Finishing Line

Bumps in the Road

By Stefan Budricks

12/01/19

Over the past two months, Standard & Poor’s published three reports that are of interest to anybody in the automotive industry. A report from S&P Global Ratings, titled “U.S. Auto Sector Faces Bumpy Roads Ahead With Rising Recession Odds And Falling Demand,” released October 16 foresaw a 4 percent decline in light vehicle sales in the fourth quarter of 2019. The report expects a further decline of 3 percent in 2020 followed by a dip of roughly 1 percent to 2 percent, resulting in approximately 16.3 million unit sales by 2021.

Adding some perspective, the report points out that U.S. auto sales hit bottom in 2009 with 10.4 million units sold, recovered over the next six years at a pace that exceeded GDP growth, and reached a high point of 17.4 million units in 2016. It attributes the “less-than-expected declines” over the following two years to tax refunds, low interest rates, high incentives, and low gas prices. Turning to the financial health of the automakers themselves, the report’s prognosis is rather bleak: a threatening recession, used-vehicle prices declining, and geopolitical risks contribute to “ongoing negative pressure” on the industry.

In a report published one day later, S&P Global Ratings examines how U.S.-China relations can compound the difficulties automakers are facing. It notes that China accounts for about 20 percent of manufacturing output worldwide, and thus assumes a key role in the global supply chain. As a result, it says, any U.S.-China tariff dispute is an impediment to automakers and suppliers. It can raise manufacturing costs, slow production, and even affect product quality. This report is appropriately titled “Global Auto Industry Faces Long-Term Fallout If U.S.-China Détente Dissolves.”

The third report, dated November 18, expands on that global view. In 2020, it projects, global light vehicle sales will fall approximately 8 million units short of 100 million annually. It expects automakers’ margins to remain under pressure due to factors such as competition, trade disputes, higher costs, and restructuring. Auto industry suppliers face many of the same hurdles. The report, titled “Industry Top Trends 2020: Autos,” concludes that the ratings outlook for this sector is “increasingly negative,” and that the trend will continue.

While the above S&P reports clearly focus on factors influencing the creditworthiness and viability of automakers and their suppliers, car care businesses everywhere are not immune from the effects as their success is inextricably linked to the future and fortunes of the auto industry.

Indeed, it would appear that vendors to the car wash industry have sensed some of what, according to S&P, is percolating. Results from the Auto Laundry News 2019 State of the Industry Survey (starting on page 37 in this issue) indicate a slight cooling of confidence among survey participants. While overall roughly the same percentage as last year reported sales growth over the previous year, the percentage of respondents who project declining sales in the following year has grown from zero to 11. In the equipment manufacturer subcategory, 17 percent of participants predict a drop in sales (up from zero last year) despite a larger proportion of this cohort compared to last year having experienced sales growth over the previous year.



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