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Edmunds' Caldwell: Automakers Using Attractive Financing(Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pox
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  Speaker 1: on Bloomberg Radio. Can in the U s consumer keep
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  Speaker 1: driving US economy forward? It's just one of the questions
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  Speaker 1: we asked today. As we say that most of the
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  Speaker 1: big US automakers reported light vehicle sales last month the
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  Speaker 1: trailed analysts estimates in July. It reinforced concerns the market
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  Speaker 1: for cars may have peaked with last year's record deliveries.
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  Speaker 1: So do the auto makers the auto sellers have to
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  Speaker 1: offer bigger and deeper incentives. Joining us now is Jessica Caldwell,
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  Speaker 1: executive director of industry Analysis for Edmunds dot com, and
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  Speaker 1: she's joining us from Santa Monica, California. Jessica, welcome back
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  Speaker 1: to the show. Yes, hi, thank you for having me.
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  Speaker 1: Great to have you. First of all, characterize the trend
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  Speaker 1: we saw last month in terms of the sales a
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  Speaker 1: little bit weaker, but you know, compared to work with
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  Speaker 1: a couple of years ago, the level still look pretty decent. Yeah,
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  Speaker 1: I mean, okay, so straight off the press, it looks
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  Speaker 1: like the latest calculation is going to show an increase
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  Speaker 1: from last July, not only in total volume but also
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  Speaker 1: instar So considering how strong last July was, I think
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  Speaker 1: this is good news. I mean, we heard some kind
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  Speaker 1: of negative news this morning from GM and four those
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  Speaker 1: you know, big automakers, that a lot of smaller automakers
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  Speaker 1: did well. Those that's kind of being lost in the story.
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  Speaker 1: Some of the luxury brands suber Volto I can actually
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  Speaker 1: do better than we thought they would. Um, So kind
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  Speaker 1: of a mixed bag, I would say for auto cells,
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  Speaker 1: but perhaps a little better than some of the headlines
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  Speaker 1: out there suggesting. Jessica and why if you could comment
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  Speaker 1: about automobile loans, because for the largest auto lenders, Ally Financial, Wells,
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  Speaker 1: far Ago, JP, Morgan Chase, and Capital One Financial on
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  Speaker 1: their quarter of the on their second quarter conference calls,
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  Speaker 1: they said that they used that the price have used
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  Speaker 1: automobiles are at risk of falling and uh if used
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  Speaker 1: car prices fall, the amount of the unpaid balance that
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  Speaker 1: the lenders can recoup is also at risk of declining. Well,
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  Speaker 1: I mean, I think for used autos, I mean I
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  Speaker 1: think they're probably talking a little bit about some of
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  Speaker 1: a glut of leash returns. I mean, we see a
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  Speaker 1: big concentration in newer used vehicles. That means they're more expensive,
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  Speaker 1: they're kind of harder to find homes usually cheaper uh
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  Speaker 1: used cars which are older. It's so quicker. So I
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  Speaker 1: think there is some trepidation about how high, how how
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  Speaker 1: high the leasing has got because all those cars eventually
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  Speaker 1: end up on the used car market. So a lot
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  Speaker 1: of concerns in the area right now. So the obvious
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  Speaker 1: sales actually if you look at across the board are
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  Speaker 1: coming in um as you say, if they're stronger than
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  Speaker 1: last line, that's that's pretty dang good. So is this
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  Speaker 1: is a problem for GM and four IT and with
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  Speaker 1: So what is their problem? Well, I mean I think
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  Speaker 1: that if you look at g M cells retail, they
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  Speaker 1: did actually quite well. They were up about five percent.
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  Speaker 1: I think they had said they continue to reduce the
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  Speaker 1: number of daily rentals, which is a less profitable business.
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  Speaker 1: I mean, so right now, I think you know they're
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  Speaker 1: writing high on on they're selling large trucks, the Silverados,
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  Speaker 1: the tahoes. Those are profitable vehicles, and when you're selling
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  Speaker 1: more profitable legals, it's not always just a volume game,
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  Speaker 1: or not just trying to chase the volume. I think
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  Speaker 1: for Ford, cars have been kind of an issue for them.
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  Speaker 1: They you know, they came out with a lot of cars,
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  Speaker 1: everything from the Fiesta to the Tours. They put a
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  Speaker 1: lot of money in that cars are not selling. People
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  Speaker 1: are buying pickups and stvs right now, So that kind
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  Speaker 1: of plagues Forward because their truck is doing, you know,
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  Speaker 1: fairly well. Their vans actually, all vans are doing, are
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  Speaker 1: doing really good. But I think that's you know, kind
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  Speaker 1: of where Ford having an issue at this point. Jessica,
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  Speaker 1: I want to follow up on something you just said
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  Speaker 1: about leases, because I understand that the number of automobiles
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  Speaker 1: that are expected to come off lease this year, uh
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  Speaker 1: eight hundred thousand more than they were last year, Right,
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  Speaker 1: that's the biggest jump in fifteen years. Are automobile companies
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  Speaker 1: making enough money on the automobiles they said, uh, um,
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  Speaker 1: you know, it's gonna be tough I think for these
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  Speaker 1: lease returns, and right now what they're trying to do
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  Speaker 1: is figure out a way to keep leasing going because
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  Speaker 1: consumers like leasing, and especially millennials, millennials at least more
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  Speaker 1: than any other age group. UM, and that's the upcoming market.
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  Speaker 1: So I think by trying to do things like lower
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  Speaker 1: lease allotment miles UM do US leasing, that's going to
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  Speaker 1: become a thing pretty soon. Try to really equip these
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  Speaker 1: cars with the best features so in three cars when
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  Speaker 1: they come back off of lease, they're not going to
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  Speaker 1: be you know, out of date and people don't want them.
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  Speaker 1: So autom because we're trying to move these lovers to
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  Speaker 1: help residual values, which in turn are going to help
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  Speaker 1: keep the low monthly lease payments low and make these
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  Speaker 1: cars attractive when they come off of lease. And and
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  Speaker 1: you know, don't just ruin the entire US car market.
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  Speaker 1: You know, our our auto team out in Southfield, Michigan, Detroit,
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  Speaker 1: Motor City, UH note in their story today that affordability
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  Speaker 1: has become the biggest impediment to buying a new car,
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  Speaker 1: according to survey by Auto Trader, with the average new
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  Speaker 1: vehicle price up to and after sent over last year
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  Speaker 1: to thirty or four thousand dollars and change. Does this
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  Speaker 1: put all the more pressure then on the automakers to
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  Speaker 1: make again to to to step up the incentives again
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  Speaker 1: to get people a price and discount that way, It
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  Speaker 1: certainly does that people are choosing to buy vehicles that
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  Speaker 1: have more technology in them, more equipment, more content. People
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  Speaker 1: are choosing to buy larger vehicles. Um And that's kind
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  Speaker 1: of reason why I don't think auto cells necessarily a peak,
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  Speaker 1: just because transaction prices are higher. People are wanting larger cars,
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  Speaker 1: and when you kind of hit a peak, you see
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  Speaker 1: people kind of go more downstream. So I think there
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  Speaker 1: is pressure on incentives. But if you're making more money
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  Speaker 1: selling larger trucks and SUVs, there's more profit margin, so
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  Speaker 1: then you can offer more incentives. And also leasing is
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  Speaker 1: another way you can get the prices to be a
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  Speaker 1: bit lower for people to make them affordable. But people
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  Speaker 1: right now there they want to expect with cars, and
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  Speaker 1: that's the interesting thing that's happening, Jessica. Just quickly, by
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  Speaker 1: the end of the year, we're gonna be at that
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  Speaker 1: seventeen seventeen and a half million run rate for vehicles sales.
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  Speaker 1: I mean, it looks like the second half is usually
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  Speaker 1: big for automakers. Right now, I mean, you have the
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  Speaker 1: end of summer sales you have Labor Day, and then
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  Speaker 1: you have the big Black Friday end of the year,
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  Speaker 1: which never was as big as it is has been
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  Speaker 1: the past few years. So the second half is generally
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  Speaker 1: stronger than the first. So we could, you know what,
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  Speaker 1: with July fells beyond record case. Thanks very much for
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  Speaker 1: spending time with us. Jessica Caldwell is executive director of
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  Speaker 1: industry Analysis for Edmonds dot Com, joining us from Santa Monica, California,
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  Speaker 1: taking a look at the US auto industry on a
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  Speaker 1: day when Ford GM post declines in sales for the
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  Speaker 1: month of July and Fiat christ their posts a small increase.
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