The Auto Industry Has An Affordability Issue

In 2015, automakers sold a record 17.5 million cars and light trucks in the US. Unfortunately for auto investors, the days of record sales may have come to an end.

Michelle Krebs, senior analyst at Auto Trader, joined PreMarket Prep on Monday to explain the pricing problem the auto industry is running into and why that problem will likely impact this week's October U.S. auto sales numbers.

“We believe it has peaked,” Krebs said of the U.S. auto market. “If you’ve noticed the car sales reports, some of them have been down from last year.”

Krebs says Auto Trader expects that trend to continue on Tuesday.

“We expect another dip. What we are seeing is a slowing of the retail demand. We’re seeing inventories rise a bit, and as a result, they’re taking longer to sell,” she explained.

However, Krebs noted that the industry should continue firing on all cylinders for a while.

“We are plateauing at a very high level. We still think there are a couple more years of 17 million sales in front of us,” she predicted.

In terms of growth, however, affordability has been a major headwind in 2016. Krebs pointed out that U.S. wages haven’t been rising, but car prices certainly have.

“There is an affordability issue. There are people who have been frozen out of the new car market. That’s why we see very old cars on the road. The average age is still at 11.5 years. Despite all the record sales, that’s actually gone up,” she noted.

General Motors Company (NYSE: GM), Ford Motor Company (NYSE: F) and Toyota Motor Corp (ADR) (NYSE: TM) are the top three auto sellers in the U.S. market. Even with U.S. sales near record levels, all three stocks are down between 5.9 and 16.9 percent in 2016.

Listen to the full discussion at 14:57 in the clip below.

PreMarket Prep is a daily trading ideas show that focuses on technical analysis and actionable short term trades. You can listen to the show live every morning from 8-9 ET here, or catch the podcast here.