May 5, 2021
Low Depreciation, Higher Rates Give U.S. Car Rental Firms Rare Perfect Script
When Rob Ferretti of car rental firm Gothamdreamcars looked up the selling price for a 2018 Mercedes-Benz G-Class SUV, part of his luxury 25-vehicle fleet, he was elated it could fetch over $130,000 - nearly the same price paid three years ago. According to Reuters, it is a very good time for car rental companies. A very rare combination of low depreciation costs on existing fleets, higher rates and a global shortage of semiconductors that has squeezed new car production, pushed trade-in prices for older vehicles to record highs in March. With rental bookings set to rebound in the summer, following widespread COVID-19 vaccinations, car rental firms stand to benefit from a jump in rates, as well as lower depreciation cost. "That's Goldilocks in the car rental world," said Morgan Stanley analyst Adam Jonas. "This is a very strong time and 'all the stars are aligned'." Those two factors are likely to be "much more than sufficient" to offset higher new car fleet costs that car rentals might face in the near-term as summer demand returns, Jonas said. For more on the rental market, click here.
UPDATED - Automakers Rally from Pandemic Low; SAAR hits 18.5M
Toyota Motor Corp., American Honda, Hyundai, Subaru, Kia and Mazda, behind light trucks and robust retail demand, posted sharply higher U.S. light-vehicle sales last month compared with April 2020, when the market bottomed out early in the pandemic, with showrooms and factory floors mostly shuttered. And in the latest sign the market continues to run hot, Automotive News reports that the seasonally adjusted, annualized rate of sales for April was 18.5 million -- well above forecasts and a high for the month. April marked the second month in a row the SAAR has topped 18 million. April volume jumped 183 percent to 239,311 at Toyota Motor, with the Toyota brand up 183 percent to 212,283 and Lexus advancing 177 percent to 27,028 -- April records for all three. The Toyota division said car, crossover and SUV deliveries more than tripled last month, with sales of the Highlander more than quadrupling to 27,679. For a full April sales report, click here.
Auto Sales Helped Get the American Economy Off to a Good Start in 2021
In the first months of 2021, what was good for the auto industry was decidedly good for the American economy. The New York Times reports that spending on motor vehicles and parts rose almost 13 percent in the first quarter, making a big contribution to the increase in gross domestic product. Strong sales of new and used vehicles were propelled by consumers who had delayed purchases earlier in the pandemic and by others who — because of the virus — wanted to rely less on public transit or shared transportation services like Uber. Two rounds of stimulus payments since late December were a big factor. Low interest rates, readily available credit, rising home values and stock prices, and strong trade-in values for used models also eased the path for consumers. In fact, demand in the first quarter was robust enough that the auto industry was able to post healthy results despite a shortage of computer chips that forced temporary shutdowns of many auto plants. For the full story, click here.
Driveway: the Lot You Can Visit in Slippers
While the biggest chunk of Lithia Motors Inc.'s growth strategy is its acquisition ambitions, a strong second is the rapid expansion of its digital platform, Driveway. According to Automotive News, by the time Lithia's five-year plan has played out, CEO Bryan DeBoer projects that Driveway will generate $9 billion in revenue — roughly three-quarters as much as the whole company did in 2019 and 2020 each. In the drive to build a truly nationwide retail network, the ability to efficiently sell — and buy — vehicles online relieves the need to have a store in every town while also addressing a crucial pain point for consumers who do not enjoy or appreciate traditional auto sales practices. The profits from the online sales, DeBoer said, help fund physical acquisitions. "The two strategies have to work together," he said. "Without the infrastructure, Driveway doesn't work, and without Driveway, we wouldn't have had the capital to drive shareholder value." For more on how Driveway works, and how the digital strategy was developed, click here.
U.S. Commerce Dept Pressing Taiwan to Supply More Chips to U.S. Automakers
The U.S. Commerce Department is pressing Taiwan Semiconductor Manufacturing and other Taiwanese firms to prioritize the needs of American automakers to ease chip shortages in the near term, Commerce Secretary Gina Raimondo said on Tuesday. Reuters reports that Raimondo told a Council of the Americas event that longer term, increased investment is needed to produce more semi-conductors in the United States and other critical supply chains need re-shoring, including to allied countries. For more on the chip shortage, click here. According to Automotiver News, Raimondo also called for a major increase in U.S. production capacity for computer chips whose current shortages are causing global manufacturing bottlenecks, saying the push could create jobs and wean the nation off over-dependence on China and Taiwan. For more on those comments, click here.
