Current Performance Analysis
Following the recession, the U.S. automotive industry experienced a significant recovery. Rising employment and increasing disposable income allowed consumers to spend more on high-ticket items, such as cars. The period between 2010 and 2012 saw above-average growth rates in automotive sales, driven by pent-up demand from consumers who had delayed purchasing vehicles during the economic downturn. As durable goods, vehicles are typically purchased when consumers feel financially secure. Due to their high prices, new cars are often financed through loans, making the lending environment crucial to sales trends.
From 2010 to 2015, the improving U.S. economy led to increased credit lending and historically low auto loan interest rates, significantly boosting new car sales. However, interest rate hikes by the Federal Reserve between 2015 and 2018 increased borrowing costs, which dampened vehicle demand. Consequently, new car sales saw a 1.9% decline in 2017 and a marginal 0.4% growth in 2018. The Federal Reserve's rate cuts starting in 2018 reduced borrowing costs, likely supporting new car demand, although sales declined by 1.5% in 2019.
The economic landscape shifted dramatically in 2020 due to the COVID-19 pandemic, which led to significant economic curtailment. The U.S. saw all job gains from 2009 to February 2020 erased within two months. Despite substantial government support and a faster-than-expected economic rebound, new car sales plummeted by 14.7% in 2020, marking the steepest decline since the financial crisis. The pandemic reduced travel and commute needs, pressuring consumer spending. Although travel and commuting increased as vaccines proved effective, new car sales only rose by 3.4% in 2021. The rise of remote work further decreased the need for vehicles. Additionally, supply chain disruptions, particularly in semiconductor manufacturing, increased vehicle prices, reducing demand. Vehicle sales dropped to 13.75 million in 2022.
The Federal Reserve's efforts to combat inflation through interest rate hikes have raised borrowing costs, deterring large purchases. Coupled with ongoing concerns about the pandemic and supply chain issues, recovery in the automotive market has been slow. In 2023, vehicle sales rebounded due to a return-to-office push and eased lending conditions for auto loans. However, this recovery could be dampened by the resumption of student loan payments and persistent inflation, which continues to erode disposable income.
Data Source and Forecasting
This analysis tracks the number of new vehicles, including cars and light trucks, purchased in the United States each year. Data is sourced from the U.S. Bureau of Economic Analysis and forecasted using information from the U.S. Energy Information Administration (EIA).
Future Outlook
Looking ahead to 2029, several uncertainties loom, though some factors are more influential than others. U.S. protectionism and the new USMCA deal present unpredictability that could limit investment over the next year. Any potential resurgence of the coronavirus poses significant threats to the automotive industry, primarily through ongoing supply chain disruptions and economic curtailment. However, the impact of the coronavirus outbreak is expected to be muted during the outlook period, especially once all business restrictions are lifted.
Aggressive rate hikes to combat inflation have directly increased borrowing costs, likely subduing new car sales growth as consumers face higher borrowing costs. Additionally, stringent regulatory benchmarks for new vehicles, including higher fuel efficiency standards and the push for electric vehicles, are expected to raise compliance costs and new car prices over the next five years. An increase in borrowing costs in the latter half of the current period, along with a normalization in durable goods spending patterns, is expected to place downward pressure on new car sales.
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