DETROIT—It's an exciting time to be in the automotive industry, but that also means there's plenty of uncertainty to go around.
With trade relations going under the knife, emerging vehicle technologies, changing fuel efficiency standards and a healthy, albeit plateauing, level of light vehicle sales, auto makers and suppliers had to prepare for many situations in 2018.
As long as the U.S. industry matches what it did for November and December of 2017, it will once again break the 17 million mark for car and light-truck sales.
Through October, the industry reported 14.3 million in light vehicle sales. Sales for November and December combined to account for 3 million in 2017, putting the industry in position to rebound from its first year of declining sales since 2008 and eclipse the 17 million mark for the fourth straight year, something it only did twice before 2015.
After eight straight years of recovery, there are a fair amount of factors contributing to sales leveling off, such as interest rates ticking up a bit.
"The affordability issue is certainly one that puts a little bit of a damper on sales growing even further," said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research. "Prices are going up for everything except sedans, interest rates are going up and gasoline prices are pretty high. That means cost of ownership is going up.
"It's still true that the underlying economic growth in the economy is pretty strong. We've got wages growing, consumer confidence is high, production and sales are up year to date. We're starting to see some signs on the global economy that things may be slowing, but so far this year things are steadily growing."
Mike Jackson, executive director of strategy and research at the Original Equipment Suppliers Association, said there has been more growth on the sport-utility vehicle and truck side than on the passenger car side, which continues to struggle.
"It's still a very good time in the industry, no question, but at the same time everyone wants to be positioned to maintain successful results," Jackson said.
"From a demand perspective, we are seeing a bit of a taper. We're in our ninth year of economic expansion and know the industry is inherently cyclical. The idea is that right now, as an industry, we're facing a number of different points. From a demand perspective, certainly higher interest rates. Both manufacturers and suppliers are also faced with higher raw material costs. These are challenges that are certainly directly related to tariffs."
President Trump's administration has certainly shaken up the trade picture with a variety of tariffs on Chinese goods that cover basically all of the content found in automobiles and formed a new trilateral trade deal with Canada and Mexico, the U.S.–Mexico–Canada/USMCA pact set to replace the North American Free Trade Agreement.
If approved, Dziczek said suppliers and auto makers will have to examine their supply chains and look to re-align to be compliant with the USMCA by Jan. 1, 2020, or face a tariff.
"We have some sense of how things may go," Dziczek said. "It's not a done deal that the USMCA will go into effect, it has to be ratified by those three countries. The composition of the Congress is going to change, and the details of the text on the page versus how it gets implemented in legislation is a complicated process that impacts how companies will respond."
Dziczek said 80 percent of vehicles made in the U.S. are sold in the U.S. The parts content, however, needs to meet new regulations. Dziczek said the average vehicle made in the U.S. consists of 50-60 percent U.S.-made parts content. Dziczek said about half of the remainder comes from Canada and Mexico.
Made in the U.S. vehicles only make up about 52 percent of the total U.S. market—with the remaining 48 percent imported from other countries. She added that the Mexican imports will be most affected, citing that the Mexican government estimated one-third of the vehicles exported to the U.S. don't comply with the new USMCA rules.
Dziczek said the manufacturers will either re-align to conform with the rules, pay a tariff or remove that vehicle from the market, giving consumers less choice.