Market research analysis company Commodity Inside has released its report, “A Ten Year Strategic Outlook for the North American Automotive Market,” to provide insights into the current state of the auto industry and its future direction.
Overall, Commodity Inside believes that changes in the North American light vehicle market will result in the industry entering a very precarious condition. At the same time, the upcoming overhaul to the industry will simultaneously create both threats and opportunities for American automakers.
The report cites Donald Trump’s pledges made during his election campaign, including tariffs on imported vehicles, bringing jobs back to the United States, border adjustment tax, and severe consequences for auto investors outside the U.S.
Commodity Inside’s report aims to determine how much of Trump’s plans are achievable without disrupting the very fabric of the auto industry, which is highly global and integrated, and depends on a complex supply chain structure. The U.S. administration certainly appears to be committed to supporting the country’s automotive industry, which has the potential to increase the capacity utilization domestically. At the same time, any non-market driven investment decisions made by OEMs can result in significant consequences. The report indicates that there will most likely be some growth in U.S. production in the short term due to reducing imports, which may cause high marginal costs and distortions in the regional automotive supply chain.
Commodity Inside believes that revising NAFTA through imposing tariffs on Mexico will take a significant toll on the auto industry. Due to the fact that Mexican vehicles’ exports to the United States are dominated by B and C category cars, which already have small profit margins, the imposition of large tariffs may be passed down to consumers. There is less scope for a significant rise in the production of these categories of cars in the U.S. because of limited capacity, while buyers would also have less room for substituting B and C cars with high-end vehicles due to constrained consumer surplus. Commodity Inside therefore believes that there will be a significant loss of sales, as well as a delay in buying decisions.
“Commodity Inside ascertains that the overall U.S. production utilization is currently at high levels,” the report summary says. “So, beyond a certain threshold, any additional demand created due to trade diversion would be hard to meet without additional investment domestically. Building new assembly plants or relocation would not be feasible in the short run, and any such attempts would be untenable without understanding the long term dynamics.”