Automotive Industry: Have the Good Times Ceased to Roll?
Ahhh, the heady days of 2016. Remember that? 17.6 million vehicles sold in the United States. As reported by Automotive News (and others), Deutsche Bank says those good times may very well be over and the Auto Industry may be in for some financial uncertainty. Analysts Rod Lache, Michael Levine and Robert Salmon released a report recently stating that “Somewhat ominously, today’s market increasingly resembles one we described in ‘A Triple Threat’ (Feb. 20, 2004).”
What about today’s market is a concern? First, cars are way too durable – scrappage is down to 11 million vehicles/year (from 13 million). This has led to there being 270 million total vehicles on the road. Second, auto loans are not so hot these days. Loan delinquencies have been on the rise across the board – prime and subprime. Finally, used vehicle prices are expected to decline. Oversupply has become a concern. Used-vehicle prices fell faster in February than previously, which might be the start of a trend.
More cars on the road. Auto loans failing. Used car prices falling. Deutsche Bank is right that this is not a recipe for economic success. Many companies did not weather the storm last time resulting in a flurry of bankruptcy filings, breached contracts, lost jobs, etc. Those looking ahead are best advised to plan now and adhere to the old adage that an ounce of prevention is worth more than a pound of cure. It is a good thing that we just wrote about bankruptcy issues last week!