This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

It's No Coincidence -- Stocks and Auto Sales Are Both Frothy

Potential problems in the auto market, and perhaps in the economy, are easy credit and other signs of frothiness.

Read More: Ford, GM Say Auto Sales Are Not Overheated - So Don't Panic

In mid-August, during a conference call with Detroit reporters, John Mendel, executive vice president of sales for American Honda (HMC) , warned against excessive subprime financing.

"It's a very, very short-term tactic, especially in the subprime area, because you not only are pulling sales forward, you're probably pulling people out of used cars into a new car that maybe they can't afford," Mendel said, according to Automotive News.

Mendel said Honda remains focused on retail sales, even if that means suffering a loss of overall U.S. market share as competitors ratchet up fleet deliveries in an improving economy, Automotive News reported. "Our strategy is working," he said. "We're doing what we need to do." Through July, Honda's U.S. sales were down 1% in an overall market that had gained 5%.

Various experts, including TheStreet's Doug Kass, have concluded that the auto market is becoming overheated, although automakers and some analysts dispute the contention.

"Growing evidence suggests that the automobile industry is about to pause/peak, just like the housing market did 12 to 18 months ago," Kass wrote in a July column. "The potential for climbing delinquencies on auto paper will likely result in banks beginning to withdraw somewhat from the previously aggressive lending policies that have fueled auto industry demand over the past five years," Kass said. said recently that only about 23% of car buyers purchased with cash or outside financing this year, as opposed to dealer financing and leasing. The rate could be the lowest level ever -- down from about 35% just five years ago, Edmunds said.

As for total August light vehicle sales, TrueCar forecasts 1.5 million, about the same as August 2013.

"Despite one fewer selling day, sales are tracking to match last year's epic August," said John Krafcik, president of TrueCar, in a prepared statement. "While we continue to keep close tabs on inventories and incentives, we remain upbeat about auto industry sales, segment mix and profitability."

TrueCar expects sales declines of 1% at GM, 3.4% at Ford and 5% at Toyota (TM) . However, it projects a gain of 15.4% at Chrysler. projects declines of 1% at GM, 2.2% at Ford and 6% at Toyota, with a 16% gain at Chrysler. After adjusting for selling days, J.P. Morgan's Brinkman said he expects GM and Ford to both report sales gains around 5%.

Written by Ted Reed in Charlotte, N.C.

To contact this writer, click here.

Follow @tedreednc

At the time of publication, the author held no positions in any of the stocks mentioned. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
F $15.76 0.00%
GM $36.64 0.00%
AAPL $124.75 0.00%
FB $80.78 0.00%
GOOG $524.05 0.00%


DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs