CRE and Autos

Let me start with car manufacturers. Though I think this economy - due to excessive debt levels - will be in a funk for years to come, at some point people need to buy a new car. There is just so long keeping the old one where maintenance is not too expensive before you have to move up and there are just so many late model used cars out there. A local dealership is advertising for late model used autos, even if you are not buying a new car from them, so I have to assume folks with older vehicles that are too expensive to maintain are looking for more recent vintage used vehicles because they cannot afford new ones. This will push buyers up the list eventually to buying new vehicles. There are an increasingly small number of used cars to go around.

Think about it, as Calculated Risk points out, we have twice the drivers we did in 1967 but sales of new autos are the same or less than then. Obviously this cannot continue for long.

http://www.calculatedriskblog.com/2009/07/graphs-auto-sales-in-june.html

Now I have to add that Chrysler and GM filing bankruptcy is complicating the picture a bit in terms of investment. One might think the survivors are better off but Chrysler and GM shedding some obligations in bankruptcy might make them much more competitive. Either way, a lot of their suppliers - which supply (for the most part) multiple manufacturers - will make this quite complicated to figure out.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYTT6_1EB3Yw

Nonetheless, an area to watch. Certainly there will be some winners here so it may be wise to spread the investment across the board. I have no investments here at the moment but am giving it serious thought.

CRE is Next

Commercial real estate (CRE) values - and mortgage defaults - tend to lag the residential market by up to a year. I mentioned the other day that the U.S. has twice the retail space of the closest competing country, well it appears on hotel space we are even worse. Go figure!

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYTT6_1EB3Yw

The CRE defaults, which are very significant, will likely not peak until next year. And as the linked post above notes, CRE has a long way to bottom. Not a good picture.

Disclosures: None