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Trade Deals, Tariffs and Other Implications for the Auto Industry in 2019

On April 2, Bernard Swiecki and Kristin Dziczek of the Center for Automotive Research (CAR) spoke with our board of directors about the state of the automotive industry in Michigan, the United States and worldwide. CAR has provided more than 30 years of industry research, trend forecasting, policy advice and multi-stakeholder communication forum sponsorship.

Photo by Lauren Nelson source http://www.flickr.com/photos/lulieboo/3523637733/

From 2009 to 2018, automakers invested $29.2 billion in the state of Michigan alone, $1.9 billion concentrated in the tri-county area LEAP serves. In the same period, the industry’s investment in the whole country of Mexico was just $24.8 billion.

 

Swiecki set the context for their findings by providing an overview of sales, highlighting the decrease in sales of light vehicles like passenger cars and increase in sales of trucks, crossovers and sports utility vehicles (SUV). This, he said, was not necessarily a negative trend, as larger vehicle sales are what truly make money within the industry. He also highlighted that growth within the light vehicle market is most rapid among electrified vehicles.

 

2019 sales are projected to land around 16.8 million total units sold, representing a slight drop from the past four years. Looking ahead to CAR’s projections into 2025, this is anticipated to rebound and eventually surpass the previous industry high in 2016.

 

The CAR forecast considers a variety of positive factors in its forecast, including:

  • Projected moderate U.S. economic output growth in 2019

  • Historically low U.S. unemployment rates

  • Relatively low oil prices, continuing through 2020

  • Continuing nominal wage growth

  • High levels of consumer confidence reached in Q4 2018

  • Solid new housing starts and home prices rebounding to pre-recession levels

 

CAR also considers forecast risks, such as:

  • Multiple trade threats including tariffs on steel, aluminum and Chinese imports

  • The potential ratification of the U.S.-Mexico-Canada Agreement (USMCA)

  • Geopolitical risks and worldwide economic turbulence

  • Interest rates

  • UAW negotiations and strike

 

Dziczek reviewed some of these identified risks further, including the uncertainty of the USMCA passage due to a Democratic-controlled U.S. House of Representatives and opposition from the AFL-CIO, UAW, steelworkers and machinists. She also noted that withdrawal from the North Atlantic Free Trade Agreement (NAFTA) is still possible, but that withdrawal from the agreement would not undo the enabling legislation — that would be a job for Congress.

 

As it stands, the U.S. cannot currently self-supply the vehicles American dealers sell to U.S. consumers, which places significant weight on the implications of international trade turbulence. Dziczek touched on the immediate impacts that would be felt if the USMCA is enacted or if the Mexico-U.S. border is closed, as President Trump has threatened. She pointed to her recent article in USAToday on the subject, underscoring that the U.S. auto industry would likely face a complete crisis within days of a complete border shutdown.

Swiecki and Dziczek welcomed questions after their presentation, discussing further the evolution of the industry as electric vehicles become a larger share of the market and how leaders can adapt and evolve with the industry. Dive deeper into the data by viewing the presentation on SlideShare, or learn more about membership with LEAP and how to take advantage of benefits like our board meeting speaker series.