ROCHESTER, MI – The economy is stable, consumer confidence is climbing and demand for vehicles is robust, but the U.S. auto industry is still struggling to match sales records in the years before the pandemic.
The slackening demand for EVs in the face of government mandates, though, remains a bedeviling challenge for automakers and suppliers because of the huge outlays of capital required to retool and reset the industry to go from internal-combustion engines to electrification, according to speakers at the annual Automotive Outlook Conference sponsored by Detroit’s Society of Automotive Analysts.
Bryan Bezold, Ford’s senior North American economist, says the threat of a recession has receded in 2024 as inflation has eased; although the rate of core inflation hovers at about 4 percent.
With inflation retreating, the markets are buoyed by the prospects of a drop in interest rates even as consumer spending, including the demand for new vehicles, remains steady as manufacturers rebuild inventories, according to Bezold. The auto industry’s inventories still have not reached the levels seen before the UAW’s 40-day strike against General Motors in 2019 and the subsequent COVID-19 pandemic and the resulting supply shortages and disruptions, says Bezold.
Consumer sentiment is showing signs of improving as inflation eases and gas prices drop, adds Bezold, while at the same time incomes of most Americans are growing.
Joe Langley of S&P Global Mobility notes the U.S. economy has shown a resilience that points toward growth “for the foreseeable future.” Sales of new vehicles should reach 16 million units this year, which is healthy but still short of the auto industry’s high-water mark of 18 million units set in 2018.
Stephen Brown of Fitch Ratings notes the upbeat economic picture is benefiting the auto industry’s supplier base too. The credit outlook for both automakers and suppliers is “stable” overall despite high interest rates.
Despite pressure on the supply base generated by the UAW’s 46-day strike last fall, Fitch upgraded the debt of more companies than it downgraded in 2023, reversing the trends of the previous couple of years when suppliers’ finances appeared weaker.
OEMs’ profit margins are normalizing, but efforts to reduce costs and generate higher sales volumes to offset the cost of the new contracts Ford, GM and Stellantis signed with the UAW are ongoing, Brown says.
Consumer demand for new vehicles remains restricted by high prices and high interest rates, Brown adds. The average transaction price of a new vehicle in December was $48,759, according to Cox Automotive, and was even higher in some popular segments. Average price of a fullsize pickup was more than $66,000. The average price of a compact CUV was more than $36,000.
Fitch also assumes inflation and interest rates will decline and the U.S. economy will continue to grow in the next couple of years, according to Brown. Risk factors involve the continuing weakness in the global economy as growth in the European Union, United Kingdom and Japan will be very weak, which means a recession remains a possibility.
The automotive industry’s supply base will see continued merger activity, according to Fitch, as the industry continues to make the transition to battery-electric vehicles. The credit rating agency notes the investment in EVs will continue even as the demand for BEVs in the short term slows before we get closer to total fleet mandates in 2030 and in the following years.
