With the election in the rearview mirror, the auto industry is barreling toward 2013 with visions of more sales growth, a gradually healing housing market and easier credit that could shield the industry even if President Barack Obama and Congress don't resolve their budget impasse by year's end, according to analysts.
On Friday, the Thomson Reuters/University of Michigan preliminary
consumer sentiment index climbed to 84.9, the fourth straight increase and the
highest since July 2007. Strength in the housing market is brightening
consumers' outlooks, and auto companies expect that to translate into more
shoes in the showroom.
Even with the so-called fiscal cliff looming as a threat to the economy,
the auto industry's momentum is based on several factors that may continue
regardless of whether Washington reaches a compromise on tax increases and
spending cuts.
"I think the fiscal cliff would just cause a hiccup for a few months at
the beginning of the year in a worst-case scenario," said Morningstar analyst
David Whiston.
Here are the forces that are stronger than Washington's dysfunction:
--Cheap credit. Consumers are getting loans fairly easily now, bringing a
broader swath of car buyers into dealerships. Interest rates remain near
record lows.
--Pent-up demand. It's a cliche to industry observers at this point, but
automakers are still reporting a surge of buyers who just can't hold onto
their aging wheels any longer.
--The housing market's recovery. Although we're not returning to the
bubble of a decade ago, home prices in most regions aren't falling any more,
and in many metropolitan areas they are rising. Increased new housing starts
will boost truck sales, the most-profitable segment for auto companies.
Morgan Stanley analyst Adam Jonas estimated in a research report that in
2013, every 100,000 in new housing starts translates into 300,000 vehicle
sales. And the investment bank's researchers projected housing prices could
increase 4 percent to 9 percent in 2013, encouraging consumers to buy up to
200,000 more vehicles.
The median value of homes has risen 3.2 percent so far this year
nationally and 6.4 percent in metro Detroit, according to Zillow.com's Home
Value Index.
"A recovery in U.S. housing is having a significant impact on borrowing
and lending attitudes just as pent-up auto demand sits at historic
proportions," Jonas said.
The S&P/Case-Shiller Home Price Indices recorded a fifth consecutive
month of growth in August, the latest month for which statistics are
available, pointing to a sustained recovery.
"When you look at the impact the housing recovery has had on sentiment,
and the impact sentiment has on consumer spending, if we can keep this
momentum going, it's going to lift other sectors of the economy as well,"
General Motors spokesman Jim Cain said.
Still, the auto industry is watching Washington closely for signs of a
consensus that would resolve the fiscal cliff, a term experts are using to
refer to automatic tax hikes and massive spending cuts that would kick in at
the end of the year if lawmakers can't stop it by reaching a compromise.
"Certainly for the short run, I absolutely don't think the fiscal cliff
is going to have that much of an impact on auto sales," said Lacey Plache,
chief economist for Edmunds.com. "The way people will be hit -- and this will
take longer to come in -- is through effects in the economy in general."
Washington's reaction could spark a selloff in the stock market, spooking
consumers and crimping auto sales, for example.
"Unabated partisan strife in Washington could mean that business and
consumer confidence will remain weak, undermining the recovery in
light-vehicle sales in the U.S.," Standard & Poor's analysts wrote Thursday in
a broad assessment of the election's economic impact. "The most significant
risk of gridlock could be to the economic recovery, which has supported this
sales increase."
After winning re-election, Obama is expected to push for an extension of
the Bush tax cuts for the middle class and the expiration of tax cuts for
families making more than $250,000 a year.
For the auto industry, that could be problematic if wealthy families
scale back their spending. But Plache said 50 percent of car buyers have
household incomes between $50,000 and $125,000, with 16 percent above
$250,000.
"In terms of sheer number of cars being bought, there aren't as many
people on the upper end who would be affected by a rise in tax rates," she
said.
Plache pointed out that an expiration of a temporary 2 percent payroll
tax cut would hurt middle-income taxpayers, but "I don't think that will be
such a big hit because that was a short-term measure and people tend not to
spend based on short-term measures."
Edmunds.com is projecting a 4 percent increase in yearly U.S. auto sales
to 15 million in 2013, up from a projection of 14.4 million for 2012. That
would represent a drop-off from 2012's 13 percent gain.
But Barclay's analysts recently upgraded their forecast from 15 million
to 15.5 million, pointing to pent-up demand and easing credit standards.
Other factors are contributing to sales growth, too. One reason sales
could tick higher is Superstorm Sandy destroyed as many as 200,000 vehicles in
the Northeast, according to an estimate by the National Auto Dealers
Association. That could boost sales in the fourth quarter of 2012 and into
2013.
"Some people did get their cars wrecked," Whiston said. "Some of them are
going to buy used and some of them are going to end up buying new."
Cain, the GM spokesman, said GM is confident that Washington will find
common ground to avert the fiscal cliff.
"There's no reason why we can't continue to grow if we can work through
these issues and challenges," Cain said. "We believe there will be a
solution."
