Riding Into 2019

By Lloyd Graff

We are at the 1/16 pole headed to the finish line of 2018.  What does the news tell us about 2019 business?

As usual it is a mixed-up picture – a patchwork mosaic of information and gut feel.

GM announced yesterday that it is going to let go of 25% of its salaried employees.  This is probably overdue for the still bloated Detroit company but, nevertheless, shocking for a company that is making loads of money now.  But GM, like Ford, sees a changed new-car industry within 5-10 years and is shedding its pouch to prepare.  Sales are down a bit now, but this move is not about the American economy at the moment; it is about autonomous cars, also the possibility of electric cars, but mainly it’s about bye bye baby boomers, hello Generation Z, who wants to live in cities and is not particularly enamored of horsepower.

Then there is General Electric as a $9 stock.  When a Wall Street raider smells opportunity it often ends up as chaos on the ground.  Nelson Peltz buys big into GE, and now the company is being dismembered, and the stock falls by two-thirds, and healthy divisions are being scavenged for quick cash to assuage credit jackals.  Do you think that scares top people at GM and Ford?  So we see them try to get out in front by slicing jobs at GM and sacrificing car lines and pushing trucks and SUVs at Ford.  They both smell the autonomous car upheaval and are shaving costs, accumulating cash, and investing in artificial intelligence so they aren’t future casualties.

But for precision-machining people times are darn good right now and generally looking quite promising headed into 2019.

Courtesy of the Boston Herald

But what about housing, another leg of the economic stool?  New home sales are soft, starts are soggy, even used home sales are off, but it does not mean that folks are terribly down on housing.  It’s the bite of higher interest rates which is playing out in soft sales.  Still, plenty of folks are taking money out of their homes to spiff them up.  My wife and I are spending a lot of dough to remodel our 43-year-old home, not because it will enhance its value enormously, but to enhance our pleasure in living in it.  A 4.7% refi may bite a little, but it does not appear high enough to stop the renovation boom.  Check out Lowe’s and Home Depot; they are definitely not suffering.

But then there is the stock market plummeting.  Apple belching on too many phones that are barely better than the previous incarnation, and the company trying to make the Apple Watch the next big thing when it is really the next little thing.

Oil prices are plummeting for no apparent reason except the hedge funds were idiots who believed Goldman Sachs when they made their “big call” that oil was going to $110 a barrel because of Iran sanctions and OPEC hunger.  But they forgot about the ingenuity of dudes in the Permian Basin who have rewritten the drilling rules and resurrected fields that Big Oil had left for dead.  Then the poor hedge fund geese followed the leader and panicked, pushing prices from $75 a barrel to $52.  The price will rebalance in the $60-$65 range after a few more hedge fund tearful mea culpas.

I look for a good 2019 for the machining business if the Fed does not go nuts on raising rates to squelch the inflation that isn’t happening other than wages going up which is a good thing, on the whole, for the economy.

Then there is President Trump, tweeting at 4:00 in the morning and playing his high-stakes games with China.  This does spook me because I doubt Trump knows his endgame, and the Chinese are on their back foot right now and therefore possibly dangerous.  A naval engagement with the United States would not be a good thing for the world economy.

We have Buenos Aires talks coming up in a couple days.  Trump will talk to Xi.  The Dow will go up or down 1000 points.  And the world will go on.

Question: Is automotive work a good place to be in 2019?

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13 thoughts on “Riding Into 2019

  1. Kevin

    Not so sure Apple Watch is the next little thing. I recently read in Barrons that Apple Watch is already bigger than the whole Swiss watch industry. It’s actually turning into a stealth winner for Apple and they are just hitting their stride with it.

     
  2. Francis Gibbons

    AMT forecast is 20% down for Equipment Sales to Automotive sector in 2019. Fewer Auto plants, less production, fewer parts! Yada Yada

     
  3. Russ Ethridge

    I’m in Detroit, and Detroit is upset and nervous based on what I’m seeing in local media. The mayor expressed concern hours after the announcement. These aren’t just plant closings; there are thousands of white collar jobs being flushed. Many fear this isn’t about the annual fluctuation in demand in this historically cyclical industry or fickle consumer tastes sending sedans to the sidelines. It is about a changing industry that may leave some players-maybe most around here- in the junkyard. Who needs piston rings?Detroit has been a canary in the mineshaft of the overall economy, so maybe this signals a coming recession. We should hope it is industry specific, however, and not the air we all breathe; the consequences of a decision by smart management to embrace pain now for profits and jobs later. Unspoken in Detroit but present in thought are the words “Here we go again”, words especially humbling in light of our resurrection after decades of urban decay and regional malaise. There are many here whose sleep last night was fitful.

     
  4. Emily Halgrimson Post author

    From the consumer end, I think automotive will remain strong for the “right” brands. Toyota, Subaru, Honda, Nissan and their respective luxury divisions continue to grow in reputation for quality and value. As an end-user, I’m sincerely puzzled as to why GM and Ford can’t make a car that compares to Honda or Toyota in quality in the year 2018. When buying a depreciating asset like a car, I want it to last 10-15 years. I’m a bit ignorant on this subject, but I just can’t fully understand why American car companies can’t compete. The 2010 Subaru Forrester I bought used in 2015 with 85,000 miles on it for $10k is a freaking rock. I wish I had enough money that re-sale value and longevity weren’t a concern, but they are. And so I buy foreign.

     
    1. Joe

      Emily, by comparison how long did the last American car that you purchased last?
      Just curious. I’m guessing there isn’t one. We have a 2018 Escape, and I believe it would last at least 10 years if we chose to keep it that long.

       
      1. Emily Halgrimson Post author

        I drove a 2006 Chevy Impala for 3-4 years. I traded it in when it started giving me transmission issues at 60,000 or so miles. I loved the power of it but I could tell I was going to start having big issues. On a whim, I bought a new Fiat (made by Chrysler) about 7 years ago. It was the flimsiest car I’ve ever had, though very cute. My first car at 16 was a 1996 Dodge Neon, I drove that until the engine started leaking oil badly, I don’t think it ever hit 100,000 miles. I grew up on American car brands, now my whole family drives Toyotas/Hondas/Subarus. Live and learn.

         
    2. Jim

      Emily,
      I have a 2005 Ford Freestar with over 300,000 miles on it and it runs like a dream. I also have a 2014 Jeep with 125,000 miles which has never had anything but oil changes, brakes & tires. I have 2007 Saturn Sky, low miles but always starts and never has service problems. I’ve looked at Honda & Toyota but my opinion is their electronics & navigation are light years behind. No experience with Subaru or Nissan because I don’t like their designs.

       
  5. Miles Free

    Gotta agree with Emily. GM hasn’t been a serious CAR company for some time. They make great trucks and SUV’s and crossovers, i am told, but American consumers don’t even buy enough of any one of the GM CAR models to put it in the top ten for Car sales. In August, of the three Detroit brands, only Ford had a car in the top ten Cars sold. The top four were Toyota Camry and Corolla, Honda Civic and Accord. Top 4 Cars sold by units in August were all what I call the “New Domestics.” Emily Halgrimson is calling it right.

    But the real GM killing fact is that in August, Tesla , which was operating at half capacity at the time, was the number 5 selling car by units sold, and NUMBER 1 in terms of SALES Dollars. Barra is no dummy. She said that they need to massively invest in electric propulsion and engineering- and scrapping the Volt shows she is serious. GM has a long way to go to catch Tesla. But jettisoning the products that Americans no longer buy makes perfect sense. The New Domestics own the Car space currently; the Detroit Three are holding their own on Trucks, crossovers and SUV’s (Ford already announced they were giving up on sedans). When the oil price gets back up to those hedge fund prices you mentioned, TESLA will enjoy their monopoly on non oil burning cars.

    By the way, Tesla sales in October 2018 were up 861% from October 2017’s.
    861%

    Barra is late. This should have been done back when the US bailed them out instead of the GM bondholders..

     
  6. Lloyd Graff

    I think being heavily dependent on automotive is dangerous going forward. If the autonomous car takes hold in 5 years it will reduce the buyers for cars and SUVs, probably less for pickup trucks. Electric cars will significantly reduce the need for many connectors and other parts.
    In the short run there will be a buildup of autonomous fleets by the service providers, whoever they are (Uber, Tesla, Toyota, Amazon, Google, who knows). But once they are in place they will make periodic buys like Hertz and Enterprise do. Individuals will be a smaller percentage of buyers. Dealerships will fade away. The big corporations will control distribution and municipalities will probablybe involved.

    I think this is why GM and Ford are making drastic changes now. Whether you like the Suburu or the Escape will be less important when you call Grub Hub for your ride to work or Home Depot.

     
    1. Emily Halgrimson Post author

      I agree that the dealership model is tired and needs to go, but I think you may be underestimating the American spirit that says you’re going to pry my un-automated power-laden pickup truck out of my cold dead hands.

       
  7. SSB

    my wife has a 25 year old Pontiac Bonneville SSEI, heads up display, supercharged, with 430,000 miles on it. rides like a dream. it gets 31 MPG on the freeway as long as you keep it under 90MPH. we can put one of those imports in the trunk as a spare tire. now tell me what’s wrong with this picture. oh yeah American made with profits going to an American company not foreign. go figure. my friend has had (a fleet now) mercedes and they are always in the shop. it’s a crap mind set that foreign cars are better when they are made in this country. styling is one issue but the crap attitude that it has to be foreign made needs to go out the window.

     

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