Auto industry analysts brace for headwinds in 2019 and beyond

Auburn Hills, Mich. — 2018 marked the fourth straight year U.S. light vehicle sales were above 17 million units, but auto industry analysts are predicting a slowdown due to ongoing trade tensions, tariff uncertainty and a changing market.

The U.S. sales forecast for 2019 shows a dip to 16.8 million units, according to the Center for Automotive Research in Ann Arbor, Mich. The nonprofit organization, which held an industry briefing Feb. 20. at French auto supplier Faurecia's North American headquarters, is forecasting a brief flattening of sales — 16.5 million in 2020 and 16.4 million in 2021 — before a steady recovery up to 17.3 million in 2023.

"There are a lot of positive factors that are supporting a very high level of sales that remain fairly flat and at a good plateau even with the dip," said CAR's Kristin Dziczek, citing moderate economic growth in the United States for 2019, low unemployment rates and oil prices, high consumer confidence and nominal wage growth.

But Dziczek, vice president of industry, labor and economics, said when the auto industry has a record year, everyone takes a deep breath and braces for an imminent recession.

"It's the recession coming. It's going to hit next. When is the next shoe going to drop here?" she said. "We think very negatively."

Joe McCabe, president and CEO of AutoForecast Solutions LLC, told attendees that when long-term and short-term treasury bonds converge, the odds increase for a recession. He said rates converged in late 2018 and early 2019, indicating a recession for early to mid-2020.

His firm also predicts a slowdown in U.S. light vehicle sales, with forecasts pointing toward a 2 percent decline in sales for 2019. Though McCabe doesn't expect the magic number — as in 17 million units — to return until at least 2024.

"We basically see a softening, but not this massive cliff that maybe some from economic positions are taking, more of a doom-and-gloom," he said. "We think that we're hopefully learning lessons from before."

Other presenters at the briefing included IHS Markit's Mike Wall, Cox Automotive's Michelle Krebs and General Motor Co.'s Elaine Buckberg.

But there are "myriad risks" to these forecasts, Dziczek said, including the possibility of the Trump administration to implement tariffs on U.S. imports of automobiles and auto parts.

On Feb. 17, the U.S. Department of Commerce issued a report and delivered it to President Donald Trump on whether there is a national security threat on imported autos and auto parts that would enable the tariffs under Section 232. The report's findings are not publicly available at this time.

CAR released a study on the potential impact of those tariffs and evaluated six possible scenarios, such as 25 percent across-the-board tariffs on all auto and auto parts imports from all trading partners. Potential impacts could include the price of all new vehicles rising by as much as $6,875, depending on the chosen policy.

This is all in addition to tariffs already in place, she said: steel tariffs at 25 percent, aluminum at 10 percent and China tariffs at an effective rate for the auto piece around 12 percent.

"The tariffs are piling up on light vehicles," Dziczek said.

Some form of the report could be available within the next month or so, she said, though the president ultimately has a 90-day period to decide what to do.

"I'm a worry wart," she said. "And this worries me a lot."

In the meantime, as the auto industry waits, Dziczek is reminded of the how steel and aluminum tariffs were used by the administration as negotiating leverage in talks with Canada and Mexico to replace Nafta. When negotiations start to sour, "hit 'em with the tariffs," she explained.

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