During our August 11 Market Pulse webinar, our experts discussed details pertaining to the automotive industry, as well as, the latest economic update, small business insights, and consumer credit trends.
This month’s presenters included Steve Greenfield, CEO of Automotive Ventures; Jeff Jensen, Vice President at Keybridge; Sarah Briscoe, Lead Commercial Statistical Analyst at Equifax; and Tom Aliff, Risk Consulting Leader at Equifax.
Our presenters followed up with audience members’ questions* about GDP growth, inflation, and EVs.
Presenters answer the many critical questions below on the future of the automotive industry.
Watch a replay of our August webinar, “Market Pulse: The Future of the Automotive Industry” or download the presentation.
Since 1945, every time there have been 2 successive quarters of negative GDP growth, a recession has been declared. With consumer stress depleting and savings rates below their long term average (2005-2018), is it safe to say that consumer spending is driven by inflation, propped up by savings from 2020/2021?
Jeff Jensen: Recession vs. two quarters of negative growth: previously, when the economy has contracted two quarters in a row, a variety of economic indicators are also flashing red. When determining the timing of a recession, the National Bureau of Economic Research looks for a significant decline in economic activity that is spread across the economy and lasts more than a few months.
The main things they consider are (1) real personal income less transfers, (2) nonfarm payroll employment (i.e., job growth from perspective of employers) (3) employment as measured by the household survey (i.e., job growth from perspective of employees), (4) real personal consumption expenditures (i.e., inflation-adjusted consumer spending), wholesale-retail sales adjusted for price changes (i.e., inflation-adjusted retail spending), and industrial production (i.e., factory activity). Most of these metrics continued to show strength despite negative GDP growth, which is why we believe it is unlikely a recession occurred in the first half of the year -- though it is hard to imagine the economy continuing to contract in real terms unless these indicators also weaken.
When it comes to consumer spending and inflation, yes, it is fair to say that spending totals have been boosted by higher prices (which, thus far at least, consumers have been generally willing to pay without significant cutbacks elsewhere), as well as higher savings in 2020-21. Part of consumer resilience is likely due to the trillions in Federal support spent in 2020 and 2021; part is due to reduced spending in 2020-21, both because of pandemic restrictions, but also due to programs that allowed consumers to defer payments like rent, mortgages, and student loans (the latter is still in place); part is due to a high rate of employment across the economy (with strong nominal wage growth to boot, especially at the lower end of the income spectrum); and part is due to strong stock market performance since 2020.
Looking ahead, there are signs of rising consumer stress among lower-income consumers and those with lower credit scores, but generally consumer stress is below pre-pandemic levels. Whether it stays there will hinge on the Federal Government's ability to tame inflation and achieve a "soft landing." Most economists are skeptical of the Federal Government's ability to do this, but time will tell. So far, the labor market has withstood rapid rate hikes without missing a beat, but more hikes are undoubtedly on the way.
What about the issue of batteries? How do we recycle them? How expensive is it to replace them?
Steve Greenfield: I believe there will be a wave of new companies that help with battery recycling: either extracting and repurposing raw battery components like Lithium, or refurbishing and repurposing the whole EV battery (for example to provide a buffer to the grid for EV chargers).
Will vehicle subscriptions see an increase as an option for purchases with EVs? How soon would we see models that are eligible for the new tax credits that have been announced?
Steve Greenfield: I believe that the Captive Finance companies will continue to explore subscription/lease hybrid models like Volvo Cares. I think there is a far greater opportunity for the subscription model for used vehicles.
Is there fear that China entering the US market with their EV capabilities will be detrimental to the US automakers?
Steve Greenfield: Yes. I believe that many Chinese OEMs will eventually enter the U.S. market and will take market share from the legacy OEMs.
* The opinions, estimates and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published herein represent the views of the presenters as of the date indicated and do not necessarily represent the views of Equifax or its management.