24/7 Wall St. » auto

Gasoline Prices Continue Falling… More Cash for Holiday Gifts

Paul Ausick — Tue, 29 Nov 2011 16:50:37 +0000

As the price for WTI crude oil continues to hover around $100/barrel, up from about $75/barrel just two months ago, consumers are seeing pump prices fall. The latest survey from AAA shows an average US pump price of $3.295/gallon, down almost $0.05/gallon from a week ago. As with all things related to oil, the explanation is not simple.

The primary reason for the drop in US pump prices is the drop in the price of Brent crude. Because oil is fungible, a barrel of Brent crude imported by tanker to the US is now setting the price that refiners are able to charge for a gallon of gasoline. This has been the situation since the beginning of the year.

A refiner in the midwestern US does not pay the Brent price for a barrel of crude, but a lower WTI or other price discounted even further from Brent pricing. Like oil, gasoline is also fungible, and the value of the gasoline refined from those cheaper barrels is identical with the value of a gallon of gasoline refined from Brent. What economists call the “law of one price” applies here: identical goods have only one price. The price of gasoline, then, was based on the price of Brent crude and refiners charged for gasoline as if the crude input was Brent, no matter what the crude’s actual source.

The wide spread between WTI and Brent prices meant that refiners able to use WTI realized a much larger profit on every gallon of gasoline they sold. Now that the price of Brent is dropping, the spread is closing. The spread is about $11/barrel today, but it has been as low as $8/barrel, after reaching a peak of nearly $28/barrel in early September. The rising price of WTI crude is having a negative impact on refiners’ margins, but no impact at all on pump prices. Pump prices keep falling because Brent crude prices are falling.

Like all good things, it won’t last forever. As WTI and Brent prices converge, the drop in pump prices will stop. And even if WTI prices should surpass Brent pricing again, the oil market will figure out a way to arbitrage the new spread to maximize profits. Enjoy the low prices while they last. Until then, maybe there is more cash for gifts this holiday season.

Paul Ausick

Filed under: auto, Compensation, Consumer Goods, Economy, Oil & Gas

Huge Gains Expected for Automotive Sector Stocks (GM, F, HTZ, CAR, ZIP, AN, KMX, CRMT, ORLY, AZO, PBY)

Paul Ausick — Thu, 20 Oct 2011 17:37:09 +0000

New car sales in September are estimated to have risen 19% year-over-year, though down -5.5% sequentially. The seasonally adjusted annual rate of new car sales is now set at about 12.9 million new cars. That’s better than original projections, but still well below 2007 annual sales of 16.1 million new cars. We’ll look today at target price estimates for General Motors Co. (NYSE: GM) and Ford Motor Co. (NYSE: F) to see how analysts are looking at the new car market going forward. Recent union settlements have also improved the outlook for these two firms, now that the threat of a strike is gone.Used car sales are estimated to have topped 36 million vehicles in 2010, and new car makers are competing with those sales by increasing incentives. There is also intense competition in the used car market from literally thousands of small dealers. We’ve got some insight today on new car dealer AutoNation, Inc. (NYSE: AN), and used car dealers CarMax Inc. (NYSE: KMX) and America’s Car-Mart, Inc. (NASDAQ: CRMT).

Competition plays a critical role in car rental agencies as well. We’ve gathered some data on Hertz Global Holdings Inc. (NYSE: HTZ) and Budget Group Inc. (NYSE: CAR), who were battling over Dollar Thrifty until earlier this month. We’ve also included Zipcar Inc. (NASDAQ: ZIP) in our review because there is evidence that its short-term rental model is about to get competition from both the big rental companies and the new car makers themselves.

Finally, we’ve looked at parts suppliers O’Reilly Automotive, Inc. (NASDAQ: ORLY), AutoZone, Inc. (NYSE: AZO), and Pep Boys – Manny, Joe, and Jack (NYSE: PBY). As car owners hold onto their cars longer, parts suppliers stand to profit.

All data from Yahoo! Finance and current stock prices were gather just before noon today.

General Motors Co. (NYSE: GM) has a median target price of $42.00 from 17 brokers. Shortly before noon today, shares are trading today at $22.78, for an implied gain of $19.22, or 84%. GM’s forward P/E is 5.24 and the company does not pay a dividend. The stock’s 52-week trading range is $19.05-$39.48, and at today’s price that’s about 20% above its 52-week low and 42% below the 52-week high.

Ford Motor Co. (NYSE: F) has a median target price of $16.00 from 15 brokers. Shares are trading today at $11.61, for an implied gain of $4.39, or 38%. Ford’s forward P/E is 6.59 and the company does not pay a dividend. The stock’s 52-week trading range is $9.05-$18.97, and at today’s price that’s about 28% above its 52-week low and 39% below the 52-week high.

Hertz Global Holdings Inc. (NYSE: HTZ) has a median target price of $21.00 from 5 brokers. Shares are trading today at $10.37, for an implied gain of $10.63 or 133%. Hertz’s forward P/E is 6.43 and the company does not pay a dividend. The stock’s 52-week trading range is $7.80-$17.64, and at today’s price that’s about 33% above its 52-week low and 41% below the 52-week high.

Avis Budget Group Inc. (NYSE: CAR) has a median target price of $27 from 5 brokers. Shares are trading today at $11.61, for an implied gain of $15.39, or 133%. Avis’s forward P/E is 8.95 and the company does not pay a dividend. The stock’s 52-week trading range is $8.45-$19.49, and at today’s price that’s about 37% above its 52-week low and 40% below the 52-week high.

Zipcar, Inc. (NASDAQ: ZIP) has a median target price of $31.25 from 4 brokers. Shares are trading today at $17.38, for an implied gain of $13.87, or 80%. Hertz’s forward P/E is an astronomical 273 as the company has yet to show a profit since its IPO in April. The company does not pay a dividend. The stock’s 52-week trading range is $16.50-$31.50, and at today’s price that’s about 5% above its 52-week low and 45% below the 52-week high.

AutoNation, Inc. (NYSE: AN) has a median target price of $32 from 8 brokers. Shares are trading today at $37.06, about 5% above its consensus target price. AutoNation’s forward P/E is 17.55 and the company does not pay a dividend. The stock’s 52-week trading range is $22.28-$41.55, and at today’s price that’s about 66% above its 52-week low and 10% below the 52-week high.

CarMax Inc. (NYSE: KMX) has a median target price of $33 from 13 brokers. Shares are trading today at $27.76, for an implied gain of $5.24, or 19%. CarMax’s forward P/E is 14.06 and the company does not pay a dividend. The stock’s 52-week trading range is $22.77-$37.02, and at today’s price that’s about 22% above its 52-week low and 25% below the 52-week high.

America’s Car-Mart, Inc. (NASDAQ: CRMT) has a median target price of $37 from 5 brokers. Shares are trading today at $29.89, for an implied gain of $7.11, or 24%. Car-Mart’s forward P/E is 8.86 and the company does not pay a dividend. The stock’s 52-week trading range is $22.77-$37.50, and at today’s price that’s about 31% above its 52-week low and 20% below the 52-week high.

O’Reilly Automotive, Inc. (NASDAQ: ORLY) has a median target price of $68 from 19 brokers. Shares are trading today at $70.16, about 2% above its consensus target price. O’Reilly’s forward P/E is 17.12 and the company does not pay a dividend. The stock’s 52-week trading range is $52.97-$72.00, and at today’s price that’s about 32% above its 52-week low and 3% below the 52-week high.

AutoZone, Inc. (NYSE: AZO) has a median target price of $350 from 17 brokers. Shares are trading today at $326.17, for an implied gain of $23.83, or 7.3%. AutoZone’s forward P/E is 12.59 and the company does not pay a dividend. The stock’s 52-week trading range is $229.84-$337.23, and at today’s price that’s about 42% above its 52-week low and 3% below the 52-week high.

Pep Boys – Manny, Joe, and Jack (NYSE: PBY) has a median target price of $16 from 5 brokers. Shares are trading today at $10.95, for an implied gain of $5.05, or 46%. The Pep Boys’s forward P/E is 9.43 and the company pays a dividend yield of 1.1%. The stock’s 52-week trading range is $7.86-$15.96, and at today’s price that’s about 39% above its 52-week low and 31% below the 52-week high.

As you can see, there are some of the auto-related stocks that are close to or are now fully valued. Still, there remains massive upside if the consensus analyst targets can be met. Some upside targets are still so high that you have to wonder if they have been updated to reflect the new reality or if they are even really attainable.

Paul Ausick

Filed under: auto, Labor & Unions Tagged: AN, AZO, CAR, CRMT, F, GM, HTZ, KMX, ORLY, PBY, ZIP

The TARP Program To Increase American Unemployment

247wallst — Mon, 19 Jul 2010 09:01:46 +0000

The average car dealership probably employs 20 or 30 people. That does not include the truckers who deliver the cars, the people who provide basic services, or the employees in the town where the dealer pays taxes. Close a dealership and put another 10 or 15 people out of work, the usual ripple effect from the closing of a small business.

The Office for the Special Inspector General for the Troubled Asset Relief Program said in a recent report that the bailout of the car industry put a lot of people out of work. That does not just include the people the auto firms laid off from their own payrolls. GM and Chrysler, both of which got government funding to come out of Chapter 11, were criticized early in the process for not closing enough dealerships to help the stanch the flow of red ink. GM decided to close 1,454 dealers and Chrysler 789 in response to the criticism from government officials. The Inspector General pointed out the car companies did not consider whether there was any substantial savings to be had from closing dealers and did not take into account how many people the move would put out of work.

The downsizing of the car industry in 2008 and 2009 cost 400,000 jobs at the car companies according to the report. The dealer closings increased that figure by tens of thousands as 24/7 Wall St. wrote last June.

It is easy to say that the restructuring of GM and Chrysler happened so fast the dealer closings were collateral damage. But since the federal government may never get back the entire amount it put into the two car companies, the closures made the process costlier to the federal government and local economies. Nearly all the people who lost jobs at dealerships will receive unemployment and tax revenue for the cities and town were the dealers were located will shrink.

One of the problems of the car industry restructuring is that it was not run by car people. Washington assumed that the industry had caused its problems and that no one within the industry could solve them. That does not mean that people from outside the industry, selected by the government, could do any better.

The prevailing opinion about why the auto sector ran out of money and therefore time to get itself turned around is that GM and Chrysler were poorly run. That may be true, but only to some extent. The greatest recession in the industry, which dropped US vehicles sales from over 16 million units in 2004 to 10 million units in 2009, played a more substantial role that any other factor. People dispatched by the federal government to “fix” the industry may not have taken that into account enough.

What car industry executives might have told the government, if they were not afraid for their own jobs, is that the size of their dealer networks have very little to do with their overall costs. Most of a dealer’s expenses are borne by the dealer and not the manufacturer that supplies it cars. Dealership closings had only a marginal effect on the costs at GM and Ford.

Collateral damage is collateral damage until it undermines something core to the process of saving an industry. Unnecessarily putting tens of thousand of people out of work falls into a category of core damage but no one seemed to understand or care about that.

Douglas A. McIntyre

Filed under: auto

As Toyota And Honda Face More Strikes, Their Market Shares Are Threatened

247wallst — Wed, 23 Jun 2010 10:01:58 +0000

At the depth of the recession when there was a falling market for new cars, strikes were almost welcome in the US and EU. Most car companies had so much inventory that a break in factory production had some good side effects. That may be a reason why Ford (NYSE: F), GM, and Chrysler did so well in negotiations with the UAW two years ago.

It is a different matter today in China. The market is now the world’s largest for vehicle sales. Seventeen million cars and trucks will probably be sold in the People’s Republic this year, more sales than the US ever generated. That makes the labor strikes, which have begun once again at Honda (NYSE: HMC) and Toyota (NYSE: TM), all the more costly.The two Japanese car companies said they had stopped production at their plants in southern China. Local firm Guangzhou Auto Group has joint ventures with both manufacturers. That has not given management any leverage. Workers know that Toyota and Honda will lose market share to the sales leaders VW and GM if they cannot keep their plants open. The central government has largely stayed out of the matter except to mention that the rights of workers need to be honored.

Workers have not attempted to shutter VW or GM facilities or those of any of the other large car companies headquartered in Asia or Europe. The labor movement is too clever for that. If vehicle production across China is slowed, the country’s GDP will be damaged, if only slightly. The rapid growth of the burgeoning car market would be undermined.

Auto workers do not need to strike VW or GM now. They have already sent a message to those companies. Unions at vehicle manufacturers in China expect raises of 50% to 100% for their members if the Toyota and Honda labor problems are any guide. The firms will not have much say in the matter. Market share in China is too precious and it will only take a month or two of slow or no production to give some manufacturers an important edge. That makes the unions into king makers.

Douglas A. McIntyre

Filed under: auto, Autos, China Tagged: GM, HMC, TM, VW

Auto Loan Delinquency Plunges, Silver Lining For Car Companies

247wallst — Tue, 25 May 2010 10:20:30 +0000

Car loan delinquencies dropped over 18% from the fourth quarter of 2009 to the first quarter of this year, according to credit agency TransUnion. The news is good for US car companies which are pushing their way back into the car financing business after the default disasters of the recession cause large losses.

Auto loan delinquencies are measure by those more than 60 days past due.“Information for this analysis is culled quarterly from approximately 27 million anonymous, randomly sampled, individual credit files, representing approximately 10 percent of credit-active U.S. consumers and providing a real-life perspective on how they are managing their credit health.”

A lack of access to credit has been blamed for the fact that domestic car sales have not rebounded more quickly. Banks have been reluctant to offer loans to buyers unless they have high credit scores. The US car companies did not have the balance sheets to re-enter the lending market while Japanese and European firms have been able to use their own financial units to draw customers.

The news is also another indication that the consumer leverage trouble that helped cause the 2008 economic collapse is ending. There is already evidence from credit rating agencies and card companies like Visa (NYSE: V), MasterCard (NYSE MA), and American Express (NYSE: AXP) that charge-offs of bad consumer loans are falling. The trend has also helped the return of shoppers to retail outlets.

Car loans have liens on the vehicles which they cover. Since auto values drop almost 30% in the first year after sales, the cars are not ideal collateral. That makes the improvement in delinquencies even more important.

Douglas A. McIntyre

Filed under: auto Tagged: AXP, F, MA, V

This Month’s Biggest Index Gainers: Recreational Vehicles, Homebuilders, and Vehicle Rental Stocks

247wallst — Tue, 04 May 2010 15:44:46 +0000

There were strong gains in three Tickerspy indexes over the most recent 30-day period. This month’s biggest gainers are in recreational vehicles, homebuilders, and vehicle rental stocks.

Homebuilder stocks are up 19.3% in the past month. The best performing stocks in the index are Hovnanian Enterprises Inc., (NYSE: HOV) up 66.9%, Palm Harbor Homes Inc., (NASDAQ: PHHM) up 49.5%, and Standard Pacific Corp., (NYSE: SPF) up 45.5%.

Vehicle rental stocks are up 33.8% in the past month. The best performing stocks in the index are Dollar Thrifty Automotive Group Inc., (NYSE: DTG) up 58.8%, Hertz Global Holdings, Inc., (NYSE: HTZ) up 29.5%, and Avis Budget Group, Inc., (NYSE: CAR) up 19.5%.

Recreational vehicles are up 22.8% in the past month. The best performing stocks in the index are Arctic Cat Inc., (NASDAQ: ACAT), Brunswick Corp., (NYSE: BC) up 31.7%, and Harley-Davidson, Inc., (NYSE: HOG) up 17.6%.

24/7 Wall St.

Filed under: auto, Housing, Most Actives Tagged: ACAT, BC, CAR, DTG, HOG, HOV, HTZ, PHHM, SPF

The Month’s Biggest Index Gainers: Broadcast TV, Vehicle Rental, and Radio Stocks

247wallst — Tue, 27 Apr 2010 15:25:19 +0000

There were strong gains in three Tickerspy indexes over the most recent 30-day period. This month’s biggest gainers are in broadcast TV, vehicle rental, and radio stocks.

Broadcast TV stocks are up 30.8% in the past month. The best performing stocks in the index are Gray Television Inc., (NYSE: GTN) up 92%, Sinclair Broadcast Group Inc., (NASDAQ: SBGI) up 60.5% and LIN TV Corp., (NYSE: TVL) up 49.5%.

Vehicle rental stocks are up 28.2% in the past month. The best performing stocks in the index are Hertz Global Holdings, Inc., (NYSE: HTZ) up 44%, Avis Budget Group, Inc., (NYSE: CAR) up 32.7%, and Dollar Thrifty Automotive Group Inc., (NYSE: DTG) up 26.4%.

Radio stocks are up 25.7% in the past month. The best performing stocks in the index are Emmis Communications Corp., (NASDAQ: EMMS) up 124.3%, Cumulus Media Inc., (NASDAQ: CMLS) up 58.7%, and SIRIUS XM Radio Inc., (NASDAQ: SIRI) up 36%. ]

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Filed under: auto, Cable Companies, Satellite, TV Tagged: CAR, CMLS, DTG, EMMS, GTN, HTZ, SBGI, SIRI, TVL

Auto Suppliers: Fixing Car Companies While Breaking The System

247wallst — Wed, 17 Jun 2009 09:40:47 +0000

The novel approach that the federal government is taking to fixing the American car industry is that it will bail out the manufacturers while letting their suppliers fail. Car parts firms asked the Administration for $10 billions to keep many of them from folding or falling into bankruptcy. Many will not be able to find debtor-in-possession because the prospects of the domestic auto market are so bleak. Those firms will be liquidated.

It should be clear that Chrysler and GM (GM), which are receiving tens of billions of dollars of aid, cannot build their 2010 models without parts. Neither can more healthy companies such as Toyota (TM), Ford (F), and Honda (HMC). Mayhem among the component suppliers will probably cause the shutdown of the plants that the auto companies have not already closed in an attempt to be more efficient.

Cars that aren’t built can’t be sold. There may be a very short term value to having some suppliers close. Without production, bloated inventories will be sold off. But, older vehicles will not bring premium prices. New models are typically where the margins are. A crippled parts industry means a crippled auto sector.

The government is trying to save the economy in bites. It cannot bite everything that is in trouble, so it picks and chooses as best it can. In the case of the car industry fixing one segment and breaking another means breaking it all. An investment of $10 billion in the components operators is a means of insuring the much larger use of taxpayers dollars meant to resurrect the No.1 and No.3 American car companies.

If the parts companies do not get government money, the part of Detroit that taxpayers own will not be worth much at the end of the year.

Douglas A. McIntyre

Posted in auto Tagged: F, HMC, TM

Media Digest 5/18/2009 Reuters, WSJ, NYTime, FT, Bloomberg

247wallst — Mon, 18 May 2009 07:54:48 +0000

Reuters: Small businesses are having trouble finding financing.

Reuters: VW has stopped tie-up talks with Porsche.

Reuters: The US budget chief says there are signs the economic free fall is over.

Reuters: Central banks may need more power to maintain stability.

Reuters: GM’s Opel might make cars for other brands.

Reuters: AT&T (T) may offer cloud-based storage.

Reuters: AIG (AIG) will offer an IPO of its key Asia assets.

Reuters: UBS (UBS) is upping payments to some bankers to retain them.

WSJ: India’s stock market rose 17% after national elections.

WSJ: Some Madoff victims are being investigated about what they knew,

WSJ: Tech firms are bracing for antitrust investigations by the new Administration.

WSJ: Investors are looking for stronger signs of a recovery to keep the rally going.

WSJ: The US is set to re-think the role of the Fed.

WSJ: Nomura is launching a big US push.

WSJ: Toyota (TM) rolled out its new Prius.

WSJ: Venture-backed stocks are making a return.

WSJ: Baidu (BIDU) worked went on strike over pay.

WSJ: New tax proposals are targeting life insurers.

WSJ: Brazil is turning to China to help finance oil projects.

WSJ: Hopes for a recovery at Home Depot (HD) and Lowe’s (LOW) may come from California.

WSJ: Oil exploration companies are still pursuing growth.

WSJ: While the number of internet pages is endless the ad revenue to go against them is not.

NYT: Networks are scrambling their line-ups in reaction to the ad downturn

NYT: Google (GOOG) may be the target of new antitrust work.

NYT: The editor of Wired has not figured out how to market it profitably.

NYT: Cell phone makers are hoping for a blockbuster summer.

NYT: GM (GM) may seek more production from low-wage regions.

NYT: A report from IHS CERA says there is big opportunity in Canadian oil sands.

FT: Smaller US banks need $24 billion in capital.

FT: Battery makers will seek US aid.

FT: The head of Siemens (SI) sees a revival in Germany.

FT: A study reports that analysts do not move stocks.

Bloomberg: Japan’s foreign currency bonds were cut by Moody’s.

Bloomberg: JP Morgan upgraded the India stock market and cut China to “neutral.”

Douglas A. McIntyre

Posted in Analyst Calls, auto, Autos, Banking, China, Conglomerates, IPOs, Labor & Unions, Media, Oil & Gas, Press Digest, Research Tagged: AIG, BIDU, GM, GOOG, HD, LOW, SI, T, TM, UBS

ZAP Additional Funds Raised… From the U.A.E. (ZAAP)

247wallst — Mon, 19 May 2008 09:13:04 +0000

There is some interesting financing news this morning, even if the financing is not one of massive proportions in private equity, venture capital, or in sovereign-type investments.

An OTC-BB listed stock called ZAP (OTCBB: ZAAP), a US-based electric car pure play, saw the completion of a financing pact this morning from Dubai-based The Al Yousuf Group.

The total financing was a convertible debt placement in the amount of $475,000.00, but this is after the Al Yousuf Group purchased $5 million in ZAP shares back in November.

The Al Yousuf Group is a manufacturing and distribution company in the U.A.E. This isn’t the first "green investment" from the Arab world nor is this the first investment out of the U.A.E. for alternative energy plays. But take this a step further. Imagine if Zap! went out and allowed The Al Yousuf Group to either manufacture or at least coordinate some of the manufacturing of electric vehicles in the U.A.E. at some point down the road.

When Arab countries that produce oil invest in technologies that ultimately compete against oil, you know they are looking to get in on the next energy technology.

ZAP shares are up 3.6% at $0.86 in early trading today; its 52-week trading range is $0.40 to $1.16,

You can join our open email distribution list to hear about other IPO’s, secondaries, financings, spin-offs, and mergers.

Jon C. Ogg
May 19, 2008

Jon Ogg produces and edits the "10 Stocks Under $10" newsletter and he does not own securities in the companies he covers.