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!