Charts always tell me a more truthful story than the written and spoke propaganda doled out by the corporate mainstream media. The bimbos and boobs on CNBC and the rest of what passes for financial journalism in the dying legacy media were ecstatic about the fantastic May auto sales. These mouthpieces for the establishment just regurgitate the lines written for them by their corporate PR departments. They blather about new highs and best sales since 2007. Maybe they could try using their brains and dig a little deeper to examine the underlying foundation of these fantastic sales.
With a cursory investigation they would discover that average loan length reached an all-time high of 66 months and the average amount financed exceeded $27,000. I’ve never spent more than $20,000 on a car, let alone finance $27,000. The percentage of people leasing those “sold” cars also reached an all-time high of 26%. And the cherry on top is the 34% of auto loans going to subprime deadbeats. “Selling” automobiles using easy money and extending loan lengths is the same strategy employed from 2002 through 2008. That worked out so well, I’m sure it will work just as well this time.
These same clueless dolts paraded on TV as financial journalists would do well to try and explain the chart below. When the economy is running on all cylinders the motor vehicle inventory to sales ratio hovers between 2.0 and 2.5. So at this current point in time, with auto sales reaching seven year highs, we have an extreme inventory to sales ratio of 3.0. Therefore, we have 20% to 50% too many automobiles for the current sales level. An inquisitive mind might wonder what happens next? Are GM, Ford and Chrysler going to allow 10 year auto loans and bump up their subprime clientele to 50%? The inventory continues to pile up on dealer lots, even with the extremely loose financing deals being pushed on the delusional American public.
Based upon history, only a fool, a CNBC economics reporter, or a Federal Reserve chairwoman would expect auto sales to accelerate above the current level. Real household incomes are back at 1998 levels, financing terms are at the loosest in history, the economy is contracting, and gas prices are near three year highs. Does that sound like a recipe for accelerating automobile sales? The data I see is telling me we have reached a peak in auto sales. The extremely high inventory levels will lead to major discounting by the auto companies and huge profit declines. These companies will have to cut back on production, further pushing the economy into recession. It’s amazing what you can see when your agenda isn’t to mislead, obfuscate and misinform.
