As recently reported by BRIIDGE on July 23rd , a combination of rising interest rates and elevated valuations has negatively impacted long-duration assets within the auto-manufacturers Industry, dragging down the industry's performance.

In contrast, the auto and truck dealerships industry has performed in line with the market over the past two years. As monetary policies and macroeconomic dynamics continue to drive consumer preferences between used and new vehicles, the upcoming easing cycle may contribute to a spread contraction between the two industries as financing rates progressively drop from current levels.

Fig 1: Performance 1YR Horizon

BRIIDGE Shortcut: TS Reference Index

Fig 2: Sales Growth [1YR Rolling]

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A surface-level fundamentals analysis suggests similar sales growth patterns for both industries over the past three years, underscoring the sector's cyclicality.

However, a more in-depth examination reveals more robust bottom-line margins for the auto and truck dealerships industry, while cyclicality persists at the net income and free cash flow levels for the auto-manufacturing industry.

As inflation continues to subside, the rebound in used car sales appears more robust than that for new vehicles, as reluctant buyers are more sensitive to cumulative years-long price hikes on new cars compared to older alternatives.

While median sales growth for Q1 has increased from a year ago for auto dealerships, it has decreased for auto manufacturers. With a continued preference for short-duration assets over longer counterparts and emerging dichotomies between electric, hybrid, and legacy cars (such as charging time, depreciation speed, range, and cost), cyclicality is further heightened for the auto-manufacturer industry.

Fig 3: Operating Margin [1YR Rolling]

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Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

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As a result, market performance is neutralized by opposing forces at the industry level.

While the initial momentum for used vehicles may persist as macroeconomic conditions deteriorate in the medium term, an accommodative monetary policy may eventually shift the balance in favor of auto manufacturers contributing to spread contraction.

Fig 5: Net Income Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 6: Performance [1YR]

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Fig 7: Dividend Yield

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Fig 8: Net Debt To Ebitda [1YR Rolling]

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