• 3 hours Workers Walk A Tightrope As Shutdown Puts Paychecks On Hold
  • 9 hours Key Indicators Suggest A Recession Is Closer Than We Thought
  • 1 day Palladium Surpasses Gold As Demand Continues To Rise
  • 1 day Is Another Gold Rally On The Horizon?
  • 2 days Most Crypto Investors Don’t Know This Tax Loophole
  • 2 days How Tech Is Decentralizing The Energy Industry
  • 2 days Dissecting Europe's Massive Tennis Match-Fixing Scandal
  • 2 days This Gold Deal Could Be A Boon For The Mining Industry
  • 3 days 5 Companies That Could Win Big As The U.S. Legalizes Sports Betting
  • 3 days May Survives No-Confidence Vote Despite Huge Loss On Brexit Deal
  • 3 days U.S. Trade Deficit With China Grows To Record High
  • 3 days Big Oil Doubles Down On Blockchain Tech
  • 3 days What Top Financial Analysts Are Saying About Brexit
  • 4 days Billion Dollar Opportunity In The World’s Most Exciting Sector
  • 4 days Cash Is Now A $3-Trillion Safe Haven Bet
  • 4 days How Advertisers Are Forced Into Politics
  • 4 days Automakers Go All-In On Electric Vehicles
  • 4 days How Will The Government Shutdown Impact Gold?
  • 5 days 5 Likely Winners In A Booming $400 Billion Gambling Market
  • 5 days Forget IPOs: Direct Listings May Be The New Trend For Tech Unicorns
The Biggest Threat To Industrial Metals In 2019

The Biggest Threat To Industrial Metals In 2019

China's economic slowdown is poised…

American Steel Downgraded As Trade War Escalates

American Steel Downgraded As Trade War Escalates

The American steel industry has…

Ford Continues To Struggle As Trade War Escalates

Ford Continues To Struggle As Trade War Escalates

Trump’s trade war is beginning…

Alex Kimani

Alex Kimani

Writer, Divergente Research LLC

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Divergente Research LLC and Safehaven.com. 

Contact Author

  1. Home
  2. Commodities
  3. Industrial Metals

Auto Industry In Biggest Slowdown Since 2008

Car

President Trump loves to use the auto industry as a bargaining chip. In May, he asked the Commerce Department to investigate whether a national security law could be used to impose hefty tariffs of up to 25 percent on car and auto part imports into the United States, mainly targeting Europe and China.

Although the tariffs are yet to be implemented, the damage has already been done. Global auto sales are on track to record the biggest slowdown since the 2008 financial crisis as a confluence of factors--including unfavorable global trade policies and high commodity prices--meets falling consumer demand.

Not surprisingly, Europe and China are expected to record the largest slowdowns.

Demand in Europe is already starting to drop to pre-recession levels. Meanwhile in China, new car sales fell 5.3 percent to 1.59 million units in July due to worsening trade tensions with the U.S. Although full-year forecasts still call for a 1.2 percent growth, it will mark a sharp slowdown compared with growth of 13 percent in 2016 and 2.1 percent in 2017. China is the world’s largest auto market with 28.6 million new cars sold in the country last year.

America Hard Hit, Too

But most alarming is the fact that demand for American vehicles, considered a universal global catalyst, has also hit a wall due to economic factors such as higher prices and rising loan rates as well as political ones amid a growing “don’t buy American” media wave. Related: Markets See Mixed Sentiment After Hitting A Record High

A key reason for that are retaliatory tariffs by Beijing, which now taxes U.S.-built vehicles an impossible 40 percent levy on import. Major American automakers including Ford and Fiat Chrysler Automobiles have been counting on selling more in the Chinese market in order to cut their high dependence on North American sales. That is not being helped by soft demand in Europe, where many American companies have been struggling to maintain profitability.

The situation is already dire—all major American manufacturers posted a sharp sales decline in July, led by a massive 15 percent plunge at Nissan Motor. The mere anticipation of more tariffs prompted the auto industry to cut back spending on incentives thus snapping a long 55-month streak of increases.

After peaking in 2016 at 17.5 million units, U.S. new vehicle sales are now on track to post the second consecutive year of sales decline.

Not all of it can be pinned on trade tensions though.

According to Charlie Chesbrough, senior economist for Cox Automotive, buyers are increasingly turning to used-car lots where there are great deals to be had even as auto makers pull back on new-vehicle incentives. Returns of leased vehicles has also been climbing, and the extra supply gives consumers a wider choice of lower-priced alternatives.

Actual Tariffs Will Escalate the Damage

It’s going to be a lose-lose proposition if Trump barrels ahead with the planned tariffs especially in Europe.

Related: Telcos Caught Between Big Government And Customer Privacy

The EU has estimated that duties of 25 percent would cut U.S. imports of cars and car parts by half and lead to the loss of at least 180,000 American jobs. The U.S. imported automobiles and car parts worth 294 billion euros last year, with 58 billion euros originating in the EU. The U.S. is the largest importer of EU cars, with cars making up a fifth of the region’s exports.

Major U.S. importers of European cars General Motors, Nissan and Fiat did brisk business during the first half of the year as customers rushed to buy ahead of the tariffs.

Potential tariffs on both imported cars and auto parts will no doubt make the unfolding scenario a lot worse.

By Alex Kimani for Safehaven.com

More Top Reads From Safehaven.com

Back to homepage

Leave a comment

Leave a comment