Where is auto market headed?

[jeisensc]

@CarryTheInterest

We own a tier-1 supplier; primary customer base is the big three here domestically in North America. We also do a bit of work in China and Europe, but North America makes up the overwhelming majority of our business. This is a privately held company, but not small ($1B+ of topline).

I love the tweets of little birds

@CarryTheInterest

but from perhaps a slightly different perspective from others in the community. Sorry in advance for the lengthy post - hopefully some of you enjoy this.

This is gold. Thanks for sharing.

@CarryTheInterest

We’ve been running various analyses assuming a shutdown through all of April and a possible extension through all of May.

I’m just one asshole on the Internet, but I think June first is the most optimistic/realistic. Even a magic bullet would take more than a month to propogate through society — we have instant communication and global JIT supply chains, but making/distributing once for the first time won’t be a case study in best practice (Someone might color the case study. Sorry back on topic).

@CarryTheInterest

One thing the auto industry is very good at is shutdowns and rapid startups. As soon as things make a turn for the better, these guys will be up and running quickly. You’d be amazed how quickly this can happen.

If they are running three shifts (even light) and have enough inventory, 72 hours (max) to prime the lines and just add labor to scale. When that whistle does blow, nobody is going to be fucking around.

@CarryTheInterest

but anything slated for launch in the next 12 months is still a top priority. Even in shutdown, engineers are working remotely and making progress where needed to stay on track.

@CarryTheInterest

Reviewing various research analysts/broker reports coming out real-time has suggested one

I just want to print out all this data and roll around in it. A refreshing change to most of the “instinct” here.

Clearly done your homework (and we are reading similar things). I agree 12-16M (hopefully not less than 12M) this year — 18M by 2021 is really really bullish, that models like a perfect V recovery that is unlikely.

Yes production can snap back, but we have a demand-side shock (leave your Laffer curve home). Demand peaked in 2018, near-0 borrowing costs can only bring the replacement cycle in so far. Unemployment in general public won’t snap back as fast, downward pressure on demand. I think 12-14M in 2020 and 15-16M in 2021 is more pragmatic.

@CarryTheInterest

With regards to recovery in North America, it’s important to note we are not swimming in excess inventory right now. That should be good for getting production back up and running so long as the latent demand for new vehicles shows up ready to purchase new vehicles. GM in particular was very light on inventory coming into 2020 due to the strike from Q4 last year.

Well we know FCA isn’t a customer

But yes the people here who expect fire sales on distressed inventory aren’t looking at the numbers: it isn’t November 1st with a lot full of Halloween pumpkins. The only possible imbalance is overbuild any expected/cancelled fleet models (base Malibu hybrid anyone? Anyone?)

@CarryTheInterest

That being said, depending on how long this shutdown lasts, some of the smaller suppliers that sell to the big OEMs might not be so lucky. It’s very possible some of those become insolvent if we are in for another full month of a shutdown. OEMs have their own significant cash burn problems right now, so they won’t be eager to step in and provide rescue financing to suppliers in trouble (unless someone is in serious trouble and has some secret sauce part of the supply chain for a near-term high profile platform launch). The best time to change suppliers for an existing platform mid-production cycle is when everything is shut down. This usually doesn’t happen because of the disruptive effects it has on the supply chain – that disruption doesn’t happen when plants are shutdown. We owned a few suppliers through the last recession, and every single one of them grew YoY (annually and quarterly) through 2008-2012 picking up additional market share every year as some competitors withered away.

Thanks for sharing this important point. Everyone who doesn’t precisely remember 2008 should go refresh themselves during the buckets of spare time we have. Downstream suppliers were an issue then but everything didn’t stop this long. It’s a rare opportunity to rearrange deck chairs in ways that are as big as the companies themselves.

Hang in there. It’s not knowing how long that makes this so difficult to model and predict. Not everyone is working now, but the people who are working are panicking for themselves and everyone stuck at home and then-some.