(Bloomberg) — US auto stocks took a major hit this week as cracks emerged in the sector following the high-profile implosions of parts supplier First Brands and sub-prime lender Tricolor Holdings, while renewed tariff tensions raised fresh concerns for investors.
An index tracking the companies that supply parts to carmakers has dropped 8% since last Friday’s close, positioning the group for the worst such decline since US President Donald Trump launched his tariff offensive in April. For companies that largely serve the lower end of the US consumer, such as aftermarket parts retailers and used-car dealers, this week’s plunge is the worst weekly loss since April 2024. The moves come as trade tensions between the US and China flared up again after Trump Friday threatened a “massive increase” in tariffs on Chinese goods.
“The collapse of First Brands is the catalyst for this drop, and the entire situation raises more concerns about the low-end consumer,” said Matt Maley, chief market strategist at Miller Tabak & Co. “The lower-end consumer has been stretched for some time, but it’s now reaching a breaking point.”
Concerns about the sector had started brewing as First Brands Group Holdings and subprime car lender Tricolor Holdings filed for bankruptcy, alongside weaker-than-expected results from used-car-seller CarMax Inc.
The folding of First Brands is not just a “key part” of the weakness in auto parts, but a representation of pervasive weakness throughout the auto space, according to Michael O’Rourke, chief market strategist at JonesTrading.
“The slowdown in the auto space is not necessarily going to slow auto parts demand,” O’Rourke said. “Nonetheless, investors need to adjust valuations because the landscape is decidedly different than what was perceived and that requires additional discounting until a stable outlook emerges.”
The steady stream of disappointing news has continued into this week. There was a fire at an aluminum plant in upstate New York that will hinder Ford Motor Co.’s F-150 Lightning production. Tesla Inc. launched its long-anticipated cheaper Model Y and Model 3 vehicles, but they failed to wow the market. In the meantime, rare-earth minerals, needed to make numerous consumer products — including cars — have been at the center of the standoff between the US and China, culminating this week after Beijing further restricted related exports.
Citigroup’s Ross MacDonald wrote in a note Tuesday that the aluminum plant fire, and its impact on Ford’s production, poses risk to suppliers “since cars can only be produced at the pace of their slowest components.”
Still, the auto supply sector is also coming off a period of noted strength. Between the April market-wide tariff rout and early September, auto supplier stocks rallied more than 60% to the highest level in roughly 20 months. Even after this week’s softness, the auto-parts index remains well above pre-tariff levels.
“I would expect investors to take profit here,” said Bloomberg Intelligence analyst Steve Man. “We’re in the part of the year when the overall market is relatively weaker. The Fed rate cuts do help, but the auto sector is still facing problems with expensive vehicles.”
But the group has bigger problems ahead, according to Man. Auto suppliers have forecast impeded production and the US government shutdown may further squeeze consumers’ spending power while tariffs may weigh on demand, said Man.
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