Auto Industry Slowdown On The Cards For 2019

Auto Industry Slowdown On The Cards For 2019

26/04/2019 Jon Chang Category: News

After crossing 17 million units for the fourth consecutive year in 2018, U.S. light vehicle sales may be heading for a slowdown. Auto industry analysts are attributing the potential slowdown to trade tensions, uncertainty about tariffs, and changing market forces.

The Center for Automotive Research (CAR), an Ann Arbor-based non-profit organization, foresees light vehicle sales dipping to 16.8 million units in 2019. This number is expected to decline further over the next three years before rising to 17.3 million units in 2023.

The matter was discussed during an industry briefing at auto supplier Faurecia's North American headquarters on February 20. Kristin Dziczek, CAR's vice president of industry, labor and economics, stated that though sales are likely to "remain fairly flat and at a good plateau even with the dip", the odds of a recession have increased after the record sales registered in 2018.

Joe McCabe, president and CEO of Auto Forecast Solutions L.L.C., also brought up the likelihood of a recession in early to mid-2020, due to a recent convergence of short-term and long-term treasury bonds. McCabe's firm predicts a 2 percent decline in light vehicle sales for 2019, and expects numbers to remain below 17 million units until at least 2024.

Analysts have identified potential risks to these forecasts, chief among them the chances of tariffs on U.S. imports of automobiles and auto parts. On February 17, the U.S. Department of Commerce delivered a report to President Donald Trump, on whether imported automobiles and auto parts pose a national security threat and would bring into effect the tariffs under Section 232.

The findings of this report are yet to be made public. Meanwhile, CAR has released a study on the potential impacts of the tariffs. Possibilities include 25 percent tariffs on all imported automobiles and auto parts, which could increase new vehicle prices by as much as $6,875.

This increase would be in addition to existing tariffs such as 25 percent for steel, 10 percent for aluminum, and an effective rate of 12 percent for Chinese imports.

While the auto industry awaits the public release of the Department of Commerce report, analysts are voicing their concerns about the piling tariffs on light vehicles. Dziczek finds the current situation reminiscent of how the administration had used steel and aluminum tariffs to gain negotiating leverage over Canada and Mexico during their talks about a new NAFTA.

"I think that's what the administration would like to do," she said. "Put the bullet in the gun, lay it on the table, see how things go. If it's not going well, I'm going to shoot the gun."

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