Various economic factors directly impact the automotive industry’s performance. Among these factors, high employment levels and rise in wages are predicted to be the most significant factors in the near future. In recent years, despite the unwillingness shown by banks in providing credits, the automotive industry has gone beyond the expectations of several industry experts. Also, vehicle-loan default rates are at par with the peak they had reached during the great recession of 2008.
The resulting effect of all these influencing factors has been mostly to counterbalance one another. During the first half on 2018, the number of light trucks and SUVs sold every month remained around the one-million mark, whereas car sales were also flat in the second quarter, thus stopping an otherwise downward trend. According to Wall Street’s financial projections for 23 automotive firms with revenues of $223B in the first quarter, the industry is predicted to go through a dull phase from the second quarter of 2018 to mid-2020. Although the cumulative earnings and revenues toward the end of 2018 are projected to be slightly better than a year ago, 2019 is predicted to experience a modestly downward trend.
In addition to maintaining the steady growth in revenues until the end of 2018, the automotive industry must prepare well for a more challenging 2019. A thorough examination of the Gardner Business Index data with regard to the automotive industry shows that during the five quarters until the first quarter of 2018, new orders and production were the two fastest growing industry drivers. However, the readings for both new orders as well production had lowered by the end of the second quarter of 2018, paving the way for supplier deliveries and employment to be the most impactful factors.
Generally, supplier deliveries and employment are among the slowest factors to respond to economic changes and growth and are hence termed as lagging indicators. Nonetheless, this transition of factors driving the automotive industry does not necessarily imply that there is an economic slowdown. In fact, it goes hand in hand with an industry that is gradually marching towards an economic expansion.