Everyone in 2020 has taken one look at the car market – with drastically low supply and drastically high demand – and still took out a loan for a new car. That was… fine for now, but it might come back to haunt us. All that and more inside The morning shift for March 23, 2022.
1st Gear: What Happens When Car Prices Fall?
That The Financial Times ran a funny story on car loans taken out during the pandemic, noting that for some reason everyone had decided to buy a personal car at the same time. (We all got Covid.)
This has been a relatively stable situation so far because people are still voraciously buying cars and automakers are still struggling to get vehicles onto the market. We’re still riding the wave, so to speak.
But what comes up must also come down, as the FT emphasizes:
Americans bought cars in a big way during the pandemic. According to data from the Federal Reserve Bank of New York, auto loan originations in the US reached a record $734 billion in 2021. The sector’s total outstanding debt rose $84 billion to $1.46 billion, outpacing the rise in student and credit card debt combined. Federal Reserve Chairman Jay Powell this week called for more aggressive monetary tightening, suggesting an increase in credit risks.
High interest payments on these debts filled the coffers of car lenders. Rising prices for used cars have also made it easier for banks to recover their capital in the event of a default. According to Manheim data, used car values in the USA are not far from the highs of the last few decades.
However, rising interest rates, soaring gasoline prices and an eventual easing of the car shortage threaten to slow the car loan boom. Since last summer, shares of Ally Financial and Capital One have underperformed the broader US Russell 1000 Financials Index.
When used-car prices falter, lenders who have made large loans may view collateral differently. According to the S&P/Experian Auto Default Index, auto defaults have been on the rise again since July. It’s early, but shareholders will want to buckle their seat belts.
I love the Financial Times because they don’t portray this as a problem for consumers, for ordinary people. Ordinary people don’t read the FT. This article is intended for rich people who have invested money in this topic.
2nd gear: Corvette production idle due to parts shortage
Speaking of auto companies still struggling to make cars, even their most prestigious vehicles, workers assembling the new C8 Corvette have been idle for a week due to parts supply problems Automotive News Reports:
General Motors Cut the first and second layer at the corvette Plant in Bowling Green, Kentucky, due to temporary parts limitation, spokesman Trevor Thompkins said Automotive News.
“Our supply chain, manufacturing and engineering teams are working closely with suppliers to mitigate further impacts on production,” he said.
GM declined to say which component was in short supply, but spokesman Dan Flores confirmed that the downtime was not due to a semiconductor chip shortage. No other GM plants are experiencing parts-related downtime this week, he said.
3rd gear: Former GM boss joins ExxonMobil
The close relationship between the auto industry and the oil industry continues to this day as former GM and Cruise exec Dan Amman joins ExxonMobil. He says he’ll be there to help with decarbonization, although that sounds a bit like putting a fox in charge of protecting the chicken coop. Out of Automotive News:
Dan Ammann, former General Motors President who abruptly leave his post as CEO of Cruise in December, was named president of ExxonMobil Low Carbon Solutions.
He said in a LinkedIn post Tuesday that he will lead the build-out of new businesses at ExxonMobil focused on decarbonizing the industrial economy.
“We will move the needle sharply toward net zero in the hardest-to-decarbonize industries in a commercially viable manner and with urgency,” he wrote. “To do this, we will draw on the extensive resources and expertise that exist within ExxonMobil today, along with the best outside ideas and an initial $15 billion capital commitment that the company has made, to build this business and reduce emissions.”
4th Gear: “Right To Charge” is my new favorite EV phrase
I love this strange moment in the history of electric cars, where there’s fast-paced EV promotions but patchy charging infrastructure. In some places there are too many chargers like in Japan. Britain faces the opposite problem, as Bloomberg Reports:
A successful transition to electric driving is only possible with significant infrastructure improvements that give drivers “the right to charge”, an industry association has warned.
Society of Motor Manufacturers and Traders (SMMT) chief executive Mike Hawes said the sector was “up for the challenge” of phasing out new petrol and diesel cars, but its efforts would need to be accompanied by huge investments in public chargers.
Last year’s ratio of about 16 EVs for each standard public charger is likely to deteriorate to about 32 EVs per charger this year, with significant regional variations, Hawes said.
He warned: “Things are getting worse because of this pace of market transition for electric vehicle sales.
“We need the infrastructure to catch up.”
I just love the phrase Right To Charge. You have to fight! For your right! Devour electrons with 150kWh!
5th Gear: You have two months to get $2.9 billion in new transportation
The Department of Transportation under Pete Buttigieg is dishing out a new $2.9 billion, and you’ve got two months to get your hands on that sweet, sweet funding Reuters Reports:
The White House on Wednesday will announce a $2.9 billion funding opportunity that the Department of Transportation earmarked for major infrastructure projects this year as part of a $1 trillion legislative congress approved in 2021.
The grant funding provides “a unique opportunity to repair our aging infrastructure and invest in major projects for the future of our economy,” Buttigieg said. Applications are possible until May 23rd.
The number includes $1 billion for projects of national or regional importance that are too large or too complex for traditional funding programs, which Buttigieg described as “the cathedrals of our infrastructure.”
We will build cathedrals for our wheeled gods, honor and cherish them.
Back: I can’t believe that was a year ago
On March 23, 2021, The Ever Given got stuck in the Suez Canal. It’s still there in my heart.
Neutral: How are you?
I think I can finally take this warmer weather as an opportunity to paint a bike for the first time. It’s going to go horribly wrong, I’m sure.