The final week of 2018 could offer some critical signals both for future car sales and the future course of the U.S. economy, which has been rattled by tumbling stocks and noisy political fights about the independence of the Federal Reserve Board and the government shutdown triggered by a bitter partisan fight over funding for President Donald Trump’s border wall.
During the last two decades, December has become one of the busiest months of the years for new vehicle sales. Manufacturers have packed have been advertising year-end deals since before Thanksgiving, and carmakers also have uncorked the incentive cash.
But the end of the month is traditionally the period when dealers close a large number of sales and it is yet to be determined whether turmoil surrounding the stock market and in Washington D.C. will actually have an impact on sales of new vehicles.
Before Christmas analysts had been predicting that 2018 would end on a high note.
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For example, Edmunds’ analysts have predicted that 1.6 million new cars and trucks will be sold in the U.S. in December for an estimated seasonally adjusted annual rate or SAAR of 17.4 million units, which represents a 16% increase in sales from November 2018 and a 0.3% increase from December 2017. They also predicted that December is expected to be the second-best auto sales month of the year, pushing full-year auto sales for 2018 to 17.3 million, exceeding 2017’s total of 17.2 million vehicles.
While consumers typically take up to six months to make up their minds about buying a car and thousands of cars are coming off lease this week, the robust prediction is bound to be tested this week particularly by the turmoil in the stock market, which now fallen into bear market territory punctuated by the 653-point drop on Christmas Eve.
The stock market and new vehicle sales have moved in lockstep since the Great Recession ended in 2009 and carmakers have been quick to acknowledge profits from rising stocks have helped finance the sales of new vehicles. The impact of a bear market, however, is still to be felt.
Meanwhile, Trump’s criticism of the Federal Reserve Board rate hike has served to remind consumers that interest rates on all kinds of loans are rising during one of the year’s biggest weeks for new vehicles sales.
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Car dealers are already nervous about rising rates, the National Automobile Dealers Association noted earlier this month.
The Federal Reserve’s move to increase rates again directly affects the cost of mobility in America. According to Cox Automotive Chief Economist Jonathan Smoke, “Auto loan rates are at a more than seven-year high. If we see rates move up by more than a quarter point, they will be in the range we saw back in early 2011 and before that 2004. The era of low auto loan rates is clearly behind us,” Smoke added.
Meanwhile, the stimulus from the 2017 tax cut is fading.
“Put yourself in the shoes of a chief executive officer of a major company. The economy is in the ninth year of an expansion that’s already one of the longest in U.S. history, and in 2018 you get a big pile of money dropped in your lap. Does expanding make sense when you’re already worried about this being the top of the economic cycle?” noted a Bloomberg commentary.
(Beating predictions, 2018 new car sales to surpass 2017 results. Click Here for the story.)
“For the average CEO, it didn’t. America’s biggest companies instead chose to protect their profits by using their tax savings to offset risings costs, including for labor, transportation and imports caught up in the trade disputes. While they may be politically unpopular after the president and GOP leaders promised their tax law would unleash expansion in the U.S., analysts see those moves as prudent,” the commentary added.