US Fiscal Cliff Threatens 2013 Car Sales Recovery
Automakers in the US face uncertainty as unresolved tax and spending policies risk undermining the strong finish to 2012, with analysts warning of a rocky start to the new year.
US carmakers ended 2012 with robust sales, but analysts warn that the unresolved fiscal cliff threatens to derail momentum as the industry moves into 2013. Without a political agreement to avert scheduled tax increases and spending cuts, buyers and manufacturers could face a sharp downturn in the first quarter.
J.P. Morgan analysts expected the US auto industry to close December 2012 with a seasonally adjusted annualised selling rate of 15.4 million vehicles, up 14% year-on-year. That would mark the strongest performance since before the financial crisis, driven by pent-up demand and a late-year push despite the impact of Hurricane Sandy.
However, the prospect of automatic tax rises and spending cuts set to take effect on 1 January 2013 has put both consumer confidence and industry planning on edge. The so-called fiscal cliff, if not resolved by Congress and the White House, could reduce disposable income for millions of Americans and prompt a retrenchment in big-ticket spending, including new cars.
Consumer sentiment and spending plans
A survey of 2,500 US drivers highlighted the potential impact on car-related spending. If taxes increase, more than 26% said they would consider giving up their vehicle and car payment. Nearly four in five would cut back on regular car washes, and 59% said they would rethink the need for a navigation system in their next car purchase. This suggests that even buyers who remain in the market may opt for lower-specification models or delay optional extras.
Dealers and manufacturers are particularly exposed to shifts in consumer confidence around the turn of the year. December is traditionally difficult to forecast, as around half of sales occur between Christmas and New Year. Any last-minute policy developments could have an outsized effect on both monthly figures and dealer inventories.
Full-size pickups and incentives
General Motors’ full-size pickups regained market share in December, helped by increased incentives after a period of lower offers. Ford and Chrysler were also expected to report strong pickup sales as buyers moved to take advantage of year-end deals. The segment’s recovery was a bright spot, but analysts cautioned that any reversal in economic sentiment could quickly hit demand for high-value vehicles.
Industry outlook for 2013
The rally in automaker shares through late 2012 reflected optimism about continued recovery, but this confidence is fragile. If the fiscal cliff triggers broad tax increases and spending cuts, analysts expect a pullback in new vehicle sales, with possible knock-on effects for suppliers, dealerships and factory employment. The outcome will depend heavily on the speed and substance of any political agreement reached in Washington.
For a broader view of how tax and economic policy can affect car sales in other markets, seeSpanish car sales plunge 28 percent after VAT rise.
