Consumer Confidence is High, but has the Automotive Market Peaked?

As Trump’s first 100 Days ended and monthly numbers were reported there was an apparent disconnect in the automotive industry. Consumer and industry confidence are at their highest points in years, however, automotive sales were trending downward for the fourth consecutive month. The ramifications of this downward trend are especially harmful to jobs in this vertically integrated industry.

The new administration has pledged to bring jobs back to America, highlighted by Trump’s pledge to bring back automotive jobs from Mexico and China. This pledge has fallen into the background as the climate it was made in has changed dramatically. When promised, the auto industry was riding high on five-plus years of record profits. This made the industry an attractive target for domestic growth. Now that the industry’s sales have cooled, not only is the return of domestic jobs unlikely, but it is more than likely that domestic and foreign jobs will be lost. Inventories are building as turnover is up from 60 to 100 days.

First, this will lead to the loss of jobs in the the automotive giants and their production facilities. As production ceases in Detroit and around the world, the part suppliers will also feel the affects. When car production is halted, the inventories of suppliers will begin to build with the lack of a willing input good market. The obvious result is layoffs throughout the vertical industry. These suppliers have the luxury of diversification into other markets such as sea, air, and rail industries to soften the blow, however.

The city of Detroit may be the first major market to feel the effects of this downturn in sales. Motor City has 13 OEM assembly centers and nearly three times as many suppliers to them. In the recent 7 year run of record sales, over $23 billion has been pushed into the state’s once bankrupt industry. This sales downturn will result in a huge hit to the automotive industry’s $37B GDP footprint on the state. Tax revenues will once again be down in a city just regaining traction.


Sources: Detroit ChamberNYTTelegraph UK

3 comments to Consumer Confidence is High, but has the Automotive Market Peaked?

  • How can (should) we modify this subsequent to talking to Dr. Traub of the Federal Reserve Bank of Chicago?

    Will this shift be felt more on profits or on employment?

    How about the time profile? Because of inventories, what happens to production over the next 6 months vs the 6 months that follow?

  • granirerj

    So it seems like Detroit may be on an unavoidable downward spiral because of the economy. Is there any intervention that could save them from it? Maybe it is just inevitable that Detroit is a doomed city as globalization and cheaper labor force the current companies to move away to greener pastures.

  • greenj18

    With the auto industry reaching a slump we could see President Trump adding extra pressure on the industry to perform to his campaign expectations in order to achieve his promises of increased job growth by brining industry jobs back from overseas. But with the current turn of the industry it makes me wonder if even the president could have the power to keep the industry going at its past pace.

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