I originally sat down to write a simple column about Thursday's U.S. auto sales results. February's sales results were disappointing, with total industry units down 2.4% and a seasonally-adjusted annualized rate (SAAR) of 17.08 million units versus an analyst consensus for a flat month and 17.2 million-unit SAAR.
That sales are slowing is not a huge surprise given that we are entering the eighth year of this recovery and much of the pent-up demand created during the financial crisis has been exhausted. General Motors (GM) and Ford (F) posted matching 6.9% unit sales declines for the month, and I would watch out for a move toward profit-eroding incentives as we move into the traditional spring selling season.
Simple stuff, right? I spent 11 years writing about sales results as a sell-side autos analyst, so it's like second nature to me. Well, Thursday also brought news of a much less mundane variety: President Trump's decision to impose a 25% tariff on imported steel and 10% on imported aluminum.
Slowing monthly sales late in an economic cycle are one thing, but a full-blown trade war would be something quite different. Thus, I believe GM, Ford and Fiat Chrysler (FCAU) have gone from merely "avoids" that have suffered a slow erosion in market prominence given the rise of the FAANG names to out-and-out shorts here.
Of course, we don't know that these tariffs are the beginning of a trade war, or anything, really, but the shift in sentiment is powerful. There's no wheat/chaff separation, either. I have made positive mention of non-U.S. automakers such as Volkswagen (VLKAY) and Honda (HMC) in my Real Money columns, but I am finding it hard to hold them here.
The unfortunate thing is that the "cool" aspects of the auto industry - -the move toward autonomous vehicles (AVs) and battery-electric vehicles (BEVs) - -that were so en vogue last fall get totally forgotten in a sector rotation.
As the sales reports came in, I couldn't help but wonder how Tesla (TSLA) did, but of course they did not report monthly sales results Thursday and never have issued such data. GM sold fewer units combined of its new Bolt and legacy Volt BEVs in February 2018 than it did in February 2017 and that just doesn't augur well for sales of Tesla's Model 3. I talk to managements at several companies that supply parts for the Model 3, and none are confident that Elon Musk will be able to emerge from his self-described "production hell" anytime soon.
A final piece of bad news comes from Fiat Chrysler. I don't write about FCAU as often as the other two Detroit automakers, and while overall sales for FCAU in the U.S. fell 1%, the Jeep brand remained a positive with a 12% gain in unit volume. The bad news? I fear that Italy's political position is going to fall into chaos -- or even more so than usual -- after Sunday's elections.
You think a trade war is bad for the auto sector? Wait until you see Italexit. The populist Five Star Movement is surging in recent polls and there is a race on Italy's right and center-right to be most anti-EU.
The head of the La Lega party, Matteo Salvini, essentially uttered the famous line "F--- the EU" (there's no other way to translate it) this week in a TV interview, and as the specter of an Italexit looms I don't want to be anywhere near Italian (or half-Italian stocks.)
Bottom line: Stay away from auto stocks and do not fall for value traps.