Everyone in 2020 took one look at the car market — with supplies drastically low and demand drastically high — and took out a loan on a new car anyway. That’s been ... fine for now, but it could come back to haunt us. All that and more in The Morning Shift for March 23, 2022.
The Financial Times ran a fun story on car loans picked up during the pandemic, noting that everyone all decided to buy a personal automobile at the same time for some reason. (We were all getting Covid.)
This has been a relatively stable situation so far because, well, people are still voraciously buying cars, and carmakers are still struggling to get vehicles out the door. We’re still riding the wave, so to speak.
But what comes up must come down, as the FT points out:
Americans went shopping for cars in a big way during the pandemic. Auto-loan originations in the US hit a record $734bn in 2021, according to data from the Federal Reserve Bank of New York. Total outstanding debt in the sector grew by $84bn to $1.46tn, outpacing the increase seen in student and credit card debts combined. The Federal Reserve chair Jay Powell argued this week for more aggressive monetary tightening, which hints at augmenting credit risks.
High interest payments on these debts lined the coffers of auto lenders. Swelling prices for used cars have also allowed banks to more easily recoup their capital in cases of default. Used car values are not far off decade highs in the US, according to Manheim data.
However, rising interest rates, sharply higher petrol prices and an eventual easing of the car shortage all threaten to put the brakes on the auto loan boom. Already, shares of Ally Financial and Capital One have trailed the broader US Russell 1000 financials index since last summer.
When used car prices do weaken, lenders who have extended large loans may take a different view on collateral. Since July, auto defaults have been creeping up again, according to the S&P/Experian Auto Default Index. It is early, but shareholders will want to buckle their safety belts.
I love the Financial Times because it’s not framing this as a problem for consumers, for ordinary people. Ordinary people are not reading the FT. This article is for rich people monetarily invested in this issue.
Speaking of car companies still having a hard time making cars, even their most prestigious vehicles: Workers assembling the new C8 Corvette are getting idled for a week over parts supply problems, as Automotive News reports:
“Our supply chain, manufacturing and engineering teams are working closely with suppliers to mitigate further impacts on production,” he said.
GM declined to say which component was in short supply, but spokesman Dan Flores confirmed that the downtime was not due to a shortage of semiconductor chips. No other GM plants are taking parts-related downtime this week, he said.
The cozy relationship between the auto industry and oil industry continues to this day, with former GM and Cruise exec Dan Amman moving to ExxonMobil. He says he’ll be there to help with decarbonization, even though that sounds a little bit like putting a fox in charge of hen house protection. From Automotive News:
He said in a LinkedIn post Tuesday that he will lead the building of new business at ExxonMobil focused on the decarbonization of the industrial economy.
“We’ll be significantly moving the needle toward net zero in the most hard-to-decarbonize industries, in an economically viable way, and with urgency,” he wrote. “To do this we’ll draw on the deep resources and know-how that exist inside of ExxonMobil today, together with the best external ideas and an initial $15 billion capital commitment that the company has made to build this business and reduce emissions.”
I am loving this strange moment in electric car history, in which there are surging promotions for EVs but spotty charging infrastructure. In some places, there are too many chargers, like in Japan. The UK is facing the opposite problem, as Bloomberg reports:
A successful transition to electric motoring is only possible with major infrastructure improvements which give drivers “the right to charge”, an industry body has warned.
Society of Motor Manufacturers and Traders (SMMT) chief executive Mike Hawes said the sector is “up for the challenge” of phasing out new petrol and diesel cars, but its efforts must be accompanied by huge investment in public chargers.
Last year’s ratio of around 16 EVs for every public standard charger is likely to worsen to approximately 32 EVs per charger this year, with significant regional variations, Mr Hawes said.
He warned: “Things are getting worse because of that pace of market transition for EVs sales.
“We need the infrastructure to catch up.”
I just love the phrase Right To Charge. You’ve got to fight! For your right! To gobble up electrons at 150kWh!
The Department of Transportation under Pete Buttigieg is doling out a new $2.9 billion and you have two months to get your hands on that sweet, sweet funding, as Reuters reports:
The White House will announce on Wednesday a funding opportunity of $2.9 billion earmarked by the Transportation Department for major infrastructure projects this year, as part of a $1-trillion law Congress approved in 2021.
The grant funding offers “a once-in-a-generation opportunity to fix our outdated infrastructure and invest in major projects for the future of our economy,” Buttigieg said. Applications are due by May 23.
The figure includes $1 billion for projects of national or regional significance that are too large or complex for traditional funding programs, which Buttigieg described as the “cathedrals of our infrastructure.”
We will build cathedrals to our wheeled gods, honor them, and cherish them.
On March 23, 2021, the Ever Given got stuck in the Suez Canal. In my heart, it’s still there.
I am thinking that I may finally take this warmer weather as an opportunity to paint a bike for the first time. It will go horribly wrong, I’m sure.