Auto Sales: The Fake Economic News Bubble

The headlines are reporting that auto sales in December hit a record, when looked at on a “seasonally adjusted annualized rate” basis. No one questions the validity of the seasonal adjustments. The average news consumer sees or hears the headline word-byte/soundbyte and that becomes the truth. Fake economic news is another form of Establishment propaganda: seduce the populace into believing what you want them to believe rather than presenting the truth. It’s Jim Sinclair’s “MOPE:” Management of Perception Economics.”

Along with the geopolitical and domestic political fake news epidemic is an epidemic in economic fake news. Collectively it’s a “fake news bubble,” with one of the highly insidious consequences of this bubble being the messy abortion otherwise known as the “Presidential election.”

Turning to the auto sales fake news, based on the SAAR estimates, automobile sales allegedly hit a selling rate of 18.2 million units in December. But seasonal adjustments notwithstanding the facts, does the data fit the facts of the related areas of consumer spending? By this I mean restaurant and retail sales.

Though not reported yet for December, restaurant same store sales declined 1.3% in November from October and dropped 3.3% from November 2015. It was the ninth consecutive month of negative same-store sales and the worst decline since July. Perhaps with constrained disposable income, consumers cut out restaurants to buy holiday gifts?

Looking at what we know about retail sales during the holiday period so far, First Data reported that holiday spending is up 2% vs. last year (through Dec 12). Last year that number was 2.4%. So there’s a deceleration in retails sales growth spending. Cowen research reported that foot traffic at malls was down 10% in December through December 17th. Granted online sales growth of 9% this holiday season is taking some mall spending away, but online spending represents only 8% of total retail sales spending. I guess maybe consumers cut back on holiday gifts this year to spend $40,000 (average cost of a new GM car according the auto sales report) on a new car? New cars can be very expensive, which is why you sometimes hear of people having their car on finance. This means that you have the vehicle to use, but you just have to pay fixed monthly payments over an agreed time period. Therefore, the car isn’t actually yours until you’ve finished paying for it. This method can be beneficial for those people who want to have a new car, but might not be able to afford one in full. To see some examples of the different car offers that are available on finance, you could just look online until you find the correct car for you. Whatever route you choose to go down, make sure it’s viable for you.

Finally, I cover two companies that provide subprime auto loans. Both companies were reporting declining loan application volume in their last financial reports. Interest rates spiked up 100 basis points during November and December, which means the cost of auto loans spiked up slighlt as well. Even though auto lenders are reporting lowered loan application volumes, we’re to assume that – despite significantly higher interest rates – consumers decided to skip eating out and buying holiday gifts in order to buy a new car during December? There is also usually a corroboration between new car sales and the number of people who sell car for scrap removal, but there has been a notable lack of activity there too.

Does any of this make sense? To make matters less believable and uglier, GM reported that its unsold inventory of cars sitting on dealer lots exploded to 844,942 cars in December, a nearly quarter of a million unit increase over December 2015. Call me skeptical but I would suggest that a large portion of those cars sitting in dealer lots were counted as sales when the cars left the factory floor.

The likely source of “record” auto sales is in the “seasonal adjustments” that are applied to the data. Moreover, I would suggest that the data itself is suspect. I would like to see a study that correlates a “sale” with the actual transfer of title to either an auto finance company or to a buyer who paid cash – i.e. tie a “sale” to an actual end-user taking delivery and driving off the lot. THAT number, based on all of the related supporting evidence as detailed above, is likely a much different (lower) number than what was reported.

5 thoughts on “Auto Sales: The Fake Economic News Bubble

  1. Throw in that Boeing is having problems with revenues and canceleld or deferred orders and is cutting production.

    United and american have both deferred deliveries.

    Delta reported it can buy a used 777 for a small fraction of the cost of a new one. (thats a Caterpillar issue–too much basically new equipment is idle out in the field)

    AF1 is a large chunk of the 747 deliveries.

    Airbus not exactly thriving either.

    The Chinese are in commercial aircraft business now in the big regional jet sector-90-120 passengers) as is Mitsubishi of Japan.

    Boeing has been outsourcing components for years now and assembling in Mexico. I think thats ongoing with 777 (well how many built) and for sure on 787.

    The problem is our cost structure is too high for a number of reasons.
    Thats why housing is down and retail down-people not making things that can be sold where they get paid and they take that pay and buy stuff. Can’t buy much when we have all the part time jobs.
    WE would have to fix underlying problems not screw up other relationships like tariffs.

  2. But things are awesome ! The Dow will hit 20,000 next week !
    We just delivered Abrams tanks into Germany for distribution
    into Eastern Europe along the Russian borders, everything is awesome !
    All Pacific Tuna and Salmon have been found to be full of radiation from
    Fukishima , but don’t worry just eat more sushi because everything is awesome !

  3. “Call me skeptical but I would suggest that a large portion of those cars sitting in dealer lots were counted as sales when the cars left the factory floor.” You’re absolutely correct. I believe, that a car is counted as ‘sold’ when it hits the dealer’s lot – not when a consumer purchases it. A sale is when the dealer buys it from the factory. Dealers pay for the car when they get it, which is why they can count them as sold. All those cars on all the trucks we see running down the highway are sold units. They can load the franchises up to create sales. I think we are going to see some record channel stuffing soon – and a lot of pissed off dealers..

  4. Even 2006-7 seems like such a benign time compared to the bizarro world we currently live in. Right now facts don’t matter, it’s the narrative that matters. MSM can create whatever narrative they want and create the “facts” to support it. The election polls were so fake – showing a 93% winning chance for Hillary right on the morning of the election! So one can easily guess the scale of deception practiced by MSM in various other matters like approval ratings, sales numbers, jobs numbers, auto sales etc.

  5. Channel stuffing indeed. My only question is that since I will soon be in the market for a new set of wheels, how do I take advantage of this? I bought my last new car in ’08 when dealers were practically giving them away, so how do I take advantage again?

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