Despite recovery, US auto sector said to be facing new decline

14 July 2014 18:10 Source:ICIS News

WASHINGTON (ICIS)--Despite its strong recovery since the 2008-2009 Great Recession, the US automobile industry may be nearing peak sales and likely will see a new decline in the years ahead, a leading economist said on Monday.

Business and economics advisor Jerry Jasinowski said that while the auto and light truck manufacturing sector largely has recovered from plummeting sales and bankruptcies during the recession, “the future for the US auto industry faces new challenges”.

Jasinowski, former long-time president of the National Association of Manufacturers (NAM), noted that the US auto industry is expected to make and sell 16m passenger cars and light trucks this year, “which is pretty good compared to where we were a few years ago, but mediocre by historical standards”.

US auto and light truck sales peaked in May 2000 at an annualised pace of 17.96m units, according to Macrotrends data, then began a slow decline that brought annual sales to just below 16m by January 2008 when the Great Recession was just beginning to take hold.

“Of course, there was worse to come - much worse,” Jasinowski said.

When the recession was in full fervor, auto and light truck sales fell to an annual pace 9.55m in June 2009.

That figure was even lower than the 9.77m in annual sales seen at the bottom of the 1981-1982 recession. 

The 2009 decline to 9.55m was all the more remarkable because the US population, then around 300m, was 30% higher than the 228m head-count in 1982.

Jasinowski noted that after General Motors and Chrysler went into bankruptcy and were bailed out by the federal government, the industry began a slow climb out.

Sales reached 12.8m (annualised) by April 2011, 15.7m in November last year and are poised to hit 16m for this year.

But despite those gains and in spite of a growing US population, Jasinowski anticipates declining sales ahead.

“Americans are changing their transportation habits, and a growing number of them consider personal vehicles undesirable,” he said.

“The share of the US population carrying driver’s licenses declined from 89% in 2000 to 83% in 2012,” Jasinowski noted, and “young people living in urban areas use mass transit and rely on rental vehicles when they need one.”

“Also, the auto industry’s laudable focus on quality means that cars, SUVs and trucks last a lot longer today than they used to,” he said, meaning that “fewer people trade in their vehicles for new ones every few years as was once the national custom.”

Jasinowski said that industry officials believe that US auto sales will continue to climb for a while before topping out at nearly 17m in 2016, then falling to 15.4m by 2019 - and this despite what could be a 9% population growth to nearly 335m by then.

That downturn could have implications for the US chemicals sector, because the US auto industry is a major downstream consuming market for chemicals and resins.

The American Chemistry Council (ACC) estimates that each vehicle contains an average of $3,500 worth of chemicals. 

Chemicals and resins consumption in the automotive sector is particularly high for polymers such as acrylonitrile-butadiene styrene (ABS), polycarbonate (PC) and nylon and for styrene butadiene rubber (SBR) in tyre production.

The anticipated decline in US auto sales over the next five years or so will mean that US automakers will have to focus increasingly on exports to Asia and Europe - where car sales are growing - to make up the US slack.

After heading NAM for 14 years until 2004, Jasinowski served for three years as president of the Manufacturing Institute, a research and analysis group he helped found in 1990.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By Joe Kamalick