GM Pickup Incentives Surge Over 80% As Auto Bubble Continues To Show Signs Of An Imminent Bust

For months we"ve argued that record auto sales have been propped up by low interest rates, a perpetual loosening of auto lending standards with terms being stretched to the max and a wave of leases, all of which have allowed the American consumer to trade up to more expensive vehicles while maintaining low monthly payments. 

And so far, this perfect alignment of the stars has propelled U.S. auto sales to record highs.

That said, with rates recently on the rise and a flood of lease returns driving down used cars prices (see "Record High Lease Returns Set To Wreak Havoc On Used Car Prices"), the tailwinds that have propelling auto sales to record highs over the past several months look set to change course.

As we noted recently, a quick look at the 61+ day delinquencies in General Motors" subprime securitization book would seem to support our rather negative thesis on future auto sales with January 2017 delinquency rates soaring to the highest levels since late 2009 / early 2010.

Meanwhile, looking at GM"s subprime data going back to 2001 implies that historical spikes in 2-month delinquency rates is a fairly decent indicator that all is not well.

Unfortunately, at least for the auto OEMs and their investors, at this phase in the cycle the only way to "juice" volume is through artificial market share gains courtesy of excessive incentive spending...which, as we all know, likely signals the beginning of the end of the auto cycle which will quickly be followed by a race to the bottom for OEM profits. 

And, right on cue, it looks as if General Motors has kicked off the "Incentive War" with massive YoY increases in incentive on the auto industry"s most profitable segment, pickup trucks.  Per Bloomberg:

General Motors Co. boosted incentives on its pickup models this month after its biggest foes gained ground, intensifying a price war within the U.S. auto market’s most hotly contested segment.

Discounts averaged about $6,996 for the Chevrolet Silverado and $5,315 for the GMC Sierra this month through Feb. 12, according to J.D. Power dealer data obtained by Bloomberg News. Incentives on GM’s models surged 56 percent and 82 percent, respectively, from a year earlier as Fiat Chrysler Automobiles NV and Ford Motor Co. dialed back their spending, according to the researcher.

“It’s taking a lot more incentives now to move the metal than it did last year or certainly the year before,” said Michelle Krebs, senior analyst with car-shopping website Autotrader.com. “Things are slowing.”

Of course, the increased incentive spending from GM comes as they ceded market share to both Ford and Chrysler in 2016.

Of course, we suspect that this kind of aggression will not be allowed to go unchecked and will inevitably be matched by Ford and Chrysler.

On your mark, get set, go....

Fiat Tumbles (Again) As DOJ Prepares Criminal Emissions Probe

A day after the EPA announced their probe of Fiat Chrysler"s alleged "cheating" over diesel emissions tests, the company now faces criminal charges as the US department of Justice has joined the probe.

As Bloomberg reports, Fiat Chrysler is now also under investigation by the U.S. Justice Department over its alleged failure to disclose software that violated emissions standards, according to people familiar with the matter, another legal hurdle for a company already under criminal scrutiny for its sales practices.

The possibility of a criminal action over diesel emissions violations comes after the Environmental Protection Agency said on Thursday it found software in 104,000 Jeep Grand Cherokees and Ram 1500s that allowed the automaker to exceed pollution limits on the road.

The criminal investigation shows the U.S. is pressing ahead on cases of alleged efforts to rig emissions testing in the waning days of the Obama administration. It isn’t clear where the inquiry stands.

And the share price is fading back towards yesterday"s lows...

The U.S. investigation of Fiat Chrysler involves fewer vehicles than VW, said one of the people, who asked not to be named because the probe is confidential. The U.S. case against VW, which led to criminal charges and $4.3 billion in penalties earlier this week, centered on VW employees’ efforts to design a system that would evade U.S. environmental testing and then conspired to cover up its use when regulators began asking about it.

Fiat Chrysler’s Chief Executive Officer Sergio Marchionne said Thursday during a call with reporters the matter "has nothing to do" with VW.  He said the software wasn’t intended to bypass emissions tests or operate differently in evaluation than in real-world use, calling such allegations “absolute nonsense.”

"We are confident that no one at FCA committed any fraud or tried not to be compliant," Marchionne said. "We may be technically deficient but not immoral. We never installed any defeat device."

Marchionne told the reporters he presumed the Justice Department was also investigating.

Fiat Crashes After EPA Accuses Carmaker Of Cheating Emissions Tests, "Skirting Rules & Got Caught"

It appears that, as we first predicted back in 2015, they were all doing it.

Fiat Chrysler shares are collapsing following EPA accusations that the automaker engaged in a similar scheme as Volkswagen, and used cheating software to beat diesel emissions tests, and this violated pollution laws. Why? Maybe it has something to do with Fiat"s appeasement of the Trump administration, when last Sunday it announced a plan to Invest $1 Billion in the U.S. It forgot, however, that for the next 8 days, it is still Obama"s country.

Sarcasm aside (correct though it may be), the EPA told the automaker it believes its auxiliary emissions control software allowed vehicles to generate excess pollution in violation of the law.

A person briefed on the matter told Reuters, Fiat Chrysler does not agree with the EPA"s assessment. An automaker can use an auxiliary emissions control device in limited circumstances to protect the engine from damage, but it must be declared to regulators. 

The EPA allegations comes amid rising scrutiny by EPA of automaker emissions after Volkswagen AG admitted to cheating diesel emissions tests in 580,000 U.S. vehicles.

The EPA has for months declined to certify Fiat Chrysler"s 2017 diesel vehicles for sale in the United States, but the automaker has continued to sell 2016 diesel models. In September 2015, EPA said it would review all U.S. diesel vehicles following an admission from Volkswagen that it installed software in cars allowing them to emit up to 40 times legally permissible level of pollution.

On Wednesday, VW agreed to pay $4.3 billion in criminal and civil fines and plead guilty to three felonies for misleading regulators and selling polluting vehicles.

The EPA has extensively investigated the vehicles and Fiat Chrysler has turned over significant documents as part of the probe, two people briefed on the matter said.

Fiat Chrysler could face fines of up to $37,500 per vehicle if it is proven that it violated emissions rules. The probe covers Fiat Chrysler diesel trucks and SUVs from the 2014-2016 model years.

Fiat Chrysler told CNBC it would contest the EPA"s findings and denies it used "defeat software."

The stock crashed over 14% and was halted.

Fiat Chrysler is widely held among hedge funds... (and we note that Japan"s GPIF holds over 10 million shares)

The supply chain is also being hit.

As AP reports,

Two people briefed on the matter say that the U.S. government is accusing Fiat Chrysler of violating the Clean Air Act on some of its diesel engines.

The Environmental Protection Agency has scheduled a news conference for Thursday morning to release details of the matter. The people briefed on the matter didn"t want to be identified because the formal announcement hasn"t been made.

The move comes one day after federal prosecutors announced that Volkswagen would plead guilty to criminal charges and pay a record $4.3 billion penalty for cheating on emissions tests.

The Environmental Protection Agency has scheduled a call with reporters at 11 a.m. in Washington to “take questions on a recent development regarding a major automaker.” Representatives for Fiat Chrysler didn’t immediately respond to requests for comment.

• *FIAT CHRYSLER SAID TO DEFEND SYSTEMS AS LEGAL


• *FIAT CHRYSLER POSITION DESCRIBED BY PERSON FAMILIAR WITH MATTER


• *EPA SAID TO CLAIM CHEATING ON RAMS, JEEP GRAND CHEROKEES

EPA just released press release confirming the accusations.

• *EPA SAYS FIAT-CHRYSLER `SKIRTED RULES AND GOT CAUGHT"


• *EPA: FCA ALLEGEDLY INSTALLED & FAILED TO DISCLOSE SOFTWARE


• *EPA: ALLEGATIONS COVER ROUGHLY 104,000 VEHICLES


• *EPA: FIAT CHRYSLER MAY BE LIABLE FOR CIVIL PENALTIES


• *EPA SAYS FIAT-CHRYSLER `SKIRTED RULES AND GOT CAUGHT"


• *EPA INVESTIGATING WHETHER FCA SOFTWARE WAS `DEFEAT DEVICE"

Fiat Chrysler To Invest $1 Billion In The US, Add 2,000 Jobs

Suddenly the coolest thing in corporate America is announcing major capital investments in the US while adding thousands of American jobs, in other words the opposite of the globalization trend of the past 30 years, in yet other words, doing precisely what Donald Trump demands. The latest to jump on the bandwagon is none other than Fiat Chrysler, the Italian carmaking giant which ironically acquired US automotive icon Chrysler"s assets after just a 42 day stay in bankruptcy during the financial crisis.

Just days after Ford scrapped plans to build a $1.6 billion plant in Mexico and invest $700 million in a factory in Michigan, following threats from Trump aimed at General Motors to focus on the US instead of Mexico which would be repeated just days later targeting Toyota, Fiat Chrysler (FCA, or Fiat) on Sunday said it will invest $1 billion to modernize two plants in the U.S. Midwest and create 2,000 jobs, in an attempt to placate the president elect as well as upping the ante as automakers respond to threats from President-elect Donald Trump to slap new taxes on imported vehicles.

Fiat announced that a plant in Warren, Michigan, near Detroit, would make the Jeep Wagoneer and Jeep Grand Wagoneer SUVs, while a Toledo, Ohio, factory would produce the Jeep pickup. The company said the production plans in Ohio and Michigan were "subject to the negotiation and final approval of incentives by state and local entities." 

That said, Fiat"s ulterior motives did not end with merely avoiding Trump"s wrath.

As Reuters adds, FCA"s announcement that it would retool factories in Ohio and Michigan to build new Jeep sport utility vehicles, including a pickup truck, and potentially move production of a Ram heavy-duty pickup truck to Michigan from Mexico, also highlighted the auto industry"s keen interest in getting relief from tough fuel economy rules enacted by the outgoing Obama administration. Many automakers plan to use the annual North American International Auto show in Detroit, which started on Saturday, to tout investments in the United States and a commitment to U.S. employment against the backdrop of Trump"s criticism of automakers for shipping vehicles into the U.S. from Mexico.

Automakers are girding for rounds of questions about Mexican investments and U.S. jobs in the wake of Trump"s harsh criticism of automakers.

Most of the major automakers in the U.S. have substantial vehicle making operations in Mexico, as well as complex networks of parts makers that supply their factories in the U.S. and support jobs and investment in states such as Ohio and Michigan.

Reuters adds that Fiat"s investment decision was not related to Trump"s recent attacks Ford,General Motors and Toyota for building cars for the U.S. market in Mexico, as the company had already signaled plans to expand truck and SUV production at its U.S. plants, and discontinued production of small and medium-sized cars in two U.S. factories.

And while it is likely that Fiat execs did not discuss the company"s plans with the president elect ahead of time, according the Reuters source Fiat CEO Marchionne wanted to get out the news about adding jobs and investment in the United States in case FCA encounters more criticism from Trump.

And that"s how Trump"s Twitter "bully pulpit", politically incorrect as it may be, gets the job done: in Reuters" words, "since Trump"s election, automakers and other companies have played up their investments in the United States." It"s almost amazing how a few well-timed threats can get companies to reevaluate their capex hurdle rates...

It"s not just the Italian who are eager to placate the president elect.

According to Reuters, Hinrich Woebcken, CEO of the North America Region for the scandal-ridden German automaker Volkswagen AG, the automaker plans to invest $7 billion in the United States between 2015 and 2019 and will start building its new Atlas SUV in Tennessee later this year. Volkswagen has had a plant in Mexico for 50 years and it is not shifting any jobs to Mexico from the United States. "We do not make our investment decisions based on administrative cycles. Our business is really an 8-, 12-, 14-year horizon when we look at investments," Woebcken said on the sidelines of the Detroit auto show.

Right... but just in case, it never hurts to make such a strategic announcement just as Trump is unleashing all the fury of the US manufacturing class on automakers, both foreign and domestic.

A bigger question is whether Fiat is not doing a bigger mistake by focusing on SUVs and pickups at the expense of sedans just as gas prices are set to rise again. U.S. consumers have increasingly shifted toward SUVs and pickup trucks and away from sedans in recent years, as gasoline prices have remained relatively low. A year ago, Marchionne said FCA would cease production of two sedans and focus on SUVs and pickups.

In an example of verbal foreplay that would make a Chinese concubine blush, Marchionne touched on almost everything that was relevant in Fiat"s decision, except, well, what was relevant when he said in a statement on Sunday that the lineup changes were due to that consumer shift. "We continue to reinforce the U.S. as a global manufacturing hub" for SUVs and pickup trucks, he added.

And surely Trump"s fire and brimstone-spewing twitter altar had absolutely nothing to do with it...