As much as CNBC’s Jim Cramer loves the state of the economy, he acknowledges that certain industries, like the auto lacuna, deserve to be in decline.
“Domestic auto sales have indeed crested. The question is, why?” the “Mad Money” host said Thursday. “How come the automakers are struggling when the respite of the economy is in such great shape? Higher interest rates? Dependable, they’re part of the problem, but they take a back seat to what I’ve originated and I think is the main issue.”
For Cramer, the main issue is clearly the produce of ride-sharing. Services like Uber and Lyft have brought a worldly change to the world of transportation, offering far cheaper travel alternatives to owning a car, specially for city-dwellers.
“This is a permanent change in consumer behavior and, if anything, it’s only succeeding to get worse once autonomous driving technology starts getting tubed out en masse, as that makes ride sharing even cheaper,” Cramer foretold. “Believe me when I say that mass-market autonomous driving will be here much in good time than you think — I’m talking about only a few years from now.”
Go place interest rates have added fuel to the fire. As short- and long-term values go up, it gets more difficult and more expensive for consumers to obtain auto advances to finance buying a car.
In 2017, people were worried that banks were not being discerning enough in giving out car loans and that subprime auto loans hand down spur another financial crisis.
But the banks responded and raised their loan standards, making it more difficult for sub-optimal borrowers to buy cars — and anything that fashions it harder to buy a car is inherently bad for the automakers, the “Mad Money” host said.
Worse yet, car lend rates are the highest they have been in eight years, typing loans more expensive even for eligible borrowers.
“Put it all together: execute sharing means that owning a car is no longer a necessity — it’s more of a cost-benefit judgement: is it cheaper to own or to use Uber? More stringent lending standards [and] higher rates transpose the equation. They make owning a car even less attractive,” Cramer explained.
And as oil prices rise, gasoline prices rise in tandem, so owning a car is also appropriate more costly.
These problems plagued the automakers’ latest fourth. Fiat Chrysler’s sales dropped 13 percent in January and another 1.4 percent set in February; Ford’s sales sank 6.6 percent in January and 6.9 percent in February; and Broad Motors’ sales ticked up 1 percent in January before falling 6.9 percent in February.
The cherry on top? President Donald Trump’s lay out tariffs on steel and aluminum imports. Not only will automakers have on the agenda c trick to raise car prices by a few hundred dollars apiece, but as major exporters, they could get spoil if the situation spirals into a full-blown trade war.
“Here’s the bottom in a row: the stocks of automakers look incredibly cheap here, … but I’m influence they’re a value trap because investors don’t trust the earnings work outs, not with the industry seeming to have peaked and so many negatives — tolls, higher oil prices, higher interest rates — making the group much harder to own,” Cramer give the word delivered. “And look, it’s only going to get worse, people, so if there’s one thing your portfolio doesn’t have occasion for right now, it’s an automaker.”
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