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The First Trust NASDAQ Global Auto ETF (CARZ) is the most traded auto-focused ETF. The three-year return for the ETF is 48.32%. YTD, CARZ provided a return of 2.23%.
The auto industry has lower margins primarily because of intense competition. It makes it difficult for companies to pass on increases in raw material prices to the customer.
As of December, gasoline prices fell by 34.4%—compared to last year. Used car purchases increased by 19.4%. Expenditure on new motor vehicles also increased.
There’s a direct correlation between the size of a country’s GDP and its automotive industry. The auto industry has been expanding at a fast pace over the past several years.
As of 2Q14, the total outstanding auto loan amount in the US hit an all-time high of $905 billion. It grew at a CAGR of 6.2%—from $711 billion in 2010.
Typically, automakers provide incentives in a slow market. They offer incentives for low-selling models. The total number of vehicles sold in the US in 2014 was 16.5 million.
The auto industry has high operating leverage. Operating leverage represents fixed costs as a percentage of total costs. High operating leverage magnifies gains and losses.
The automotive industry is one of the biggest spenders when it comes to advertising. General Motors (GM) paid out $928 million during the first half of 2014.
The competition between light trucks and cars characterizes the US automotive market. Over the past four years, consumers steadily moved towards SUVs and pickups.
The automotive industry is geographically concentrated. The top 15 countries produce 88% of the world’s vehicles. Almost all of the G20 nations have a manufacturing unit.
