The Party Is Over U.S. Automotive Outlooks/media/others/events/2017/...Federal Reserve Bank of...

The Party Is Over – U.S. Automotive Outlooks Yen Chen | Senior Research Economist Center for Automotive Research Federal Reserve Bank of Chicago Economic Outlook Symposium December 1, 2017

2

U.S. Light Vehicle Sales Percent Change YTD Through October: 2017 vs. 2016

CENTER FOR AUTOMOTIVE RESEARCH

-10.9%

4.4%

-1.7%

-14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6%

Passenger Cars

Light Trucks

Total

Source: Automotive News; CAR Research

-243,283 Total

14,240,706

100%

+ 384,997 Truck

9,086,724

63.8%

-628,280 Cars

5,153,982

36.2%

3

U.S. Light Vehicle Monthly Sales January 2013 – October 2017

CENTER FOR AUTOMOTIVE RESEARCH Source: Automotive News; CAR Research

Oct, 1,356,789

900,000

1,100,000

1,300,000

1,500,000

1,700,000

1,900,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2013 2014 2015 2016 2017

4

Segment Breakdown – U.S. LV Sales Percent Change October YTD 2017 vs October YTD 2016

CENTER FOR AUTOMOTIVE RESEARCH Source: Ward’s Automotive Reports

-16.2%

-13.2%

-9.2%

-7.7%

-7.6%

-2.2%

4.7%

4.9%

5.1%

8.3%

-1.8%

-20% -15% -10% -5% 0% 5% 10%

Middle Car

Large Car

Van

Luxury Car

Small Car

Large CUV

Pickup

SUV

Small CUV

Middle CUV

Total

5

U.S. Market Shares of Passenger Cars and CUVs/SUVs 1980 – 2017 YTD

Cars: [VALUE]%

Cars: [VALUE]% SUVs: [VALUE]%

SUVs/CUVs: [VALUE]%

0

10

20

30

40

50

60

70

80

901

98

0

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

YTD

Mar

ket

Shar

e in

Per

cen

tage

Passenger Cars SUVs/CUVs

CENTER FOR AUTOMOTIVE RESEARCH Source: Wards Auto

6

North America Monthly Production October 2017


[CATEGORY NAME]. 2017 – [VALUE]

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Perc

ent

Ch

ange

in Y

TD P

rod

uct

ion

Nu

mb

er o

f Li

ght

Veh

icle

s P

rod

uce

d

YTD % chg 2014 2015 2016 2017

Source: Automotive News; CAR Research

7

U.S. Motor Vehicle Output and Share of GDP 2Q 2007 – 3Q 2017

CENTER FOR AUTOMOTIVE RESEARCH Source: BEA

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

-200

-100

0

100

200

300

400

500

600

2Q

20

07

3Q

20

07

4Q

20

07

1Q

20

08

2Q

20

08

3Q

20

08

4Q

20

08

1Q

20

09

2Q

20

09

3Q

20

09

4Q

20

09

1Q

20

10

2Q

20

10

3Q

20

10

4Q

20

10

1Q

20

11

2Q

20

11

3Q

20

11

4Q

20

11

1Q

20

12

2Q

20

12

3Q

20

12

4Q

20

12

1Q

20

13

2Q

20

13

3Q

20

13

4Q

20

13

1Q

20

14

2Q

20

14

3Q

20

14

4Q

20

14

1Q

20

15

2Q

20

15

3Q

20

15

4Q

20

15

1Q

20

16

2Q

20

16

3Q

20

16

4Q

20

16

1Q

20

17

2Q

20

17

3Q

20

17

Shar

e o

f U

.S. G

DP,

%

Bill

ion

Do

llars

, SA

AR

PCE -New Vehicle Private Fixed Investment - New Vehicle Gov't Investment - Vehicles Net Exports Share of GDP

8

Light Vehicle Sales and New Vehicle Price Index January 2004 – September 2017


125

130

135

140

145

150

155

160

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

New

Veh

icle

Pri

ce In

dex

(1

98

2=1

00

)

Light Vehicle Sales SAAR

2004-05 2005-08 2008-10 2011-13 2014 2015 2016 2017

D2

D1

S1: Average sales of Jan ’08 – Dec ‘ 09 S2: Average sales of Jan ’12 – Dec ‘12

S2

S1

9

Are Sales Peak? 1995 – 3Q 2017


16.50 17.06

8

10

12

14

16

18

250

300

350

400

450

500

550

600

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

1Q

20

17

2Q

20

17

3Q

20

17

Mill

ion

Un

its

Bill

ion

$ (

20

09

do

llar)

In Spending (Billion of 2009 $) In Units

Source: BEA, Table 7.2.6B. Real Motor Vehicle Output, Chained Dollars

Both spending and vehicle sales exceed 2006 level

10

US Business Cycles Months of Expansion Since 1945

37

45 39

24

106

36

58

12

92

120

73

101

0

20

40

60

80

100

120

140

Oct 1945 -Nov 1948

Oct 1949 -July 1953

May 1954 -Aug 1957

Apr 1958 -Apr 1960

Feb 1961 -Dec 1969

Nov 1970 -Nov 1973

Mar 1975 -Jan 1980

Jul 1980 - Jul1981

Nov 1982 -Jul 1990

Mar 1991 -Mar 2001

Nov 2001 -Dec 2007

Jun 2009 -Current

Mo

nth

s o

f Ex

pan

sio

n


Average Duration of Expansion: 58 Months

Source: National Bureau of Economic Research

11

NADA New Vehicle Selling Price 1978 – 2017 (Sept)


-5%

0%

5%

10%

15%

20%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Veh

icle

Pri

ce In

flat

ion

Veh

icle

Pri

ce, $

NADA selling price Vehicle price inflation CPI Inflation

1990-1991

2017 - ??

Source: NADA DATA; RSQE

2004 -2008

12

NADA Dealership Financial Status

$(500)

$(400)

$(300)

$(200)

$(100)

$-

$100

$200

$300

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Net Profit Per New Vehicle Sold, U.S. $

Net Profit Per New Vehicle Sold, U.S. $

CENTER FOR AUTOMOTIVE RESEARCH *Through September 2017. Source: NADA DATA

13

Changes from Jan ‘07: CPI – New Vehicle and CPI-Used Vehicle January 2007 – September 2017


-15%

-10%

-5%

0%

5%

10%

15%

Jan

-07

Ap

r-0

7

Jul-

07

Oct

-07

Jan

-08

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

New Vehicle ('82-84 = 100) Used Vehicle ('82-'84 = 100)

Source: BLS

14

Consumer Credit and Light Vehicle SAAR January 2011 – October 2017


-6

-4

-2

0

2

4

6

8

10

12

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

% C

hg.

Of

Co

nsu

mer

Cre

dit

Ligh

t V

ehic

le S

ale

s

Light Vehicle Sales SAAR Percent Change of Consumer Credit

Source: Federal Reserve Statistical Release, G.19, Consumer Credit; Automotive News SAAR

15

Households are Carrying More Debt Household Non-Housing Debt* 1Q 2003 – 3Q 2017


-

200

400

600

800

1,000

1,200

1,400

-

200

400

600

800

1,000

1,200

1,400

1Q

20

03

3Q

20

03

1Q

20

04

3Q

20

04

1Q

20

05

3Q

20

05

1Q

20

06

3Q

20

06

1Q

20

07

3Q

20

07

1Q

20

08

3Q

20

08

1Q

20

09

3Q

20

09

1Q

20

10

3Q

20

10

1Q

20

11

3Q

20

11

1Q

20

12

3Q

20

12

1Q

20

13

3Q

20

13

1Q

20

14

3Q

20

14

1Q

20

15

3Q

20

15

1Q

20

16

3Q

20

16

1Q

20

17

3Q

20

17

Deb

t in

Bill

ion

$

Deb

t in

Bill

ion

$

Student Loans Auto Loans Credit Card

Source: FRBNY Consumer Credit Panel/Equifax

*Excludes mortgage and home equity line of credit

16

Auto Loan Delinquent Rate Is Rising 30+ Days Delinquent Percentage by Types of Non-Housing Loan

4.0

6.0

8.0

10.0

12.0

14.0

16.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

1Q

20

03

3Q

20

03

1Q

20

04

3Q

20

04

1Q

20

05

3Q

20

05

1Q

20

06

3Q

20

06

1Q

20

07

3Q

20

07

1Q

20

08

3Q

20

08

1Q

20

09

3Q

20

09

1Q

20

10

3Q

20

10

1Q

20

11

3Q

20

11

1Q

20

12

3Q

20

12

1Q

20

13

3Q

20

13

1Q

20

14

3Q

20

14

1Q

20

15

3Q

20

15

1Q

20

16

3Q

20

16

1Q

20

17

3Q

20

17

PER

CEN

T O

F B

ALA

NC

E

PER

CEN

T O

F B

ALA

NC

E

Student Loans Credit Card Auto Loans

CENTER FOR AUTOMOTIVE RESEARCH Source: FRBNY Consumer Credit Panel/Equifax

17

Gasoline Prices (Real) Jun. ‘03 – Oct. ‘17


$2.60

$3.61 $3.63 $3.76

$4.60

$3.02

$3.23

$4.29 $4.20

$3.94 $3.83

$3.03 $2.91

$2.65

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17

Pri

ce P

er G

allo

n

Source: EIA

18

U.S. Electrified Light Vehicle Sales and Take Rate 1999 – 2017 YTD (October)


Note: Electrified vehicles consist of BEV, HEV and PHEV

Source: Ward’s Automotive Reports, HybridCars.com and CAR Research

3.27

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

0

100

200

300

400

500

600

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Perc

ent

of

LV S

ale

s (%

) R

eal G

as P

rice

($

)

U.S

. Ele

ctri

fied

Sal

es

(00

0’s

)

Electrified LV Sales % of LV Sales Real Gasoline price

19

CAR’s U.S. Light Vehicle Sales Forecast 2017-2022


11.6

12.7

14.4

15.5 16.5

17.4 17.5 17.2 16.8 16.5 16.8 17.0 17.2

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

U.S

. LV

Sal

es in

Mill

ion

s

U.S. SALES

Source: CAR Research, November 2017

Factors: • N.A. production drop in 2017 • U.S. MV output declining share of GDP • U.S. sales down in quantity and value • New vehicle prices stagnant • New vehicle sales price inflation lower than CPI

for first time in 5 years • Dealership new car net loss/vehicle highest level

in a decade • Used vehicle prices at a 10-year low • Consumer credit slowing • Auto loan defaults rising • Gasoline prices highest since Q4 2014

NAFTA Update

CENTER FOR AUTOMOTIVE RESEARCH 20

21

It’s not going well…


• NAFTA Auto Rules of Origin (ROO) already the highest of any U.S. Free Trade Agreement (FTA) @ 62.5%

• The Trump Administration is proposing: • Raising the NAFTA Regional Value Content (RVC)

threshold to 85 percent • Requiring 50 percent U.S. content as part of the 85

percent RVC • Including all parts, components, and materials in a

light vehicle to “modernize” the tracing list • Instituting a validation process for content, rather

than the current process whereby manufacturers can “deem originating” for parts, components, and vehicles produced within the NAFTA region

• A 5-year renewal period • Negotiations that were supposed to wrap up in

December will now extend into Q1 2018

22

Modernizing the NAFTA Tracing List


Tracing is meant to keep manufacturers from “rolling up” foreign content to achieve preferential trading status for imported content.

23

What Could Happen


The Peterson Institute for International Economics outlines four scenarios for how NAFTA talks may

proceed:

1) Canada and Mexico give in to U.S. demands;

2) U.S. gives up on demands that Canada and Mexico oppose, and focuses on

modernizing the agreement (deal falls short of Trump’s campaign promises);

3) Deadlock that leads to terminating NAFTA (supply chain disruptions, decline in

cross-border investments);

4) “Muddle through” with concessions on specific products and some

“modernization,” talks last beyond December 2017 (no one gets what they want,

but each party is able to claim a “win” on something)

Source: Hufbauer, Jung, & Kolb, 2017

Least Likely

Most Likely

24

What if NAFTA Falls Apart?


• The risk of this happening is high.

• Mexico is talking with other trading partners to

diversify trade and replace goods and services

currently sourced from the United States.

• Mexico and Canada are still part of TPP

• It is not clear how exactly NAFTA would unravel

• Congress would have to repeal NAFTA’s enabling

legislation NAFTA in place

Gary Clyde Hufbauer, a noted trade expert and

Professor of International Financial Diplomacy at

Georgetown University, predicts five things would

happen if the U.S. pulls out of NAFTA:

1) Dispute resolution systems would disappear;

2) MFN tariffs would be re-instituted;

3) Trump would need to decide whether or not to

re-instate the Canada-United States Free Trade

Agreement;

4) Congress would “wage war on Trump” through

investigations and blocking his legislative

agenda; and

5) There would be a lot of lawsuits.

25

Summary

• U.S. vehicle sales reached peak and is declining

• SUVs and CUVs are new kings, as long as gasoline prices are low

• Several econ conditions are weakening — production, credits, interest rates, new/used vehicle price, dealers profitability, etc.

• Political turmoil and potential US-EXIT lead to murky motor vehicle market outlooks

25

Thank you

The Party Is Over U.S. Automotive Outlooks/media/others/events/2017/...Federal Reserve Bank of...

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