Editorial: Auto forecast should guide Trump's trade policy
The domestic automobile industry has been chugging along so nicely over the past decade that we've almost come to believe the unsettling up and down cycles that have dogged automakers throughout their history are a thing of the past.
A sobering forecast from Bank of America Merrill Lynch should disavow us of that delusion. And it should inform President Donald Trump's approach to trade policy. Senior Auto Analyst John Murphy predicts the industry will suffer a 30 percent drop in sales in 2022, ending an unusually long string of strong sales years that began in 2010.
If Murphy is right, the sharp drop-off will present a challenge to automakers that's different than they've faced in the past.
This is an industry that needs to generate large amounts of cash to sustain its two-front strategy. It must have the resources to keep fresh, attractive product in the showrooms to generate profits that will fuel the push to beat Silicon Valley in bringing autonomous vehicles to market.
The last thing they need heading into a possible downturn is for the federal government to be adding degrees of difficulty to their business.
Trump has weaponized tariffs. His levies on imported steel and aluminum drained billions in profits from industry. The auto companies are also facing his threatened 25 percent tariffs on foreign-made vehicles and auto parts, and additional levies on Chinese goods this fall.
If those materialize, the price of cars and trucks will be forced upward just as market demand is sliding downward.
Congress should also pay attention to Murphy's forecast. The automakers need certainty of trade policy as they plan for the future. Trump has presented lawmakers with a renegotiated trade deal with Mexico and Canada to replace the dated North American Free Trade Agreement.
But the Democratic-controlled House is bottling it up, placing ever greater conditions on a deal that is already very friendly to their labor constituents. Getting the United States, Mexico, Canada Agreement (USMCA) signed would help stabilize an industry that still is a major driver of the American economy.
Automakers are better prepared to weather a coming downturn than perhaps they've ever been, thanks to their ability to more nimbly adjust capacity.
The companies also have a lot of exciting vehicle launches planned over the next four years that could help lure reluctant customers into showrooms.
But recessions are never fun, and never painless.
The president and Congress should do their part to make sure a significant slump, if it comes, isn't compounded by destructive policies from Washington.