Is the collapse in car sales the canary in the coal mine for the US economy?
Trends in car sales are a significant indicator of economic activity in all but some emerging market economies because of their linkage to household confidence and spending. For example, the growth in car sales in China have accompanied that country’s recent economic rise. China recently overtook the US as the world’s largest car market and is on track to overtake the US to become the world’s biggest economy.
Just released data on US car (auto) sales in April makes alarming, but not surprising, reading. Compared to April last year, US auto sales for Toyota were 54% lower, Subaru’s sales were 47% lower, Mazda’s were 44% lower, Hyundai’s were 39% lower and Kia’s 38% lower. Others, notably GM, Ford and Volkswagen, release sales figures quarterly, so their official numbers for April are not available although their sales for the March quarter were down by slightly less than the above-listed manufacturers and forecasts are for sales in May and June to be just as dire as in April.
This begs the questions – are US car sales and prices going down the same path as the US oil market went in April and what does that mean for the US?
Both US auto and oil markets have suffered a sudden drop in consumption and sales because of the responses by businesses, households and (State and Federal) governments to the COVID-19 outbreak in the US. Both have run into storage problems and costs because of the product pipeline, which is more alarming for the car industry because of its ‘just in time’ inventory management. Car (auto) manufacturing has collapsed to a trickle in the US, China, Japan and Europe.
A number of US oil production, drilling, exploration and supplier companies, led by the more vulnerable and leveraged, have folded or are staring down the barrel of bankruptcy. Given the expected drastic contractions in US economic growth, employment, business investment and household spending, I have two questions:
– are car prices in the US (and, by association, the rest of the world) heading down the same path as oil prices?
– are auto manufacturers in the US heading down the same path as companies in the US oil industry?
An affirmative answer to both questions will have severe explicit and implicit implications for households, businesses, governments, economies and future generations in the US and around the world.