First, it would be hard to talk about any news without mentioning Russia’s invasion of Ukraine. In case you have been living under a rock this week, late on February 23rd, Vladimir Putin ordered his forces to cross the Ukrainian border and seize strategic areas of importance like airports, docks, military bases, and utility stations like the Chernobyl nuclear power plant. The pictures and videos coming in from Ukraine showing missiles, attack helicopters, and heavy ground forces, are so disheartening. As a father of young children myself, my heart is broken for the innocent families just trying to live their lives that have been completely upended by a ruthless tyrannical dictator. I hope this gets resolved soon and I will be watching and praying for all those affected until this is over.
This declaration of war will have an effect on almost all markets in the US. The US auto manufacturers are not doing much business with Russia or Ukraine but the fact that the EU gets ⅓ of their natural gas from Russia will take a toll on auto production heavily in Europe. Typically during wartime natural resources like steel, copper, and precious metals like gold, silver, and platinum will see their prices go up. These resources are required in bulk for automotive manufacturing and I expect this to raise the prices of vehicles even higher.
In domestic news, Carvana just purchased ADESA U.S. for $2.2B. ADESA is an auto auction company with huge storage lots across the country. This move is supposed to expand the reach of Carvana and decrease shipping times to customers. Cavana seems to be all over the place as far as revenue and net income. They sell hundreds of thousands of vehicles each year claiming a gross profit average per transaction of over $4,500 and yet they still lost over $180M as a company in Q4 of 2021. I am not sure that a huge purchase is what this company should be looking for. It seems like their spending might be the issue as most dealerships and auto sellers make much less per transaction and are still able to turn a profit at the end of the year. We have used ADESA many times to store vehicles and they are pretty good at what they do. Carvana’s acquisition should expand their capability to sell even more vehicles, but I am not sure that selling more vehicles makes sense if it is not profitable. This acquisition will also come with a lot of new expenses because of the massive vehicle storing infrastructure they will be picking up.
The Federal contract to replace the old mail delivery vehicles has been finalized after a lot of debate in the House and Senate. The contract negotiations started in 2015 when EVs were seen as more of a toy than a vehicle. The $6B contract was awarded to Oshkosh to build 165,000 new mail delivery trucks over the next 10 years. Only 10% of these vehicles are planned to be EV and the internal combustion engine versions only get 8-14 MPG. This part is where I get a little upset. The government and the EPA are putting MPG and emission restrictions on all automakers and have pushed for the US auto industry to be 100% electric by 2030, meanwhile, that same government will be paying a government contractor to produce low MPG high emission vehicles for their needs until 2032. They are using the excuse that it would be too expensive to make that fleet all-electric all while telling private businesses that they don’t have a choice moving forward but to go green. I find this hypocrisy disgusting and it really shows you that doing the responsible thing is optional for the government but that same government will have a royal decree that you will do the right thing or face serious consequences.
