Americans say they feel more optimistic about the economy since President Trump was elected. But they certainly are not acting that way, and that is shaping up to be a challenge for his administration.
Consumers pulled back sharply on spending in early 2017, the Commerce Department said on Friday, reducing the economy’s quarterly growth to its lowest level in three years. In fact, the 0.7 percent annual growth rate for the period is far below the 2.5 percent pace in President Barack Obama’s final three months in office, let alone Mr. Trump’s 4 percent target.
The caution among consumers was particularly notable on big purchases like automobiles. Other indicators were stronger — businesses invested at a healthy pace — but that was not enough to offset the headwinds from feeble retail sales and falling inventories.
Through eight years of a fundamentally tepid recovery, the promise of stronger economic growth that is always just around the corner has had a waiting-for-Godot quality. Investors and Wall Street seem confident that this time, the predictions will finally come true — hence the 11 percent surge in stocks since the election — but some independent economists are wary.Neal Boudette reports today in "U.S. Auto Boom Seems to Be History, Just as Trump Counted on Jobs" that
For seven years, the steadily expanding auto industry has helped drive the American economy forward, racking up billions in profit and paying workers hefty bonuses, all while consumers flocked to dealerships and drove sales to record heights.
It is a boom that President Trump has been counting on to add more jobs. But the industry’s ability to do so is now in question.
On Tuesday, automakers reported the fourth straight monthly retreat in sales of new cars and light trucks, the longest stretch of declines since 2009, when the industry was embroiled in crisis and bankruptcies. The slump underscores the view of many that auto sales have peaked and are set to trend downward.
“The market is tapped out,” said Adam Silverleib, vice president of Silko Honda, a dealership in Raynham, Mass. “It’s no longer expanding at the rate the manufacturers thought it would.”
He added that the more optimistic consumer sentiment recorded since Mr. Trump’s election “hasn’t translated into what’s happening in dealerships where we’re trying to sell cars.”
Moreover, the top six automakers in the American market all reported declines from their April sales a year ago, and in every case the falloff exceeded analysts’ forecasts. Wall Street took notice: Shares of Ford Motor and Fiat Chrysler Automobiles were down more than 4 percent, and General Motors shares fell almost 3 percent.
In April, automakers sold 1.43 million cars and trucks, down from 1.5 million a year ago. But even before those totals were reported, automakers had started preparing to trim the number of vehicles they are making, which almost always means jobs are eliminated.
Some 1,100 workers at a General Motors plant in Lansing, Mich., are being laid off this month and will be out of work for at least the next five months, although about 700 of them are expected to be rehired by the end of the year. Three other G.M. plants are eliminating shifts, moves that will idle more than 3,000 other workers.This morning Naked Capitalism re-posted Wolf Street's "#Carmageddon Not Yet, But Hot Air Hisses out of Auto Bubble," which adds more detail to Boudette's NYT story:
A 4.7% drop in sales, bad as it is, wouldn’t qualify for #carmageddon. These things happen. But here’s the thing: Automakers had shelled out $3,465 in incentives per new vehicle sold, on average, according to TrueCar estimates. A record for the month of April. It beat the prior record of $3,393, set in April 2009. It amounts to about 10% of suggested retail price, similar to March. The last period when incentive spending was at this level of MSRP was in 2009 as the industry and sales were collapsing.
The #carrmageddon point to watch: despite the 13.4% year-over-year surge in incentive spending to nearly $5 billion, total vehicle sales fell 4.7%! When these massive incentives fail to even slow the sales decline, serious problems lurk beneath the surface.
And bloated inventories are hounding the automakers. According to WardsAuto.com, there were over 4 million new vehicles sitting on dealer lots and increasingly on rented parking lots at zombie retail malls. April was the fourth month in a row with dealer inventories above 4 million. The last time this happened was in 2004!
The situation of ballooning inventories, massive incentives, and falling sales is confronting automakers with tough decisions – and there are no good options: pile on even more incentives, only to see sales decline further and gut profits, which is what happened leading up to the collapse of the industry during the Great Recession; and/or cut production and deal with the fallout; or cut incentives, fasten the seatbelts, and hang on.
Consumers are now getting accustomed to these incentives, some of them reaching $8,000 or more per vehicle. Without them, consumers would just say no. Incentives are addictive. You cannot just withhold that drug. It would crush sales. That’s why it is so difficult for automakers to get off incentives once they got on them in a big way.
A number of automakers didn’t make the above list because their market share is too small, including Volvo, Mazda, Porsche, Jaguar, Ferrari, Maserati, and Tesla.
Tesla sold 3,850 car in April, according to Autodata, 44% fewer than Porsche, giving it a market share of about a quarter of a percent (0.27%), compared to GM’s 244,200 units and market share of 17.2%. Yet today, Tesla shares give it a market cap of $52 billion, compared to GM’s $50 billion. That’s how crazed this stock market has gotten.I have followed the business page enough over the years to know that juiced auto sales provided a floor for whatever zombie-like recovery we experienced coming out of the Lehman meltdown Great Recession.
I find it next to impossible to predict movements in the U.S. economy, let alone the global market. I am unsure of the proper signs to study. It seems to me the stuff of fantasy and Hollywood blockbusters. But for auto sales to crater, certainly that's an ill omen.