Whether it’s saturation or just good marketing, the sales of new vehicles have declined in March for the first time in two years and it has some pondering its effect on the wider economy, including jobs and fuel consumption.
2016 was the best year for vehicle sales in the U.S going back 11 years. The rapid acceleration followed by what appears to be a slowdown in purchases means that the number of unsold cars and trucks has built to over 3.2 months, the highest level of auto inventories during any period of economic expansion going back to 1989. More worrisome is that even as automakers keep boosting incentives, cars are not leaving the lots. Instead, the sharp rise in unsold products forebodes a slowdown in overall consumer spending, given the significant role robust auto sales played in recent economic expansion accounting for nearly 22% of the value of all retail activity last December.
Although economists have conceded that the slump in auto sales will have a negative impact on U.S. GDP (Gross Domestic Product) with car sales accounting for 2.6 % of total GDP, the effect will not go unnoticed. Slower demand and bulging auto inventories will see manufactures throttle back on production schedules, leading to a slowdown in working hours affecting jobs and incomes. In turn, there is a sense that oversupply of new vehicles could bring about an unforeseen drop in demand for fuel as more expensive pump prices now and expected in 2017-2018 may have some rethinking the idea of cheap new transportation. Bad news on the automotive front isn’t just a U.S. concern. Canada, Mexico, Asian and European suppliers and markets could also feel the effects, which in turn could dampen economic prospects and global trade.
Though it’s not a chicken or an egg question, the important role of auto manufacturing plays a decisive role in the consumption of global transport fuels where fully half of all the world’s oil is destined. As a slowdown in the world’s most lucrative vehicle market brings a cautionary twist to the price could pay at the pumps in the months ahead.