Come to Smiling Warren’s Car Buffet! Automotive MMI Goes Downhill

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The monthly Automotive MMI® registered a value of 94 in October, a decrease of 3.1% from 97 in September.

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Automotive metals purchasing took the same hit from a strong dollar that all other commodities took this month, but much of the auto loss can be attributed to the end of metals purchases made for the 2015 automotive year, as new models actually enter dealer stock in the final quarter of 2014.

Automotive_Chart_October-2014_FNLThe US automotive sector has been trying to transform itself from the thousands of brick-and-mortar-dealerships model into a leaner, retail car delivery machine ever since the recession. Customers who shop for cars via the web have significantly cut dealer overhead costs and just this week Warren Buffett’s Berkshire Hathaway Inc. purchased the nation’s 5th-largest automotive retailer.

Buffett on Cars

With its acquisition of Van Tuyl Group, the largest privately held chain of auto dealerships valued at $8 billion, Berkshire will add auto sales and service to its planes (NetJets) and trains (Burlington Northern). The field is highly fragmented, with the 10 largest US dealers accounting for less than 10% of new vehicle sales, according to Morningstar. That gives Berkshire plenty of opportunity to buy other dealers and help concentrate the industry, giving it cost and pricing advantages.

Buffett has often said that he he likes industries that come with moats, so-called barriers to entry that keep competitors at bay. With the barriers to entry of the automotive industry this would seem like a natural fit.

What does automotive retailing have to do with the steel, copper, platinum and increasingly aluminum in cars, though? It’s hard to imagine a growing Berkshire Hathaway not exercising its market control to streamline and monetize procurement and all other facets of the automakers it works with. Buffett just gained a seat at the table with all major US automakers. Consolidation of the retail sector is good for the production sector.

The Car Wars Continue

Speaking of automakers, they are continuing to transition to lighter vehicles to meet 2015 corporate average fuel economy (CAFE) standards from the National Highway Transportation Safety Board (NHTSA). Fiat Chrysler CEO Sergio Marchionne used his strongest language yet to indicate that the automaker will use aluminum to lighten the 2017 Jeep Wrangler, even saying that an aluminum unibody design could benefit the popular small SUV.
General Motors, however, indicated that all-aluminum bodies are not in its cars’ future and pointed to a mix of high-strength steel alloys, aluminum and other metals as the way to lighten its fleet’s load. We’ll have to hold off just a bit longer before adding aluminum to the automotive MMI.

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US palladium bar prices fell 13.0% to $768.00 per ounce after rising the previous month. After falling 7.6%, US platinum bar finished the month at $1,294 per ounce. A 3.7% decline for the copper 3-month price on the LME left it at $6,686 per metric ton. After falling 3.3%, the cash price of primary copper finished the month on the LME at $6,735 per metric ton. After rising the previous month, US HDG prices dropped 0.6% to $774.00 per short ton.

The price of Korean 5052 coil premium over 1050 sheet held steady around $3.69 per kilogram last month. The price of Chinese lead remained essentially flat for the month at $2,395 per metric ton.

The Automotive MMI® collects and weights 7 metal price points used in automotive production to provide a unique view into automotive metal trends over a 30-day period. For more information on the Automotive MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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