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Topping up rental car shorts

My rental car shorts are doing well so I’m topping them up to a full position size.

music selection:  “Lil’ Devil” — The Cult

weigh-in:  214.0 +2.0

Overall, my short positions are up a little over 1,000 dollars.  That is quite an improvement since I last checked in on them.  The drivers are a 363 unrealized profit in CAR and a 1,280 unrealized profit in HTZ.

To top the positions up (and hopefully earn additional return) I sold 13 shares of CAR short for 28.60 on Thursday.  I also sold short 72 shares of HTZ at 17.82.  This brings both positions up to about 2,500 each.  I consider a full short position to be 5,000 and CAR/HTZ are a paired bet on the entire car rental industry.  I don’t know which one, if either, will be a bigger loser so I spread the bet out.

Bad economic news that is good news for the CAR, HTZ, and GM shorts: Fitch reports delinquencies greater than 60 days on subprime auto loans is over 5% and nearly 6%.  That puts us in the same territory as the beginning of the 2008 financial crisis.  Meanwhile, the National Automobile Dealers Association (NADA) reports used car prices have fallen 1.6% for the month.This was the 8th straight week of declining used auto prices.  Rental companies rely on firm used car prices to rotate into newer inventory and maintain their balance sheet position.  Things are getting tight for automakers on new car sales as well.  Cash incentives from manufacturers are rising at an alarming rate.  Among the U.S. Big Three, GM raised incentives by 27.4% in February to an average of $5,125 per unit. Spending at Ford Motor Company rose by 20.9% to $4,012 per unit, while Fiat/Chrysler increased incentives by 10.6% to $4,365.  It is harder to sell new cars and financing for marginal buyers is certain to get tighter.  Things could get ugly for the big three.

CNQ and GM have been moving in the right direction lately but are both still underwater.  I’ll top them up as appropriate if fortune turns.

Devour your prey raptors!

{ 6 comments… add one }
  • Mr. Tako @ Mr. Tako Escapes March 27, 2017, 5:20 pm

    I’m following your rental car shorts….I’m curious how it’s going to turn out!

    Looking forward to the result!

  • Chris B March 27, 2017, 5:28 pm

    I wonder if manufacturer incentives to the rental companies could offset much of the used market woes.

    I also wonder why rental companies dispose of cars at 30-40k miles. Is a clean 60-70k mile car really not worth renting? Uber thinks they’re fine.

    The first rental car company to keep their vehicles longer would save thousands on depreciation and resolve any short term resale challenges. If I was an exec at one of these companies, I’d have that button ready to push. However, as we’ve seen with Sears and JC Penny, old business models are hard to change.

    • The Lizard King March 27, 2017, 9:03 pm

      I suspect they are leary to hold cars past the expiration of the standard fleet sales warranty period. You are right it would be a huge one time shot in the arm. A couple years with no capexp? Huge to free cash flow.

  • My Dividend Pipeline March 28, 2017, 3:23 pm

    Raptor,

    I think Ford and GM are playing a mean game of “Chicken” Unlike 10 years ago, Ford is on the wrong side of a zero sum game . Great job on the RCs .

    MDP

    • The Lizard King March 28, 2017, 5:13 pm

      Ford is being less aggressive with subprime financing and I think will be less harmed when/if the bubble pops. They are both dogs though.

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