Auto sales are already expected to fall in the second half, but the drop in consumer sentiment basically ensures that.
In another sign of that sales of new vehicles could face more headwinds in the months to come, the University of Michigan’s quarterly survey of consumer sentiment is flashing some new warning signs for the automobile business.
Vehicle buying conditions were viewed less favorably in August than any time in the last four years, with vehicle prices being judged less favorably than at any time since the close of 1984, according to the latest report from the U-M survey.
Stable pricing has been one of the auto industry’s most salient strengths since the great recession but it’s now being undermined by rising material prices, rising inflation and competitive pressure to install new technology consumers desire but are reluctant to pay for.
The turn in consumer sentiment recorded by U-M also could have a serious impact on future car sales since most consumers take anywhere from three to six months to make a final decision on purchasing a new vehicle.
Carmakers are also facing the prospect of higher tariffs imposed the Trump administration’s trade war battering the industry’s pricing structure.
(Want a good deal? Buy a three-year-old car. Click Here for the story.)
Consumer sentiment, according to U-M, shows rough times ahead for the auto industry.
U-M also reported that overall consumer sentiment slipped to its lowest level since September 2017 with the decline concentrated among households in the bottom third of the income distribution. The dominating weakness reflected much less favorable assessments of buying conditions, mainly due to less favorable perceptions of market prices, U-M prices.
Buying conditions for large household durables sank to the lowest level in nearly four years. When asked to explain their views, consumers voiced the least favorable views on pricing for household durables, including vehicles, in nearly ten years, since October 2008.
Home buying conditions were viewed less favorably in early August than any time in the past 10 years, with home prices judged less favorably than any time since 2006.
(Click Here to see more about the Woodward Dream Cruise 2018.)
The auto industry is expecting a tough sales year in 2018.
“These are extraordinary shifts in price perceptions given that consumers anticipate an inflation rate in the year ahead of 2.9% in early August, unchanged from last month. The data suggest that consumers have become much more sensitive to even relatively low inflation rates than in past decades,” Richard Curtin, the director, noted in his August report.
The report also said some price resistance has been neutralized by rising wages, although the falloff in favorable price perceptions has been much larger than ever before recorded.
“Overall, the data indicate that consumers have little tolerance for overshooting inflation targets, and to the benefit of the Fed, interest rates now play a more decisive role in purchase decisions,” the U-M report added.
(To say goodbye to 17 models going away in 2019, Click Here.)
Meanwhile, President Donald Trump has resumed bashing the Federal Reserve Board for its plans to continue raising interest rates.