After a seven-year run of consecutive annual auto sales increases in the United States, the final sales figures for 2017 showed a regression of 1.8 percent. And at the end of 2017, forecasters predicted that automotive sales would continue to slip throughout 2018. Yet, throughout the first five months of 2018, many carmakers are at or near parity with the 2017’s numbers.
At a glance, it appears that forecasts may have been slightly underestimated. Surprisingly positive results from most major automakers have helped keep the retail automotive industry from sounding the alarm in the first half of 2018. But it’s much too early to celebrate, especially with notable unrest in the industry, like a storm brewing on the horizon.
Fuel Prices Will Affect Sales
In the United States, average fuel prices are tickling the $3-dollar-per-gallon mark once again. Historically, high fuel prices push new vehicle sales lower. There’s sure to be an even more marked impact on auto sales in the light of current sales trends.
Consumers have been leaning towards larger vehicles in recent years, especially SUVs and pickup trucks. Rising fuel prices in the U.S. causes prospective purchasers to second-guess buying a large vehicle, compounding the usual vehicle sales slowdown with high gas prices.
Steel and Aluminum Tariffs
Widely implemented and hotly contested by America’s trade partners, steel and aluminum tariffs will have long-term effects on auto manufacturing. As tariffs add to the cost of raw materials and certainly reduce their flow, the cost to build vehicles is due to increase.
The tariffs on steel and aluminum have been enforced for reasons the White House calls “national security”. And as the cost of vehicle manufacturing in the United States increases, new vehicle prices will be affected. Jimmy Lentz, North American CEO of Toyota, claims the tariffs could add up to an extra $400 per vehicle. However, higher demand for domestic raw materials in manufacturing spikes their cost. Those higher prices will likely depress auto sales.
Foreign Auto Tariffs
While the sting of steel and aluminum tariffs has not yet abated, Trump is pushing his administration to apply 25 percent tariffs on foreign cars. In a bid to increase American jobs in vehicle and parts manufacturing, the proposed tariff has serious implications for American auto sales as well as abroad.
Dennis Desrosiers, president of Desrosiers Automotive Consultants, says, “It’s a nightmare scenario for Canada, the United States and Mexico, but the biggest hit will be on the U.S.
“There would be a serious shortage of supply into the United States, and it doesn’t have capacity to build more vehicles, so the prices of all vehicles would go up quite radically…. It’s so outrageous and so negative to the U.S., it’s unlikely Trump can be serious.”
A dramatic price increase would be like turning off the tap. The American auto industry would be affected in every aspect, from parts manufacturers and carmakers to retail dealerships.
Trade disputes have become daily front-page news. Consumer confidence since the beginning of 2018 has been declining modestly, and predictions are for a noticeable downturn by 2020.
As consumer confidence is a statistical measure predicting the likelihood of making major purchases, a lower consumer confidence rating indicates that auto sales will be on the decline.
While 2018 started strong in auto sales, there’s a very strong possibility that sales will erode in the third and fourth quarter. Those predictions, however, are based heavily in how the Trump administration proceeds with trade talks, NAFTA, and proposed tariffs.