Is it all coming together -- and coming together in a disappointing way for some and a joyous way for others?
If you were listening to the calls of the last two days, you would know that the most challenging part of the world's economy is the auto market -- and unless you are shrinking in the segment, you've been blasted.
The odd thing is that the company that's been the most evidently shrinking is none other than Ford Motor (F) , the company that never forsook its worldwide ambitions to be the dominant car company... until now.
Everyone else? If auto touched you, you got hit. If you went all-in auto, especially the technology of autos, you got crushed.
Among the roadkill? Illinois Tool Works (ITW) and 3M (MMM) as well as, if you want to go there -- and after this quarter I think you can -- Tesla (TSLA) and even Intel (INTC) , although the latter is obscured by a host of other execution "issues," to be polite.
I think most investors don't even realize it yet, but the real issue is that autos may be in both a cyclical and a secular decline. Remember, you can come back from cyclical, that's a question of job growth, pent-up demand, low interest rates and even a commitment by a country to stimulate an economy. But a secular decline? That's all she wrote -- and so few companies are prepared for that kind of dropoff.
I think the best way to think of all of this is to consider some forces that were regarded as headwinds, until this week when it set in that a permanent gale force wind might be upon us, the shrinking of an entire industry right before our eyes. The epicenter of the shrinkage? None other than the soon-to-be at least $90 billion gorilla that is Uber.
Now we know that for some time we have watched the ascension of Uber and dismissed it as a ride hailing service with tremendous technology. What we should have been realizing, as the great Tien Tzou, the CEO of Zuora (ZUO) and the proselytizer of the subscription economy, has been saying, we are at the twilight of ownership. With the rise of Uber, and yes the totally now-tainted Lyft (LYFT) , the bargain of car ownership has vanished, especially among the younger, heavily tuition-indebted, sedan-buying, post-college-grads. They take Uber. When you add in parking, insurance and gasoline, it's just too cheap.
The Uber deal will hit us, or at least those in the auto-related business, right in the kisser.
Ford seems to realize this. I have only gotten a Ford Super Duty truck once in all of the Uber rides I have ever hailed. What have they done? They have shrunken their unprofitable car businesses all over the world and instead, in an unheard-of course of action, they are going for profitability.
If you go for profitability, you stop making so many cars. Now you could argue, so what, the slack will be taken up by other car companies. Yet it's not clear that's the case. If it were, then you wouldn't have companies like ITW and 3M showing high single-digit declines in autos, something they thought couldn't happen because they were going for the larger share of each auto made. It didn't matter if they made fewer autos. Contrast them with Honeywell (HON) , which blew away the numbers -- and not coincidentally, got out of its Garrett turbo business last October simultaneously picking up a factory automation outfit for $500 million at the same time. Smart guys, those Honeywell guys. They saw it coming. ITW and 3M not so much.
Now I think that the hopes for all of these companies lie in the possibility that China could come back after a vicious decline in auto sales. With the advent, or I should say apotheosis, of the subscription economy, no one, including China, is immune. Ford has shrunk its footprint there, too, making a push toward profitability, which I think will prove quite prescient.
Of course, with the autos it's never just a short-term story anymore. The imperatives of electric and adaptative driver assistance/autonomous driving, are eating into all the profits of cars, including Tesla, although anything from the latter is so hard to grasp other than to say going for volume is something Ford figures out is not so wise or even worth tweeting about.
No one knows how much is being lost in the headlong push to toward these objectives. Is Intel really making money with Mobileye? Can Ford or GM (GM) triumph over this expensive secular trend? Not clear.
But as we arrive on the eve of Uber, keep in mind that autos, a bedrock industry, just isn't bedrock anymore. And so few saw this coming, and the ones that did, namely Ford and Honeywell, are being rewarded. The rest: pain and more pain.