When will the good times stop rolling in the U.S. auto industry? To anticipate the next downturn, a new Standard & Poor's report says automakers and suppliers should keep an eye on two key indexes.
One is the Institute for Supply Management's manufacturing purchasing managers index, which is based on a survey of supply managers for durable goods manufacturers. The other is the Federal Reserve's Capacity Utilization Index for motor vehicles and parts.
S&P says a reading above 50 percent for the ISM index indicates manufacturing is expanding in the U.S. Below 50 percent means it is contracting. S&P found that each time since 1983 the index fell below 43 percent, "speculative grade" automotive companies soon became distressed. The same was true every time the Fed's utilization rate fell below 72 percent during the same period.
Where do they stand now? The ISM was at 50.2 percent at the end of September, and the capacity index stood at 78 percent. So don't panic yet.
And, as the S&P report's author notes, OEMs and suppliers are in better shape to handle future downturns than they were before the last one.