WEBVTT - Edmunds' Caldwell: Automakers Using Attractive Financing(Audio)

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters

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<v Speaker 1>on Katherine calorie U. S Ox are down the most

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<v Speaker 1>in a month online tepid consumer spending data. Wall Street

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<v Speaker 1>is joining markets around the world as oils plunge into

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<v Speaker 1>a bear market and struggles at European Londons add to

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<v Speaker 1>growth concerns. Retailers are leading the declines after day to

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<v Speaker 1>show consumers tapped into savings to increase their spending. Last month,

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<v Speaker 1>oil has erased a gain, deepening of bear market. We

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<v Speaker 1>check the markets every fiftwo minutes throughout the trading day

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<v Speaker 1>on Bloomberg Radio. Down Industrial averages down one d twenty

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<v Speaker 1>three points two thirds of a percent, trading at eighteen thousand,

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<v Speaker 1>two hundred eighty one. SMP five foundered down eighteen points

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<v Speaker 1>eight tens of a percent at twenty one fifty three.

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<v Speaker 1>Then AzaC is down fifty five points, a loss of

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<v Speaker 1>one point one percent, trading at fifty eight. West Texas

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<v Speaker 1>Intermedia Crude oil down seventy four cents a barrel, one

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<v Speaker 1>eight percent to thirty nine thirty one, spot gold up

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<v Speaker 1>twelve dollar seventy ounced a thirty thirty and that ten

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<v Speaker 1>year treasury down four thirty seconds with the yield of

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<v Speaker 1>one point fifty three one. That's a Bloomberg Market minute.

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<v Speaker 1>You're listening to Taking Stock with Kathleen Hayes and Pox

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<v Speaker 1>on Bloomberg Radio. Can in the U s consumer keep

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<v Speaker 1>driving US economy forward? It's just one of the questions

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<v Speaker 1>we asked today. As we say that most of the

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<v Speaker 1>big US automakers reported light vehicle sales last month the

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<v Speaker 1>trailed analysts estimates in July. It reinforced concerns the market

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<v Speaker 1>for cars may have peaked with last year's record deliveries.

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<v Speaker 1>So do the auto makers the auto sellers have to

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<v Speaker 1>offer bigger and deeper incentives. Joining us now is Jessica Caldwell,

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<v Speaker 1>executive director of industry Analysis for Edmunds dot com, and

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<v Speaker 1>she's joining us from Santa Monica, California. Jessica, welcome back

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<v Speaker 1>to the show. Yes, hi, thank you for having me.

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<v Speaker 1>Great to have you. First of all, characterize the trend

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<v Speaker 1>we saw last month in terms of the sales a

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<v Speaker 1>little bit weaker, but you know, compared to work with

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<v Speaker 1>a couple of years ago, the level still look pretty decent. Yeah,

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<v Speaker 1>I mean, okay, so straight off the press, it looks

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<v Speaker 1>like the latest calculation is going to show an increase

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<v Speaker 1>from last July, not only in total volume but also

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<v Speaker 1>instar So considering how strong last July was, I think

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<v Speaker 1>this is good news. I mean, we heard some kind

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<v Speaker 1>of negative news this morning from GM and four those

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<v Speaker 1>you know, big automakers, that a lot of smaller automakers

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<v Speaker 1>did well. Those that's kind of being lost in the story.

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<v Speaker 1>Some of the luxury brands suber Volto I can actually

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<v Speaker 1>do better than we thought they would. Um, So kind

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<v Speaker 1>of a mixed bag, I would say for auto cells,

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<v Speaker 1>but perhaps a little better than some of the headlines

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<v Speaker 1>out there suggesting. Jessica and why if you could comment

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<v Speaker 1>about automobile loans, because for the largest auto lenders, Ally Financial, Wells,

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<v Speaker 1>far Ago, JP, Morgan Chase, and Capital One Financial on

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<v Speaker 1>their quarter of the on their second quarter conference calls,

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<v Speaker 1>they said that they used that the price have used

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<v Speaker 1>automobiles are at risk of falling and uh if used

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<v Speaker 1>car prices fall, the amount of the unpaid balance that

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<v Speaker 1>the lenders can recoup is also at risk of declining. Well,

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<v Speaker 1>I mean, I think for used autos, I mean I

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<v Speaker 1>think they're probably talking a little bit about some of

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<v Speaker 1>a glut of leash returns. I mean, we see a

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<v Speaker 1>big concentration in newer used vehicles. That means they're more expensive,

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<v Speaker 1>they're kind of harder to find homes usually cheaper uh

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<v Speaker 1>used cars which are older. It's so quicker. So I

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<v Speaker 1>think there is some trepidation about how high, how how

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<v Speaker 1>high the leasing has got because all those cars eventually

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<v Speaker 1>end up on the used car market. So a lot

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<v Speaker 1>of concerns in the area right now. So the obvious

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<v Speaker 1>sales actually if you look at across the board are

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<v Speaker 1>coming in um as you say, if they're stronger than

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<v Speaker 1>last line, that's that's pretty dang good. So is this

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<v Speaker 1>is a problem for GM and four IT and with

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<v Speaker 1>So what is their problem? Well, I mean I think

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<v Speaker 1>that if you look at g M cells retail, they

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<v Speaker 1>did actually quite well. They were up about five percent.

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<v Speaker 1>I think they had said they continue to reduce the

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<v Speaker 1>number of daily rentals, which is a less profitable business.

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<v Speaker 1>I mean, so right now, I think you know they're

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<v Speaker 1>writing high on on they're selling large trucks, the Silverados,

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<v Speaker 1>the tahoes. Those are profitable vehicles, and when you're selling

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<v Speaker 1>more profitable legals, it's not always just a volume game,

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<v Speaker 1>or not just trying to chase the volume. I think

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<v Speaker 1>for Ford, cars have been kind of an issue for them.

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<v Speaker 1>They you know, they came out with a lot of cars,

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<v Speaker 1>everything from the Fiesta to the Tours. They put a

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<v Speaker 1>lot of money in that cars are not selling. People

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<v Speaker 1>are buying pickups and stvs right now, So that kind

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<v Speaker 1>of plagues Forward because their truck is doing, you know,

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<v Speaker 1>fairly well. Their vans actually, all vans are doing, are

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<v Speaker 1>doing really good. But I think that's you know, kind

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<v Speaker 1>of where Ford having an issue at this point. Jessica,

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<v Speaker 1>I want to follow up on something you just said

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<v Speaker 1>about leases, because I understand that the number of automobiles

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<v Speaker 1>that are expected to come off lease this year, uh

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<v Speaker 1>eight hundred thousand more than they were last year, Right,

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<v Speaker 1>that's the biggest jump in fifteen years. Are automobile companies

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<v Speaker 1>making enough money on the automobiles they said, uh, um,

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<v Speaker 1>you know, it's gonna be tough I think for these

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<v Speaker 1>lease returns, and right now what they're trying to do

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<v Speaker 1>is figure out a way to keep leasing going because

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<v Speaker 1>consumers like leasing, and especially millennials, millennials at least more

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<v Speaker 1>than any other age group. UM, and that's the upcoming market.

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<v Speaker 1>So I think by trying to do things like lower

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<v Speaker 1>lease allotment miles UM do US leasing, that's going to

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<v Speaker 1>become a thing pretty soon. Try to really equip these

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<v Speaker 1>cars with the best features so in three cars when

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<v Speaker 1>they come back off of lease, they're not going to

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<v Speaker 1>be you know, out of date and people don't want them.

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<v Speaker 1>So autom because we're trying to move these lovers to

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<v Speaker 1>help residual values, which in turn are going to help

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<v Speaker 1>keep the low monthly lease payments low and make these

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<v Speaker 1>cars attractive when they come off of lease. And and

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<v Speaker 1>you know, don't just ruin the entire US car market.

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<v Speaker 1>You know, our our auto team out in Southfield, Michigan, Detroit,

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<v Speaker 1>Motor City, UH note in their story today that affordability

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<v Speaker 1>has become the biggest impediment to buying a new car,

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<v Speaker 1>according to survey by Auto Trader, with the average new

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<v Speaker 1>vehicle price up to and after sent over last year

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<v Speaker 1>to thirty or four thousand dollars and change. Does this

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<v Speaker 1>put all the more pressure then on the automakers to

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<v Speaker 1>make again to to to step up the incentives again

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<v Speaker 1>to get people a price and discount that way, It

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<v Speaker 1>certainly does that people are choosing to buy vehicles that

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<v Speaker 1>have more technology in them, more equipment, more content. People

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<v Speaker 1>are choosing to buy larger vehicles. Um And that's kind

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<v Speaker 1>of reason why I don't think auto cells necessarily a peak,

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<v Speaker 1>just because transaction prices are higher. People are wanting larger cars,

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<v Speaker 1>and when you kind of hit a peak, you see

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<v Speaker 1>people kind of go more downstream. So I think there

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<v Speaker 1>is pressure on incentives. But if you're making more money

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<v Speaker 1>selling larger trucks and SUVs, there's more profit margin, so

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<v Speaker 1>then you can offer more incentives. And also leasing is

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<v Speaker 1>another way you can get the prices to be a

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<v Speaker 1>bit lower for people to make them affordable. But people

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<v Speaker 1>right now there they want to expect with cars, and

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<v Speaker 1>that's the interesting thing that's happening, Jessica. Just quickly, by

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<v Speaker 1>the end of the year, we're gonna be at that

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<v Speaker 1>seventeen seventeen and a half million run rate for vehicles sales.

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<v Speaker 1>I mean, it looks like the second half is usually

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<v Speaker 1>big for automakers. Right now, I mean, you have the

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<v Speaker 1>end of summer sales you have Labor Day, and then

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<v Speaker 1>you have the big Black Friday end of the year,

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<v Speaker 1>which never was as big as it is has been

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<v Speaker 1>the past few years. So the second half is generally

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<v Speaker 1>stronger than the first. So we could, you know what,

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<v Speaker 1>with July fells beyond record case. Thanks very much for

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<v Speaker 1>spending time with us. Jessica Caldwell is executive director of

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<v Speaker 1>industry Analysis for Edmonds dot Com, joining us from Santa Monica, California,

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<v Speaker 1>taking a look at the US auto industry on a

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<v Speaker 1>day when Ford GM post declines in sales for the

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<v Speaker 1>month of July and Fiat christ their posts a small increase.

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