Another Strong Quarter Pits Analysts Against Chief Economists
By Keith Spacapan
Despite intensifying concerns on the part of industry analysts over potential trade wars and rising interest rates, U.S. consumers purchased 1.6 million light vehicles in June 2018, an increase of 5.2% compared to June 2017 (1.3% when adjusted for one extra sales day in June 2018). However, the seasonally adjusted annual rate (SAAR) exceeded 17 million units in five of the last six months. Year-to-date sales through June 2018 are up 1.9% over 2017 levels, with all major U.S.-based automakers posting positive results. Current volumes are on par with the industry’s record-setting year in 2016.
These results have industry players at odds. On one side, industry analysts are declaring the bull market is over and expect the industry to end the year below 17 million units for the first time since 2014. According to Jeremy Acevedo, industry analyst at Edmunds, the U.S. market is saturated, setting the stage for a contraction in response to “record-high vehicle prices, rising interest rates and historically high numbers of people who owe more than their cars are worth.”
In contrast, the manufacturers and their economists are more optimistic. "Tax reform raised take-home pay, consumer confidence is high and household balance sheets are healthy,” stated Elaine Buckberg, General Motors Co. chief economist, “all of this plus a strong job market makes consumers more willing to commit to major purchases like vehicles."
The prospect of a continuing strong market could be checked if the U.S. federal administration levies tariffs on imported vehicles Analysts foresee consumers opting for used cars or lower-priced new vehicles if the tariffs are imposed. Some will postpone purchases, at least temporarily, say industry experts. Research firm LMC Automotive estimates that a 25% tariff on imported vehicles would cost the U.S. auto industry a minimum of one million units annually, two million if manufacturers pass the tariffs onto consumers through higher prices.
Keith Spacapan is Vice President of Hilco’s automotive practice. Keith has more than 20 years of automotive industry experience, including 15 years with General Motors as a divisional director of operations and finance. He has also worked with a wide range of automotive suppliers. His unique dual perspective—original equipment manufacturing and related suppliers—fosters a full understanding of the dynamics which impact asset value.