- "Mad Money" host Jim Cramer warns investors to stay away from auto stocks given the influx of negative catalysts plaguing the industry.
- Cramer says that ride-sharing, tariffs, interest rates and oil prices are all putting pressure on automakers.
As much as CNBC's Jim Cramer likes the state of the economy, he acknowledges that certain industries, like the auto space, deserve to be in decline.
"Domestic auto sales have indeed peaked. The question is, why?" the "Mad Money" host said Thursday. "How come the automakers are struggling when the rest of the economy is in such great shape? Higher interest rates? Sure, they're part of the problem, but they take a back seat to what I've discovered and I think is the main issue."
For Cramer, the main issue is clearly the rise of ride-sharing. Services like Uber and Lyft have brought a secular change to the world of transportation, offering far cheaper travel alternatives to owning a car, especially for city-dwellers.
"This is a permanent change in consumer behavior and, if anything, it's only going to get worse once autonomous driving technology starts getting rolled out en masse, as that makes ride sharing even cheaper," Cramer said. "Believe me when I say that mass-market autonomous driving will be here much sooner than you think — I'm talking about only a few years from now."
Rising interest rates have added fuel to the fire. As short- and long-term rates go up, it gets more difficult and more expensive for consumers to obtain auto loans to finance buying a car.
In 2017, people were worried that banks were not being selective enough in giving out car loans and that subprime auto loans would spur another financial crisis.
But the banks responded and raised their lending standards, making it more difficult for sub-optimal borrowers to buy cars — and anything that makes it harder to buy a car is inherently bad for the automakers, the "Mad Money" host said.
Worse yet, car loan rates are the highest they have been in eight years, making loans more expensive even for eligible borrowers.
"Put it all together: ride sharing means that owning a car is no longer a necessity — it's more of a cost-benefit analysis: is it cheaper to own or to use Uber? More stringent lending standards [and] higher rates shift the equation. They make owning a car even less attractive," Cramer said.
And as oil prices rise, gasoline prices rise in tandem, so owning a car is also becoming more costly.
These problems plagued the automakers' latest quarter. Fiat Chrysler's sales dropped 13 percent in January and another 1.4 percent decline in February; Ford's sales sank 6.6 percent in January and 6.9 percent in February; and General Motors' sales ticked up 1 percent in January before falling 6.9 percent in February.
The cherry on top? President Donald Trump's planned tariffs on steel and aluminum imports. Not only will automakers have to raise car prices by a few hundred dollars apiece, but as major exporters, they could get hurt if the situation spirals into a full-blown trade war.
"Here's the bottom line: the stocks of automakers look incredibly cheap here, ... but I'm saying they're a value trap because investors don't trust the earnings estimates, not with the industry seeming to have peaked and so many negatives — tariffs, higher oil prices, higher interest rates — making the group much harder to own," Cramer said. "And look, it's only going to get worse, people, so if there's one thing your portfolio doesn't need right now, it's an automaker."