Automotive Industry Continues Trajectory
During 2018, the automotive industry tracked along the same trajectory as the prior year. Unit sales data for 2018 showed continued and growing preference for SUVs and light trucks over cars. This trend is not new, as unit car sales, which peaked in June of 2014, have experienced an average 7.5-percent rate of annualized contraction in the 17 quarters since then. Truck and SUV sales continue to offset the weakness in car sales, which has kept total vehicle sales since mid-2015 at a monthly average of 1.4 million vehicles, or 17.3 million units on an annual basis. Looking forward to 2019, there are several factors such as interest rates and tariffs which will have significant near-term effects on the automotive market.
This year is also the third year that interest rates have increased, raising the cost on all other loans. The latest data for 2018 indicates that the current vehicle interest rate of 6.16 percent is 10 percent higher than a year ago and over 22 percent higher than two years ago, when the average rate was just over 5 percent. Initially, these rate increases – which increase monthly finance payments – did not slow the growth in financing amount, which peaked at over $30,500 during the first quarter of 2018. As of the latest data available in October, the average amount financed has now fallen over 2 percent, or over $600 per vehicle.
Furthermore, recent tariff data indicates that new U.S. trade laws enacted during 2018 have produced asymmetrical effects that have hurt U.S. exports more than they have helped domestic sales. Seasonally adjusted figures from the Bureau of Economic Analysis indicate Canadian and Mexican imports of U.S. automobiles have declined 20 percent from a year ago. One would have to go back to 2011 to find such low levels of Canadian and Mexican imports of U.S. vehicles. The value of U.S. automotive manufacturing shipments between April and the latest available data from September furthermore indicates a 10-percent decline.
Although many of the latest trade regulations have had relatively little time to make their impact felt, the underwhelming change in U.S. import consumption is evident in the sector. The ratio of domestic to imported cars and trucks sold in the U.S. during the second-half of 2018 has not indicated a shift in this ratio through October. The market share of imported vehicles sold in the U.S. during the second half of 2018 has yet to indicate a significant change.
The shear number of factors impacting the automotive market simultaneously make it difficult to predict the path of the automotive industry in 2019. If trade tensions escalate and interest rates increase throughout 2019, the automotive industry may find it harder than expected to expand.