What can we learn from auto earnings?

Hey, everyone. It finally happened: The UAW reached a tentative deal with final holdout GM, putting an end to its historic strike against Detroit’s Big Three that saw some 50K unionized workers walk out to fight for higher wages and better benefits.

After 40 days of strikes that cost automakers billions of dollars…all that’s left is to ratify the deals, right? Maybe not. UAW President Shawn Fain said his next trip to the bargaining table in 2028 won’t just be with the Big Three, but “with the Big Five or Big Six.” Mark your calendars, folks.

—CDG

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Today’s Biggest News

The Biggest Takeaways from Auto Earnings Season

The UAW strike, higher-for-longer interest rates, and the next steps for EV deployment. Those were the biggest themes across the board—from luxury to pickups, US to European—as automakers reported quarterly earnings last week.

Here’s the rundown straight from the companies themselves:

Ford: Net income jumped to $1.2B for the third quarter, up from a loss of $827M the same time last year. 

• Ford, which is one of the few OEMs (aka auto manufacturers) that breaks out its electric division financials, recorded about a $37,000 operating loss per EV sold during Q3, 51% worse than EV losses tallied last year.

• Ford was on track to hit its full-year profit guidance…but Ford’s $1.3 billion in costs following the strike forced the company to nix its forecast.

General Motors: GM’s earnings topped expectations—revenue grew about 5% annually to a third-quarter record, but profits fell due to rising costs. The strike alone cost GM an estimated $200 million in operating profit.

• Signs point to normalization from the post-2020 record profit GM enjoyed. Lower used vehicle values hit its leasing arm, and it sold a less profitable mix than in years past.

• But solid pricing, limited discounting, and fewer supply chain headaches tipped the scales in GM’s favor. Plus, GM expects to hit low- to mid-single-digit EV operating margins in 2025.

And as for the European cohort…the name of the game seems to have been margins.

• Volvo fell short of Wall Street’s forecasts on earnings but presented a positive POV: Premium pricing is on solid ground thanks to a strong order book. And? It’s eyeing increased EV margins in Q4 with raw material prices coming back down (lithium prices have fallen 67% this year). In the third quarter, its EV margins grew to 9% from 3% the quarter before.

• Fellow luxury player Mercedes-Benz was less optimistic in reporting its own 6.8% decline in operating profit. “I can hardly imagine the current status quo is fully sustainable for everybody,” Mercedes-Benz CFO Harald Wilhelm said about widespread EV investment last week.

• And Volkswagen is planning to cut costs to revive its own margins after a tough Q3, but it’s notably not cutting EV prices to do so…even as its peers do just that and EV pricing looks like this:

So what does this all mean? A couple ideas.

Idea #1: For EVs, price cuts are simply the new reality (yes, even at Tesla). The transition to EVs is inevitable but the bumps in the road (pun intended) getting there are significant. 

• Mass market EVs cost an average of $16K more than gas-powered models. And average EV insurance costs rose 72% this year to September, compared with 29% for combustible models.

• To move inventory, EV incentives hit 9.8% of their average transaction price in September, according to Kelley Blue Book.

Idea #2: Across the industry, variable costs are becoming a focal point. The full impact of the UAW strikes won’t be realized for a bit longer, but OEMs appear to have already walked back some of their longer-term predictions because of the strike. Pair that with unpredictable raw materials prices, and automakers’ variable costs are a big question mark. All things considered, it seems automakers are focused on controlling the fixed costs—maintaining facilities, finding suppliers, testing prototypes, R&D, etc.

What do you think—any major surprises from last quarter’s automaker earnings?

This Week’s Episode of the CDG Podcast

This investor is sharing his $300M strategy for disrupting auto tech. On this week’s episode of the CDG Podcast, Chase Fraser, Founder of FM Capital, tells us his hottest auto tech investments, his biggest wins (and losses), and his POV on how AI, EVs, and AVs will change our world. It’s an episode all about predicting the future of the automotive industry…and I think you’re going to want to hear it.

Listen to the episode here, and subscribe to the CDG Podcast on Apple, Spotify, or wherever else you get your podcasts.

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In Other News

New month = new stats

Welcome to November—it’s time for an update on inventory and pricing. Some numbers to know:

• New vehicle days' supply has reached 62—the highest point since the spring of 2021. But as with most things, there’s important context: In-demand models have been tough to stock post-chip shortage and UAW strikes. The number of consumers who found cars they eventually purchased dropped from 51% in August to 47% in September.

• New vehicle sales volume in the US is expected to rise about 4% this month compared to October 2022, per Cox Automotive.

• Used car prices are estimated to have hit a floor, according to Carfax. At the end of October, most segments were down about $100 month-over-month. Breaking it down further: Prices for pickups and luxury SUVs were each down about $400, vans and minivans were down about $150, and hybrids and EVs were down $85. The only segment to increase in price was luxury, up $100.

Overheard in my DMs

A credible source told me Capital One might be testing higher monthly payments (Tweeted this earlier incase you missed it!). What are you all hearing?

My thoughts on this: Capital One has a reputation for being extremely smart and data-driven in our industry. So if they’re really testing this, it may signal that they’re expecting payments to continue rising—an interesting potential signal for the economy at large.

The Backlot

• Global oil demand is expected to reach its peak this decade, according to the IEA. Oil consumption is predicted to top out at 102 million barrels/day before plateauing for the foreseeable future.

• Sonic Automotive net income slid 22% annually in Q3 to $68M, but investors seemed buoyed by news that sales for the retailer's used-only segment, EchoPark, increased over the quarter and upped profitability.

• Toyota might be close to a tech breakthrough: solid-state batteries.

• Tesla has won its first US trial over Autopilot’s role in a fatal crash. It faces several similar lawsuits across the country.

Thanks for reading. The UAW strike lasted for 40 days, but its full impact might not be realized for some time. So I’m curious…what are you expecting? How might the strike impact your business, opportunities, and world? Hit reply and tell me what’s up.

—CarDealershipGuy

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