In yesterday’s trading session, markets reacted negatively to the July 2024 CPI (inflation) report. By the end of the day, the indices rebounded.
The drop in used car prices is the most startling data point. First, it helps the government report a lower overall inflation. Second, the drop in new and used vehicle prices is bad news for automotive firms. Year-to-date, firms like Toyota (TM), Ford (F), Stellantis (STLA), and Volkswagen (VWAGY) traded lower. Markets are expecting these firms to slash prices, offer lower loan rates, and dole out incentives.
Premium brands except Ferrari (RACE) are not performing well on stock markets, either. BMW (BMWYY), for example, is down by 21.14% YTD.
Dealers who charge market adjustments during the pandemic will lose the most business. Customers will likely avoid buying vehicles from them. Still, car prices are not dropping fast enough. Companies are trying to push the top-end, fully loaded trucks at high prices to consumers first.
Insurance premiums rose again. This is due to vehicles having more technology and irreplaceable parts in case of an accident. In addition, electric vehicles involved in accidents are expensive to replace. This permanently increases insurance costs.
Your Takeaway
Invest in companies that have pricing power. Automotive firms do not have that, so investors should avoid this sector.
