Following yesterday’s blowout auto sales report, Morgan Stanley’s Adam Jonas and team worry that the U.S. auto market is “pulling forward demand from the future.” They explain why:
Reuters August registered the highest SAAR since July 2005, as attractive financing incentives lured customers into showrooms through the Labor Day weekend. Today’s sales tactics are likely pulling forward demand from the future, which may be unsustainable, in our view…
…the most recent summer/fall spike appears driven primarily by financing incentives alone. Dealer commentary broadly suggests that the incremental buyer is being presented with longer terms at lower rates and higher residual value assumptions. The growing trend of 84 and 96 mo. car loans coupled with higher sub-prime leasing makes us particularly concerned that today’s boom in auto sales is a result of unsustainable practices which are pulling forward demand from future periods. We believe investors who are increasingly aware of today’s sales tactics will find it difficult to justify paying up for earnings beats stemming in large part from future borrowing of demand, precipitating what we fear could be the largest decline in used car prices in history.
Shares of General Motors (GM) have gained 0.7% to $34.70 at 11:50 a.m., while Ford (F) has risen 0.1% to $17.48.
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