A $1,000 Monthly Car Payment Is Becoming Increasingly Normal

Photo: Spencer Platt (Getty Images)

There’s another exciting new metric for how expensive cars are getting, Tesla’s global factory logjams are catching up with it and Renault and Nissan need to leave each other already. All that and more in this Friday edition of The Morning Shift for July 1, 2022.

1st Gear: Sign of the Times

Twelve percent of buyers who purchased new cars in June will pay four figures every month, according to new data from Edmunds by way of Axios. That’s roughly three times the number of owners on the hook for similar monthly payments in June of 2019. Given that the average monthly payment now sits at $712, the unsustainable upward march of everything is impacting consumers in predictable ways. From Edmunds:

Edmunds analysts also note that consumers are opting for loans with longer terms to make monthly payments more palatable. Edmunds data reveals that 36.1% of consumers who financed a new car purchase in June 2022 opted for a loan term of between 73 and 84 months, compared to 32.8% in June 2021.

“Consumers are exploring every possible avenue to make their next vehicle purchase affordable, and longer loan terms are a good example of that, even if that choice poses risks considering vehicle wear and tear and greater negative equity (the amount by which their loan balance exceeds their vehicles’ value) as their vehicle ages,” said Drury.

The other side effect is, of course, an increasing number of loan delinquencies, particularly for the youngest buyers. The average new car in May sold for $47,148 according to Kelley Blue Book, which it reports isn’t technically a record but pretty much equals as high as it’s been.

The question, of course, is how close we are to the peak of this mountain. Some automakers are finally starting to sound the alarm bells — like Stellantis, whose manufacturing chief warned this week that “the market will collapse” if it can’t produce EVs at a lower cost soon. Fortunately, there’s another reason to be optimistic about the future and your ability to afford it…

2nd Gear: Chipmakers’ Pain Is Your Gain

Stocks are finally beginning to fall across the global semiconductor manufacturing industry, indicating supply is finally approaching demand and the products that use them — be it smartphones, graphics cards or kitchen appliances — are starting to become more available than they’ve been over the past two years. From Reuters:

Micron Technology Inc, a maker of memory chips, forecast on Thursday much worse-than-expected revenue for the current quarter and said the market had “weakened considerably in a very short period of time.”

Chip stocks fell on Friday including those of Taiwan’s TSMC and MediaTek, Dutch chip-gear maker ASML, Franco-Italian firm STMicroelectronics, and Germany’s Infineon.

Through the pandemic, chipmakers were overwhelmed trying to meet big orders from makers of smartphones and personal computers (PCs) that saw a surge in demand from people working from home. The resulting chip shortage led companies, including automakers, to slash production, delay shipments and pay steep premiums for key chips.

Now, the chips that cars need are of course not interchangeable with those inside every other consumer electronics product, so it’s not like you’re going to see dealer lots fill up next week. But this is nevertheless an encouraging sign that the chip-induced supply chain shortages we’ve been enduring have an end in sight. Even Volkswagen appears to think so:

Earlier this week, Volkswagen said chip shortages were easing and starting to offset supply chain bottlenecks and rising costs.

As recently as March, the German automaker warned that supply bottlenecks would hurt growth this year after it sold 2 million fewer cars than planned last year due to the chip crunch.

As for the next crisis? That’s looking like it’ll be the battery supply chain.

3rd Gear: Tesla’s Hot Streak May Be Coming to an End

Each quarter since late 2020, Tesla has delivered more cars than the last. The second quarter of 2022 is not expected to continue this streak, Reuters reports:

Tesla Inc is expected to end its nearly two-year-long run of record quarterly deliveries as a prolonged COVID-related shutdown in Shanghai hit its production and supply chain, and it slowly ramps up new factories.

While Tesla Chief Executive Elon Musk has been pursuing the acquisition of social media platform Twitter Inc, his crown jewel, Tesla, has grappled with production glitches in China and slow output growth at new factories in Texas and Berlin.

Analysts expect Tesla to report deliveries of 295,078 vehicles for the second quarter as early as Friday, according to Refinitiv data. Several analysts have slashed their estimates further to about 250,000 due to China’s prolonged lockdown.

This would be down from its record deliveries of 310,048 the preceding quarter, marking Tesla’s first quarter-on-quarter decline in deliveries since the first quarter of 2020.

The world’s most valuable automaker has posted record deliveries every quarter since the third quarter of 2020, weathering pandemic and supply-chain disruptions better than most automakers.

Ensnared production in China due to COVID lockdowns and those “gigantic money furnaces” that CEO Elon Musk was talking so eagerly about last week are the culprit. Depending on who you ask, it’s got Musk so down he’s taken to temporarily stop tweeting:

Musk, a prolific Twitter user who this week passed the 100 million follower mark, has not been tweeting for over a week.

Cowen analyst Jeffrey Osborne said in a report, “investors are growing fatigued with Elon’s rants” on the Twitter saga, politics and other topics.

“Many we speak to are questioning if we have reached ‘peak Elon.’”

Hand on heart I have never rooted for Tesla to fail, but I just might if that failure positively correlates with Elon Musk tweeting less frequently.

4th Gear: The Car Industry’s Unhappiest Couple

We learned some new details on Thursday about the unhealthy marriage Renault and Nissan are trying to extricate themselves from. From Reuters:

Nissan Motor Co Ltd on Thursday gave some details of its two-decade-old alliance agreement with top shareholder Renault SA for the first time, revealing the French automaker cannot unilaterally increase its stake beyond 44.4%.

In an annual securities report, Nissan said Renault cannot raise its stake without Nissan’s permission except in cases such as if another entity bids for the Japanese automaker.

Renault’s stake is around 43%. Nissan owns 15% of Renault but without voting rights.

This is the first time Nissan has revealed details of the so-called Restated Alliance Master Agreement, though Renault has previously disclosed elements. Their relationship has been a source of tension in Japan where it is widely seen as unequal.

The filing showed Nissan is allowed to acquire an additional stake in Renault if the French automaker makes a shareholder proposal that Nissan’s board does not support.

The Japanese automaker can also increase its stake if Renault does not support its proposal for a Nissan board member selection, the filing showed.

Renault owns about as much of Nissan as it is allowed to, unless someone else makes a run at Nissan. Nissan and Renault are also allowed to increase their holdings of each other if they make proposals or appoint board members the other doesn’t approve of. It makes the “Merger of Equals” look like a trusting bond of corporate synergy. At least the “Alliance” may still give us the new Micra, Clio and Colt, which all look great.

5th Gear: The Future of Lamborghini

Facing “the full electric era while maintaining the values of Lamborghini’s DNA” will be a very difficult challenge for the brand, according to CEO Stephan Winkelmann. Ferrari, for the record, is still trying to figure that one out for itself. But Lamborghini will attempt to overcome it with a $1.9 billion investment, aimed at assembling a hybrid lineup in two years’ time, per Reuters:

Italian supercar brand Lamborghini plans to invest at least 1.8 billion euros ($1.88 billion) to produce a hybrid lineup by 2024 and more to bring out its fully electric model by the end of the decade, Chief Executive Stephan Winkelmann told Il Sole 24 Ore.

Lamborghini, part of the Volkswagen Group, said last year it would invest 1.5 billion euros to shift its current models – the Huracan and Aventador sports cars, and the Urus sport utility – to hybrid gasoline-electric powertrains by the end of 2024.

“We have earmarked 1.8 billion, but in reality it will be much more – the biggest investment in the history of Lamborghini Automobili,” Winkelmann told the paper, adding that the figure did not include the development of the fully electric model.

Personally, I think there’s room for all approaches here, so if Lamborghini wants to take the fast track to electrification while some of its rivals bide their sweet time, that’s great. If nothing else, I’ll be impressed if Winkelmann pulls it off as quickly as he plans to, and actually back these projections up with action.

Reverse: The Last Flight

Nobody ever talks about Ford’s short-lived, underwhelming T-Bird revival, but we’re talking about it today because the final one rolled off the production line on July 1, 2005, 17 years ago.

Neutral: I Have COVID

I’d gone almost two and a half years without getting it, to the point where I’d convinced myself that I must have that one blood type that is resistant to it (I don’t know what my blood type is) or some other magical, rare immunity guaranteed to confound medical professionals and scholars, coupled with the vaccine of course. Oh, hubris.

I’m doing OK and self-medicating with lots of liquids and Sega Dreamcast racing games.