The auto industry is most akin to a delicate ecosystem. Many components must work in harmony for companies to maintain balance in volume and margin. After much research and consideration, we’ve created the following proprietary indicators to provide unrivaled volume and margin insight for the investment community.
Real-Time New-Vehicle Inventory Tracking
Real-time inventory tracking is perhaps the most important indicator for forecasting manufacturer production volume and margin. Put simply, if the production rate matches the retail sales rate, little volatility will be observed in day-supply levels. The opposite is true when there is an imbalance between the production rate and the retail sales rate. A material decrease in day supply following an increase in retail sales is often accompanied by a reduction in incentive spending and an increase in production. On the other hand, a material increase in day supply following a decrease in retail sales is often followed by an increase in incentive spending, which hurts margins. If increased incentive spending fails to stabilize inventory levels, then production cuts are often the next step, which hurts volume.
Product sample from April 2019:
This indicator is sent to clients once per week and one trading day before auto retail sales are reported.
Real-Time Used-Vehicle Inventory Tracking
Since most new-vehicle sales include a trade-in, used-vehicle values must be taken into account when considering consumer purchasing power for new vehicles. Used vehicle values can either offset or enhance the expense of new vehicles in various ways. At times, used-vehicle values can be very volatile and are most heavily impacted by retail dealer demand. The real-time inventory tracking indicator for pre-owned vehicles provides insight into the balance of supply and demand in the used vehicle market by monitoring fluctuations in dealer inventories. Though we offer a product that provides timely updates on current used-vehicle values, this indicator provides longer-term insight into dealer demand which will ultimately affect used-vehicle values.
Product sample from April 2019:
As you can see in the chart above, used-vehicle values have a near perfect correlation to retail inventory levels. This indicator is sent to clients once per week and one trading day before auto retail sales are reported.
Manufacturer Wholesale Estimates
Auto manufacturers report sales data on a monthly basis (with the exception of General Motors, Ford, and FCA which report quarterly). Investors pay close attention to the sales data in order to gauge the health of the automotive industry. However, the reported sales data should only be considered as insight into future production demand. Manufacturers earn revenue by wholesaling vehicles (vehicles sold to dealers and fleet customers), which is different than monthly sales reports (vehicles sold to consumers and fleet customers). When sales are stable, they are a very good gauge of future production (a vehicle sold most often equals a vehicle that needs to be replaced). However, when sales become volatile, the difference between sales and wholesales can be significant (a vehicle sold does not equal a vehicle that needs to be replaced). New-vehicle manufacturer wholesale estimates are available for Ford, FCA, and GM. This process can be duplicated for any other automaker for an additional fee.
Product sample for Q1 2019:
The best way to use the wholesale estimates provided is to compare revenue and earnings consensus estimates to the change in wholesale volume. The wholesale estimates are only for North America but North America has historically contributed north of 80% of total company EBIT for Ford, GM, and FCA. This indicator is updated on a monthly basis.