So far, so good; but politics will take a toll
Today is an interesting juncture. On one hand U.S. automakers are reporting a fourth straight rousing sales month. On the other, it’s the first day of sequestration -- remember that poison pill Democrats and Republicans agreed to in 2011 as a way to guarantee future cooperation -- and $85 billion in automatic federal spending cuts this year.
Shall we, as an industry, check our pulse? Today, pretty strong. So far, little discernible effect on auto sales.
Nor much effect, so far, from the higher 2013 individual tax rates stemming from the year-end fiscal cliff deadlock: the end of a Social Security payroll tax holiday and higher tax rates for individuals earning more than $400,000.
And no noticeable decline in new-car purchases, so far, because down payments funded with tax refunds have been delayed because the fiscal cliff debate kept the IRS from issuing all the forms taxpayers need to file.
So far, so good this new sales year.
But we’re only two months in. And the next manufactured political crisis is less than four weeks from now. If the Republican-controlled House and Democratic-controlled Senate don’t act by March 27, the entire federal government shuts down. Then in May, it’s another death match on whether Uncle Sam defaults on debt.
We can expect a series of additional planned showdowns between the two parties.
And eventually, the wrangling over the pace of reducing federal deficits will take a toll on auto sales -- either directly by reducing economic growth, or indirectly by rattling consumer confidence.
Fed Chairman Ben Bernanke warns that front-loading deficit-fighting efforts into the short term “could create a significant headwind for the economic recovery.”
The best news for the auto industry on the political front is that, increasingly, consumers are simply ignoring the noise out of Washington. Fewer are even listening.
Sentiment is one thing. Dollars and cents are another. For a family with annual wages of $60,000 -- smack in the middle of new-car buyer territory -- the additional 2 percent tax on Social Security whacks take-home pay by $100 a month.
Now we’ll add sequestration layoffs. And continued uncertainty about what Washington will do next adds to budgeting anxiety, for individuals and at the federal, state, county and municipal levels.
Say you’re running a local police force and you have no idea if that federal block grant will stay or be cut. Do you cut jobs, or defer buying patrol cars? If you’re a cop with your job on the line, do you buy a new car this year?
That dynamic now runs through every federal agency and everybody else financially dependent -- even partially -- on Uncle Sam.
I’m still upbeat about auto sales this year. But whatever volume growth dealers pull out of this year is entirely about a strong, underlying economy, pent-up demand, available credit and sturdy consumers. And despite politicians.
You can reach Jesse Snyder at email@example.com.