Hertz Hurts: Confirms our Concers About the Auto Industry

Hurtz Hurts: Confirms our Concers About the Auto Industry

In this weekly update Leader Capital provides its thoughts on the current economy as well as analysis of specific market sectors and securities – and their strategy for the funds going forward. The securities and sectors mentioned are ones of interest to the portfolio managers in carrying out their investment strategy for the funds and although the funds may not invest directly in the securities or sectors discussed, their resulting performance may impact that of the funds – or influence actions taken by the portfolio managers. These discussions do not imply a recommendation to purchase any specific investment or investment in a specific market segment.

Autos

Used car prices dropping as off lease contributes to glut (Chart 1 & Chart 2)
Delinquencies continue to rise in subprime (Chart 3).
Car loan terms exceeding 8 years preclude car buyers from trading in.
Extended financing and used car prices could weigh on original equipment manufacturers and new car sales.

In summary, it seems that the current problem is too much supply putting downward pressure on used cars which affects residual values. This has hurt the rental car companies especially. Extended loan terms pose a threat to new car sales. Macro

Markets moving in tandem. Hard to find a place to hide with market shock¹.
Lowest Volatility Index (VIX) since 2008 has investors complacent.

The lowest VIX in 10 years as equity markets have kept trickling upward. We believe fundamental data needs to catch up with soft data or else VIX could jump and markets may tip. We see market shock risk as being elevated. ¹ “A Storm Investors Can’t hide From Is Brewing, EQT Partner Says” By Niclas Rolander (Bloomberg)

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