With little sign of progress in Washington and a default deadline looming, there is growing unease in the automobile industry about the impact that a prolonged government shutdown could have on car and truck sales.
So far, the effect has been minimal — perhaps a modest decline in sales in the greater Washington, D.C., region that analysts say will quickly be made up once Uncle Sam resumes signing paychecks to his workers.
But if the Obama administration and lawmakers are unable to reach a compromise that gets the government back to work and avoids a default on the nation’s debt, the impact on the auto industry could soon be far more serious.
“The longer it drags on, the more serious it becomes. It potentially has the ability to derail the momentum the industry has built over the past couple of years,” said Jeff Schuster, vice president of vehicle forecasting at LMC Automotive. “It goes well beyond the furloughed federal employees. It’s all about consumer confidence.”
Ten days into the shutdown, consumer confidence has proven remarkably resilient. But Schuster says it will get shakier with each passing week. If the stalemate continues into November, he believes many consumers will decide to put off major purchases.
Michael Robinet, managing director of IHS Automotive Consulting, agrees that consumers can only take so much uncertainty.
“None of this is good for the automotive industry — especially if it extends past that magic four- or five-week time period and begins to really affect consumer confidence,” he said. “If you start to go past three, four or five weeks, you start to impact personal budgets.”
Detroit’s automakers are putting on a brave face, at least publicly.
“We are optimistic that our government leaders will come together in support of a solution that funds the U.S. government and avoids significant disruptions to our still-fragile U.S. economy,” Ford Motor Co. said in a statement Wednesday. “Clearly, it is too soon to say whether the U.S. government shutdown will affect U.S. sales going forward.”
General Motors Co. says it has not seen any impact on vehicle sales yet. But GM’s vice president of U.S. sales, Kurt McNeil, said Oct. 1 that consumer sentiment — and auto sales — could be hurt if the shutdown lasts more than a couple of weeks.
“The current political stalemate comes at a critical time when the U.S. economy, and auto sales in particular, were gaining strength,” GM spokesman Greg Martin said in a statement Wednesday. “Continued inaction could put this progress at risk by eroding consumer confidence and creating market uncertainty.”
Privately, some auto executives say they are growing more concerned about the situation as the deadline to raise the nation’s debt ceiling approaches. However, many have a hard time believing politicians could actually allow the country to plunge off this latest fiscal cliff.
So does Edmunds.com Chief Economist Lacey Plache. While she has little hope that the White House and Congress will finally resolve the nation’s underlying financial problems, she also has little fear that they will allow the U.S. to default on its debt. Plache believes the government will find a solution that kicks the can down the road again by about Nov. 1.
“It’s too soon to be overly concerned. At most, we might be seeing some delay in car purchases by furloughed employees,” she told The Detroit News. “We’ll probably see some hit to sales this month, but we’ll probably see a strong finish to the year.”
That is because any furloughed government employees who forgo a new car purchase this month are likely to head for the dealership as soon as they start getting paid again.
However, if America’s elected leaders fail to resolve the crisis, the consequences could be dire for an industry that still has not fully recovered from the last financial meltdown.
The last time U.S. auto sales tanked was in 2008. Then, car and truck sales in the rest of the world were relatively strong. Europe had not yet entered its own recession and important emerging markets such as China, India and Brazil were witnessing a surge in demand for new vehicles.
Today, the global picture is a lot less rosy. Europe remains mired in its own sovereign debt crisis. China’s economy is cooling faster than most expected. India is watching its currency implode. And Brazil is not seeing the boom many predicted would come from its hosting of the World Cup and Olympics. In fact, America has been one of the few real bright spots in terms of worldwide auto sales in recent months.
“Right now, the world needs the United States to continue its recovery at this pace,” Schuster said. “(It’s) helping keep things afloat, especially for global manufacturers.”
Melissa Burden and Karl Henkel contributed.