AUTO ZONE.....The FORD connection...

Random Ramblings
1

Did anyone happen to see AUTO ZONES earnings release this morning???

They BEAT…BIG TIME…The stock is right around $150 now.

I’m posting this for anyone interested in watching how automotive markets respond to a deep recession. All I ask is that you simply WATCH…When I say WATCH, I talking a few YEARS here…

Auto Zone was UP because… as in EVERY recession…People DO NOT buy new cars they REPAIR the cars they own. Auto sales peaked in this country in 2005 at just around 16 MILLION. That makes those cars 4 to 4 1/2 years old now. (05 models rolled out in the fall)
Autozones data shows that people continue to repair their cars until the reach about 7 years old. At that point most people decide a monthly payment is actually cheaper than continued repairs and they need a more reliable car.

So…That puts us in EXACT alignment with Nouriel Roubini’s 3 year recession theory.

Somewhere around 2012 US auto sales will hit another event that occurs in EVERY recession…

PENT UP DEMAND!!!

This is what caused Chrysler stock to rocket from $9/share in 1992 to $90/share in 1998.
It caused HONDA stock to go from $4/share to $40/share.
Ford’s stock to go from $1 to $36/share

This is LONG TERM…But it’s right in front of our eyes…EVERYTHING…The drop in new car sales, the increase in do it yourself auto parts sellers, the aging of the fleet…This ends only ONE WAY!!!

The question is…and it’s a HUGE question…Will Ford be able to down size itself and survive to outlast this recession???

Simply WATCHING this occur…good or bad…can teach you volumes about our economy, investing, and markets.

One other note…

You all know Ford is my pick here…BUT…The JAPANESE car companies are going to continue to get killed here too…Watch those stocks!!! They are NOT immune to the economic events. Those stocks will continue to fall as this recession deepens…At some point prior to 2012 the BARGAINS WILL BE EVERYWHERE!!!

Let’s look at Toyota…I’ll never forget JIM CRAMER in January of 2007 BEGGING his viewers to buy just 2 stocks for 2007…Jimmy’s picks???

TOYOTA at $135/share…Now $60
and
Goldman at $235/share…Now at $84

If Toyota continues to fall from $60 in 2009…What will it’s stock price look like in 2013 when compared to the current pathetic 9 million annual car sales. PENT UP DEMAND in 2013 could send this entire group substantially higher with a move up to just a more ordinary 12 milllion/year annual run rate??? It’s going to happen…Cars are not luxury items…People MUST have them inorder to WORK…Beautiful little play unfolding here…

Just keep an eye on it…That’s all I’m sayng.

2

Thanks for the info Jake. As always very insightful.

3

So, expounding on this theory, simply buy car repair stock during bad economic times and short it during good. Along with that, do the exact opposite for car manufactures. If its really that simple, why are we all investing in more complex things like, ummmmm, real estate? I’m just joking… well, maybe just half joking? :huh

4

Can’t put all of your eggs in one basket. You need to find a few different vehicles to be sure the money keeps flowing in. Look at what happened to the people that invested all of their money with Madoff, the money was flowing for a while…then nothing.

5

You got it!!!

Autozone is up to $150/share…but O’Reilly isn’t anywhere near that high.

People WILL continue to buy auto parts as their INCOMES drop.

The Hourly work week is getting KILLED in this economy as companies tell employees…“We only have 32 hours of work for you this week.” This is being used by THOUSANDS of companies in order to stay in business without completely dismantling their operations. The workers take a pay cut but the alternative is a JOB LOSS…

AS we all know…not a lot of people buying NEW CARS in this economy. If you can’t REPLACE…You REPAIR!!

Remember that 7 year cycle…At some point NEW car buyers will POUR into those showrooms. Want to know the big problem then???
Believe this or not…(but it has occured after EVERY recession or depression) Automakers WILL NOT be able to keep up with DEMAND!!!
I know that sounds INSANE right now…But these companies are cutting production capability BIG TIME…

Watch…The SAME THING happens EVERY TIME…You guys we ALL see it first hand…The KEY is to anticipate it and PROFIT from it!!!

6

Is not just the auto makers that will have stock issues. The companies I see having the worst problems with supply are the feeder companies that make parts. GM, Ford, Chrysler will all probably barely get through this thanks to Uncle Sam. The small parts suppliers will not, no bailout will go their way…and this is mostly because they are smaller companies and no one notice if one went under (read: the nightly nartional news wouldn’t run the story). We’ll lose a good deal of those to attrition, only the most aggressive will make it and they’ll stick around to provide parts for the few cars that the automakers sell. When good times come back around the automakers already have the plants and machines, they just need to work 3 shifts instead of 1 or open some of the plants that were temporarily closed back up. It will take some time for new parts companies to replace the failed ones, they are starting from scratch. I’d bet if anything that would be the choke point on ramping up production. I think the revenue would go up at a much higher percentage for these parts houses when the automakers go back into full production. If you can pick up some shares of whatever parts company lasted through the recession right before we come out of the tail end you might do quite well.

7

interesting - Goldman is currently at $105/share, toyota at $129/share and AutoZone —gasp — at $697/share. Oreilly at $241/share and Aig at $63/share. S- the winner is - ta da- not me…