US used car market loses its fizz and automakers dig deep

DETROIT, April 13 (Reuters) – Joseph White Global Auto Correspondent, Thomson Reuters

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Today, used car prices head south, automakers head down to the mine and the supply chain recovery keeps on slipping into the future https://www.youtube.com/watch?v=hogw4S5T6Ok. Here we go – A warning from US used car prices – Used car prices in the United States have soared over the past year, but the latest government inflation data https://www.reuters.com/business/broad-inflation-little- relief-fed-peak-may-be-near-2022-04-12- and a warning from used car superstore operator CarMax – are signs that bubble may be deflating.

Used vehicles were one of the few categories of goods that cost less in March https://www.bls.gov/news.release/cpi.nr0.htm, down 3.8%, according to the US Commerce Department.

Meanwhile, Carmax said it sold 5.2% fewer used vehicles at its stores during the fourth quarter of 2021 https://investors.carmax.com/news-and-events/news/news-details/2022/CarMax-Reports-Fourth- Quarter-and-Fiscal-Year-2022-Results / default.aspx than it did a year earlier, and the company said “a number of macro factors weighed on our fourth quarter unit sales performance, including declining consumer confidence, the Omicron-fueled surge in COVID cases, vehicle affordability, and the lapping of stimulus benefits paid in the prior year period. “

Granted, Carmax said the average price of the vehicles it sold rose $ 8,300, or nearly 40%, from a year earlier. But investors sold down the company’s shares.

Wall Street is going to keep a sharp eye out during this earnings season for any more signs that American consumers have hit the limit on how much they will pay for a vehicle.

For more than a year, the US auto industry has waved away concerns about recession-level quarterly sales numbers https://www.reuters.com/business/autos-transportation/toyota-first-quarter-us-auto-sales-drop -147-2022-04-01, saying underlying demand is strong, and the only problem is a lack of vehicles caused by supply chain snarls.

On Wednesday, Stellantis CEO Carlos Tavares told shareholders at their annual meeting https://app.wc1.kontiki.com/event/rpzz4otjlc that he remains confident in the company’s forecasts for double-digit operating income margins and 3% sales growth in North America.

But high gas prices, rising interest rates and eye-popping prices at the grocery store have never been good for the car business.

Automakers go mining, hi-ho, hi-ho –

Here’s one more sign of how different the 21st Century electric vehicle business will be from the 20th Century internal combustion industry: In the EV world, automakers will invest in mines. https://www.reuters.com/technology/automakers-securing-battery-raw-materials-2022-03-23

This week, Ford said it has invested in a lithium mining https://www.reuters.com/business/autos-transportation/ford-inks-argentina-lithium-supply-deal-with-lake-resources-2022-04- 11venture in Argentina, and General Motors said it now has a multi-year deal https://www.reuters.com/business/glencore-supply-cobalt-general-motors-2022-04-12 with mining giant Glencore to take cobalt from a mine in Australia. GM had announced its own deal to acquire https://www.reuters.com/business/autos-transportation/gm-shakes-up-lithium-industry-with-california-geothermal-project-2021-07-02lithium from a US project near California’s Salton Sea.

In the past, auto manufacturers could rely on mines and mills to deliver metal as needed. But battery minerals pose new, complex challenges. The world’s richest deposits of cobalt, for example, are in the troubled Democratic Republic of Congo – a place manufacturers concerned with ESG scores want to avoid. Then there’s nickel – where Russia is (or was) a major supplier.

Auto manufacturers are plowing capital into battery mineral mines in ESG approved places as insurance against price volatility – and in the worst case scenario inability to get raw materials at all. The past year has shown that taking supply chains for granted is risky business.

About that supply chain recovery –

Remember the hopeful predictions that the auto industry’s supply chain woes would ease in the second half of this year? Do not bet on it. China’s grinding – and so far ineffective – COVID lockdowns in Shanghai and other major cities are threatening to paralyze production and shipping of goods https://www.reuters.com/world/china/chinas-widening-covid-curbs-threaten-global -supply-chain-paralysis-2022-04-13 of all kinds.

Meanwhile, top executives at BMW and Volkswagen earlier this week warned they now expect semiconductor shortages to persist https://www.reuters.com/business/bmws-ceo-expects-chip-shortage-last-into-2023-2022-04 -11 into next year, or even 2024. https://www.reuters.com/business/autos-transportation/chip-undersupply-last-until-2024-says-volkswagen-cfo-boersen-zeitung-2022-04- 09 Of course, a genuine slump in demand could ease the supply chain pressure … not in a good way.

Honda gets in the EV game –

Honda said it will invest the equivalent of $ 64 https://www.reuters.com/business/autos-transportation/honda-says-spend-64-billion-rd-it-revs-up-electric-ambitions-2022-04 -12billion in electric vehicle R&D and development over the next decade, joining Japanese rivals Toyota and Nissan in a scramble to catch the EV express train. Japan’s Big Three once bet they could rely on gas-electric hybrids to bridge to a future where their vehicles would run on hydrogen. Tesla blew up that strategy – along with policymakers in China, Europe and California.

Honda will develop its own EVs, and also rely on an expanded partnership with GM https://www.reuters.com/business/autos-transportation/gm-honda-expand-partnership-around-electric-vehicles-2022-04- 05 for batteries and lower-cost EVs.

Hyundai EVs: Made in the USA –

Hyundai said it will spend $ 300 million https://www.reuters.com/business/autos-transportation/hyundai-motor-begin-electric-vehicles-production-us-2022-04-13 to tool up its assembly plant in Alabama to build an electric version of its Genesis GV70 SUV and a hybrid Hyundai Santa Fe.

Washington’s gas price band-aid –

President Joe Biden journeyed to Iowa to announce a plan to extend the use of 15% ethanol https://www.reuters.com/world/us/biden-allow-higher-ethanol-fuel-sales-summer-check-gas- prices-2022-04-12 vehicle fuels through the summer. The administration’s aim is to get fuel prices at the pump back below $ 4 a gallon in most of the country in time for the mid-term election in November. In theory, blending 15% domestically-produced, corn-based ethanol into gasoline – up from the usual 10% – will cut the overall cost of a fillup.

Maybe?

Cars running on E15 will likely get fewer miles per gallon, and E15 is not that easy to find. According to the Energy Department, it is available at about 2,300 gas stations in 30 states. https://afdc.energy.gov/fuels/ethanol_e15.html

Never mind that the oil industry’s main lobby hates E15 https://www.api.org/news-policy-and-issues/fuels-and-renewable-policy/truth-about-e15-fuel. Environmental groups have turned to ethanol as well as more studies have concluded that the total CO2 emitted by growing and refining corn-based fuel are a net negative for the climate https://www.reuters.com/business/environment/us-corn -based-ethanol-worse-climate-than-gasoline-study-finds-2022-02-14. One of the latest studies – funded in part by the US Energy Department – found that ethanol was 24% more carbon intensive than oil.

Renault’s split personality –

Renault CEO Luca de Meo is doubling down on the idea that the French automaker could split into two parts https://www.reuters.com/business/autos-transportation/renault-considers-separate-bourse-listing-electric-vehicle- assets-ceo-2022-04-12 – one electric, one riding combustion technology into the sunset – each with its own listed stock. Investors apparently aren’t buying the vision of an electric Renault with a Tesla-like valuation. The company’s shares slipped today and its market cap is a mere 6.5 billion euros ($ 7.04 billion). Will Canada protect auto mechanics? – Independent auto repair shops could be an endangered species as more cars become electrified, software-driven machines requiring special tools and proprietary code to fix. Now, Canadian lawmakers are debating so-called “right to repair” https://www.reuters.com/business/autos-transportation/canadas-accelerated-timetable-evs-brings-spotlight-key-bill-2022-04- 13 legislation that would require automakers to give independent shops access to the information needed to repair EVs. Tesla, the EV market leader, has opposed similar legislation in the United States. Canoo to the moon!

Electric commercial vehicle startup Canoo said it has won a contract to supply vehicles to transport crews to NASA’s future moon rockets. https://investors.canoo.com/news-presentations/press-releases/detail/79/nasa-selects-canoo-for-artemis-crew-transport-vehicles- GOEV.O shares lifted off 5% pre-market. ($ 1 = 0.9234 euros)

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