Cars: if you’re like most Americans, you have one or maybe two (three?) of them. Although there are big changes ahead for the car industry, for now they are a major driver of economic growth.
In a previous post, we talked about how the 2008 financial crisis and subsequent recession is still affecting real estate. Well, the recession is also affecting the car industry nine years later.
During the recession, most people held onto their cars instead of replacing them. By the time the recession had ended (on the basis of economic data, not necessarily subjective experience), it was time for many Americans to replace their cars.
That’s exactly what millions of Americans did in 2013, and the auto industry set all-time record highs for sales. Additionally, when the President went on television to talk about America being oil-independent, gas prices dropped and suddenly SUV’s and less fuel efficient vehicles were attractive again. Americans traded in their small cars and their green cars for the latest SUV’s, trucks and larger cars with all the latest features and technology.
2013 – 2016 were great years for car sales because of pent-up demand. During the recession, Americans probably wanted to replace their vehicles, and perhaps needed to replace them, but couldn’t because of the overall economy. As such, when the economy improved and gas prices dropped, the perfect market existed to spark car sales.
There were some other interesting trends with auto loans, too. Some lenders extended the terms to as long as 84 months! The reason? Stagnant wages.
Much of the middle class had not received a wage increase in a very long time, but the price of cars rose, and many people were buying larger vehicles with higher average transaction prices. There was also concern about subprime auto loans and predatory lending (now part of Main Street vernacular after the foreclosure crisis), but auto loans are very different than real estate lending.
Fast forward to 2017, and the pent up demand for cars from the recession is spent. Additionally, with extended loan terms, many Americans won’t be ready to buy new cars as quickly as if they had a shorter loan term.
In 2017, the auto industry saw slowing sales for sedan vehicles, and in 2018 we’ll likely see plant slowdowns and scheduled shut-downs so that fewer vehicles are made. Parts suppliers, auto industry workers and others who work in the industry could see their hours and wages reduced, especially if they work on assembling higher priced models. These jobs are considered manufacturing jobs, which tend to be full time and higher paying, so the overall manufacturing sector will be impacted. As we’ve noted in previous posts, the jobs that are being created the fastest in this economy tend to be lower paying.
This doesn’t mean all is lost: the automotive industry is cyclical and the industry will likely cycle around to heat up again. With the push toward self-driving cars in the future, however, the automobile industry’s long term trajectory remains to be seen.
Experts predict there will be fewer cars on the road generally in the future, which will impact real estate by reducing or eliminating parking structures, parking spaces and opening up more green spaces in cities.