caddy already offers four years or (I think) 50,000 miles of free maintenance.

This sounds like a great offer until one thinks about it for more than a few seconds.  How much maintenance does a car require in its first two years?   A few oil changes and tire rotations, at a total cost of at the very most a couple hundred bucks at retail.   And it’s amazing how much less maintenance a car requires when the company is paying for it than it does when the customer is paying for it.

GM suffers from a mediocre product line.  Other than Cadillac, which has some terrific products and is selling cars like crazy of late (in May, Caddy sales were up 40% from May, 2012), albeit with some pretty heavy incentives on its top selling CTS, the whole GM product line is something of a yawner.   Consequently, overall sales are stagnating and GM has to do something.   Maybe free maintenance will help sell some cars, as it has at Toyota, which has a similar bland product line but has the type of consumer loyalty on which GM cannot count.   Further, unlike throwing money on the hood, free maintenance might induce consumers to better maintain their cars, though, as I indicated in the last paragraph, “required” maintenance seems to fall off when such maintenance is on the company.

But even if the free maintenance gimmick does help sell cars, it is very much a gimmick.  that reflects a rather cynical view of the savvy of the U.S. car shopper.  And one thing that Americans still do better than anybody else is shop.

IF YOU WANT TO GET PEOPLE CHARGED UP, WRITE ABOUT TESLA (TSLA)

5/30/13

Writing about and/or commenting on Tesla (TSLA) is a lot like writing or commenting on Apple (AAPL).   Neither of these appears to be a stock; both instead appear to be religions.   People have decided they love one (or maybe both) of the company’s products, and therefore the stock, and no one can talk them out of that position.   Not surprisingly, then, my 5/23/13 post TESLA (TSLA):  THE GREENIES ARE CHARGED UP, BUT… in which I questioned (Some who aren’t used to reading my material said “bashed,” but I thought I was quite balanced in my assessment.) the Tesla Model S and expressed my misgivings about the stock at a much lower price ($92.71) than that at which it closed today taught me that if you want to draw attention to your writing, write about TSLA. 

The big announcement today from Tesla Chairman Elon Musk, the announcement on which people had been anticipating for weeks, was that Tesla will triple the number of supercharging stations by the end of next month.  Within six months, Tesla will have covered most of the country’s major metro areas with superchargers and will enable people to cross the country diagonally from New York to LA without fear of losing power…and all, presumably, on Tesla.  By a year from now, the whole country should be covered…no more range anxiety.   Also, the charging network will have some kind of solar backup so Tesla owners will be able to charge their cars even if the electrical grid goes down.

A supercharger, by the way, enables drivers to, within twenty minutes, charge their cars to the point at which they can be driven three hours.   Twenty minutes is longer than it takes to fill a conventional gasoline tank (about four times longer), and if I fill my tank in five minutes, I can drive five or six hours before having to stop to refill.  But Tesla’s getting close to being practical with their supercharging systems…and that’s impressive.  And, lest I draw even more brickbats than I anticipate, I will also add (again) that most of the buff books, especially Motor Trend and Automobile, and Consumer Reports LOVE the Tesla Model S.  Yours truly has not driven it; despite my love of test driving (See my already seminal 5/20/13 post, I TEST DROVE A KIA TODAY…), I cannot in good conscience go into one of the few showrooms in the area and test drive a car I could not possibly afford.

The first reaction of the suitably skeptical and cynical investor (or car buyer) should be to question whether Tesla can pull off such a feat.  A nationwide system of superchargers that can be conveniently accessed would be a titanic accomplishment.   And even if it can be achieved, 20 minutes for three hours of driving, while impressive, still adds a lot of time to long trips and renders the Model S not the vehicle of choice for anything but driving around town.  At $70,000 (Okay, $62,500 after tax credits.), one would like to not have to buy a second car for long trips. 

A few more questions.

According to reports, the juice that Tesla owners get from the superchargers will be free, provided by Tesla.  That can’t be right, can it?   Why not charge the drivers for the relatively cheap electricity?  It would seem that people who are rich, and/or silly, enough to shell out $70,000 for a car should have no problem paying for the electricity necessary to power their status symbols.   But if Tesla is indeed picking up the charge for the charge, if you will, how much will that cost Tesla?  A wise guy answer would be something like “at the volumes TSLA is looking to sell, not much,” but it is something to think about.

And, on a broader scale, if I am wrong and this electric car fad really catches on with the Tesla, the Nissan Leaf, and various other pure electrics capturing the American imagination, how will our electrical grid handle it?   One could answer that if we reach that point, Tesla will have been a resounding success, but not only do stocks discount the future but also the country will have to do something about increasing electrical supply, in a relative hurry, in a nuclearphobic world.  No mean task.

Even if we assume that TSLA can fulfill its promise of covering the country with superchargers by a year from now, which is quite a brave assumption even for someone as widely and justifiably admired as Elon Musk, questions remain.  And it still looks like TSLA is a company selling cars that use a transitional technology, cars that only a few people want and even fewer can afford.   And, yes, I realize that TSLA is a luxury car maker (Its lower priced models, which still won’t be cheap, aren’t supposed to come out until 2017 (See today’s announcement.) and, right now, at least, TSLA doesn’t have the money to develop and produce them (See my aforementioned 5/23/13 post.)) and not everyone can afford luxury cars.  But TSLA is a luxury car producer, indeed, a boutique luxury car producer, aiming to sell 20,000 cars this year in a 15 million car market, with a market capitalization of $12 BILLION!   By contrast, other car companies’ market caps are as follows:

Ford                             $61 billion

GM                              $48 billion

Daimler                        $67 billion

Toyota                         $191 billion

Honda                          $70 billion

Nissan                          $47 billion

Volkswagen                 $76 billion

The comparisons are not perfect, but they are a lot more apt than the comparison the bulls are throwing around to AAPL’s $426 billion market capitalization.   Does it make sense that a company that might sell 20,000 cars this year is trading at ¼ of the value of GM, which sells ten times as many cars, in the U.S. alone, in a month?   Again, this is not the best metric around, but just think logically here.

Is this the time to sell TSLA?   Though I’ve taken a small put position, just to focus my thinking, I don’t know.   And to prove that I don’t know, I bought my July puts on May 21 when the stock was trading at $88.24; it’s now trading at $104.95 and I am down well over half on my position.  The stock has doubled in the last month and has tripled in the last six months.  Somethin’s gotta give.  But, as I’ve said before, markets, and stocks, can stay rich a long, long time.   See my 5/9/13 post, OF 10 YEAR TREASURIES AND STEAMROLLERS:  RICH MARKETS CAN, AND DO, STAY RICH.  And perhaps stepping in front of this freight train is not advisable; note how TSLA has defied, so far, the old “buy on rumor, sell on fact” adage in the wake of today’s supercharger announcement.

As for yours truly, I’m going to wait around a little while before I dump my puts.   Even trading, like investing, should be done with patience, understanding the relative nature of that term.   And, as a further warning, I am a far better investor than I am a trader; accordingly, I have so little in this trade it won’t make much difference one way or the other.

TSLA:              $104.95

S&P 500:         1,654.41

Dow                 15,324.53

GM:                 $34.64

F:                     $15.90

JAPANESE CAR EXPORTS TO CHINA: VALUE AND QUALITY TRUMP POLITICS

5/24/13

It looks as though Chinese car buyers have gotten over their politics spawned aversion to Japanese cars.  (See my 10/10/12 post in the now defunct Rant Finance entitled WE’VE FOUND THE ULTIMATE VALUE INVESTOR!, reproduced below for your convenience.  And, no, I didn’t buy a bunch of TM, HMC and NSANY stock, which have since surged, after writing that now immortal missive, even after seeing the buying opportunity, which demonstrates one of the reasons I don’t trade nearly as actively as I once did.)   Japan shipped 16,000 vehicles to China in April, 2013, up from 4,417 units in October of last year, the low reached at the height of the tensions surrounding the, depending on whom you are talking to, the Senkaku or Diaoyu Islands in the East China Sea.  Last month’s 16,000 units were still below April, 2012 levels, but the more than three fold increase in shipments from the bottom is a sure sign that things are turning around.

One knew that Chinese consumers would be buying Japanese cars again despite the nationalistic whoop-whoop that dissuaded them from doing so for a time.  First, we had intrepid consumers like Mr. Zhou San, the ultimate value investor, who, quoted in the aforementioned and below reproduced post, said

“I won’t buy a Japanese car unless it is very, very cheap because purchasing a Japanese car is dangerous now.  People would beat not only the Japanese car, but also the car owner, when something goes wrong with Sino-Japan relations again.”

So Mr. Zhou would risk being beaten within an inch of his life if he could get a good enough deal on the car; I must have Chinese cousins, but I digress.

Then we have Mr. Yan Ke, a 33 year old Shanghai information technology project manager (Talk about stereotypes!), who is quoted in the Wall Street Journal as saying, after buying a sharp Nissan Qashqai (pictured…not Mr. Yan’s Qashqai, but a representative Qashqai),

“I wanted to buy this car a year ago.  I’ve been saving money for it.  (Saving money for it!  What a concept!  But I digress.)  I don’t give a damn about the Sino-Japanese tensions.”

Mr. Yan is not at all unique; his habit of actually saving money in order to buy something may seem as foreign to Americans as his name and the brand name of his car, but he is not unique.  He simply, like most people, doesn’t give a damn, as he puts it, about silly squabbling of politicians over islands that may or may not have much value beyond their ability to satisfy jingoistic impulses.  Whether one finds that sentiment admirable or not, it reflects reality; people want to live their lives, make a living, get the most for their buck (or yuan), and take care of their families.  The games politicians play matter little to them; apparently, though, the pols didn’t get the memo, but I digress once again.

And speaking of value, one knew that Chinese consumers would still be willing, indeed in line, to buy Japanese cars.  For all the catching up U.S. “domestic” companies have done, and for all the (largely, but not always) baffling appeal that overpriced European (often, but not exclusively) troubleboxes have for consumers in, among other places, China and the United States, the Japanese still make the best, most reliable, most value laden cars for the broad range of consumers.   And competition from places like Korea (See my already seminal 5/20/13 piece, I TEST DROVE A KIA TODAY…) only make them better…and more desirable.   Consumers like Messrs. Yan and Zhou, and Smith,  Jones, Kowalski, and O’Brien, continually affirm that sentiment…or fact.

PROMISED REPRODUCED POST FROM RANT FINANCE

WE’VE FOUND THE ULTIMATE VALUE INVESTOR!

10/10/12

Value investors, as most readers of Rant Finance know, are people who like to buy stocks, or any investments, that they consider cheap.   Cheapness can be determined in terms of price/earnings (“P/E”) ratio, dividend yield, or other factors.   The overriding point seems to be that, while no investor wants to buy a lousy company, value investors are not necessarily looking for great companies.   They are looking for good, or at least passable, companies that are undervalued by some metric the investor deems important.  This is an old, tried, and largely true approach to investing that appeals to, among others, yours truly, at least to a certain extent.

With that background, consider what is going on with the Japanese auto companies in China.   Since China and Japan, among others, are squabbling over ownership of some islands in the East China Sea (See my 8/23/12 post in Rant Political entitled EXPANSION OF MISSILE DEFENSES IN ASIA…PROTECTING OUR INTERESTS OR PAYING BACK THE “DEFENSE” CONTRACTORS?), and the Chinese and Japanese politicians are, like politicians anywhere, concerned primarily with keeping their jobs, nationalist fervor has been whipped up throughout east Asia, but perhaps especially so in China.  One of the manifestations of this fervor is a near blanket refusal on the part of Chinese consumers to buy Japanese branded cars.   Not only will they not buy Japanese cars, but the irate Chinese have taken to street demonstrations that involve the destruction of Japanese cars and, in some cases, their drivers; last month, a driver of a Japanese car in Xi’an was beaten into partial paralysis by an angry mob.  From the coverage we see of these near riots, one wonders why no one has been killed yet.  

How much sense all this makes is a valuable point of digression.   These “Japanese” cars are built in China by Chinese workers using mostly Chinese parts.   Chinese industrial policy dictates that few cars, and mostly only very upper end luxury models, are imported.  So the cars that are being trashed, in some cases, are really Chinese cars; just as the Toyota Camry, for example, is the most American car an American consumer can buy, the “Japanese” cars that are now being used as flaming party favors by rioters on a lark are really Chinese cars.   So who’s hurting whom?  I digress, but I do so valuably.

Into this fray steps Mr. Zhou Shan, a Chinese citizen who works for Baidu, who states

“I won’t buy a Japanese car unless it is very, very cheap because purchasing a Japanese car is dangerous now.  People would beat not only the Japanese car, but also the car owner, when something goes wrong with Sino-Japan relations again.”

So there you have it; Mr. Zhou is aware that it is physically perilous to buy and drive a Japanese car, that doing so might result in his being beaten to within inches of his life, but he would do so if it is “very, very cheap.”  Ladies and gentlemen, we have found the ultimate value investor.

Many of you doubtless started to read this thinking that yours truly, as a guy who has made a dollar or two trading and investing in car stocks at various points in his career, would offer advice on Japanese car stocks at these levels.  All I can say at this stage is that I’m getting interested because it appears that the stocks are starting to reflect overly dire consequences from their Chinese exposure for the likes of Nissan (NSANY), Toyota (TM), and Honda (HMC).   But never (okay, rarely) wanting to try to field a falling knife, or getting between China and Japan when they decide to mix it up (a position nearly as perilous as getting between Jesse Jackson, Sr. and a television camera, but I digress), I think I’ll watch a while before getting interested in these stocks from the long side.