Hyundai CEO John Krafcik fears the DC debt crisis and government shutdown are already taking their toll.
Considering the unexpectedly sharp slowdown in September car sales, automakers are clearly nervous about the impact of a continuing government shutdown and in near-panic mode when the subject of a government default is raised.
A bit more than halfway through October, industry analysts are still struggling to get a read on the data they’re getting from dealers around the country, but signs suggest the month is not bringing the hoped-for rebound. How much of that is due to a shutdown now in its third week – and the threatened debt default – is unclear, but there are growing signs that Washington’s political morass is at least a factor.
“Dealers I’ve spoken with have been seeing potential customers who are deferring purchases because they’re nervous,” reports analyst Joe Phillippi, of suburban New York-based AutoTrends Consulting. “So far the impact has been modest,” he contends, but Phillippi quickly warns that a default “would be Armageddon.”
Considering there are an estimated 800,000 government workers on furlough, industry planners and observers say that should have at least something of an impact on sales. Meanwhile, Hyundai’s top U.S. official revealed that about 1,000 of the maker’s customers have already taken advantage of its offer to defer loan payments for furloughed federal employees. (Toyota, meanwhile, has announced a similar deferment plan.)
“Industry-wide, we’re definitely seeing a slowdown in October,” said Hyundai CEO John Krafcik, who expressed his concerns in several interviews this week, adding that “It’s that anxiety that keeps customers, potential buyers, on the sidelines when making a big purchase like an automobile.”
The Hyundai chief said he would not be surprised if such concerns trim October sales by as much as 10% compared to where they might otherwise have been.
(Click Here for more on September’s sputtering car sales.)
But it’s not just the uncertainty factor that could play against the auto industry – and much of the rest of the economy – if lawmakers fail to reach a compromise on the deficit limit this week. It has been widely forecast that such a failure would result in increased borrowing costs not only for the government but for U.S. consumers, as well, which analyst Phillippi stresses “is going to be the real issue. If interest rates on automobiles goes up even from 4% to 5%, that would have a pretty nasty impact on purchasing.”
A less-than-scientific study by automotive pricing site Kelley Blue Book found 18% of those who had been planning to buy a new car during the next six months are now planning to wait until the budget issues are resolved before closing a deal.
(GM, VW battle for sales leadership – in China. Click Here for that story.)
Considering the possibility that any immediate budget and deficit compromises might just punt a longer-term resolution into 2014, that could still leave many potential car buyers sitting on the sidelines.
“The longer this issue goes unresolved,” said General Motors spokesman Greg Martin, “will not help the industry keep up its strong pace.”
(Government shutdown could delay launch of some new models. Click Here for more.)
U.S. auto sales had been far and away exceeding initial expectations for most of this year. The general consensus had been for volumes to run somewhat above a 15 million pace, with a few optimists looking at 15.5 million. But the summer saw the seasonally adjusted annualized rate, or SAAR, start nudging closer to 16 million.
September brought an unexpected dip of 4.2% year-over-year — though the numbers were somewhat distorted by a fluke in the industry’s calendar which put Labor Day deals into booming August’s report.
Nonetheless, “We all thought September would be stronger than it was,” lamented Joe Hinrichs, President of the Americas for Ford Motor Co.
Hinrichs wasn’t ready to say what impact the government shutdown has been having so far, but in an impact with TheDetroitBureau.com he said he was “hopeful” Congress would “find a resolution that makes sense of the American people. I don’t think the government will let the U.S. default.”
He’s certainly not the only one hoping for a positive outcome but worrying about a worst-case scenario. Asked about a possible default, mega-investor Warren Buffett told CNBC, “I don’t think it will happen, but if it does happen, it’s a pure act of idiocy.”