Auto funk or Trump bump? Market awaits clues

Just as U.S. auto sales stagnate after six years of steady growth, the industry faces an added jolt of uncertainty in the form of President-elect Donald Trump.

But despite some panic trading on global stock markets in the hours leading up to Trump's victory last week, the surprise outcome did little in the days afterward to shake automakers, dealers or car shoppers.

There's also the possibility that Trump's plans to stimulate economic growth and re-evaluate federal emissions standards ultimately could spur higher new-vehicle sales and bigger profits for automakers. The Dow Jones Industrial Average surged to record levels in the days after the election, a positive omen for near-term auto demand.

Long term, major changes to or cancellation of trade deals -- or tariffs on vehicles that Ford Motor Co. intends to import from Mexico starting in 2018 -- could dramatically reshape the industry's manufacturing footprint.

How the economy reacts to the Trump administration's moves will determine whether interest rates on auto loans stay low or rise quickly. And if the Republican-controlled Congress implements the massive tax cuts Trump has proposed, many consumers would have more money to spend on new cars and trucks.

In the months before Trump takes office, dealers and automakers are hoping for a strong close to one of the best years in auto-sales history and looking for clues to what economic changes lie ahead in 2017.

"What is needed is clarity," Steven Szakaly, chief economist for the National Automobile Dealers Association, said in an analysis sent to its members. "A clear set of economic policy goals delivered before the new year would go a long way to ensuring that any immediate uncertainties are smoothed over."

Meanwhile, if some Hillary Clinton supporters are too depressed and fearful to shop for cars at the moment, there are plenty of Trump voters who may feel invigorated by their candidate's victory. November and December are crucial months for automakers, which offer some of their biggest sales around Thanksgiving, Christmas and New Year's Day to finish the year on a high note and thin out lots before the slower winter season.

"This is very much a country divided, and on some level that applies to the car market, too," said Rebecca Lindland, senior analyst with Kelley Blue Book. "Half the people are going to be celebrating and half are going to be in mourning. This result may actually bring out some of those people who have been waiting on the sidelines dreading a Clinton administration."

KBB is watching the market and evaluating whether it needs to change its forecast for 2017 U.S. sales, Lindland said. It currently expects automakers to sell between 17 million and 17.5 million next year, about the same or slightly lower than the record 17.47 million sold in 2015. Sales are on pace for about 17.4 million this year.

"There's more uncertainty with a Trump administration than there was with Clinton's," Lindland said. "People don't like uncertainty, and Wall Street especially doesn't like uncertainty. The sooner we can understand what this administration looks like,the better off we'll be."

For dealers, Trump's plan to cut income tax rates could spur more investment in their stores and employees, in addition to a greater potential for consumers to make big-ticket purchases. A repeal of the Affordable Care Act -- Obamacare -- also could decrease dealers' costs.

The uncertainty created by Trump's win could compel the Federal Reserve to delay plans to raise interest rates, a key variable in auto sales.

"It raises the odds that the Fed will not move in December," Mark Zandi, chief economist of Moody's Analytics, told Reuters. On the other hand, some analysts argue that Trump's ambitious economic agenda could compel the Fed to raise rates faster than previously anticipated.

Months before the election, Ford had already begun pointing out economic risks, and it has cut production at six North American plants in recent weeks. General Motors last week said it would move two plants in Ohio and Michigan to two-shift operations in January, cutting about 2,000 jobs.

GM said the decision was not linked to Trump's victory but rather was a reaction to slowing sales of cars. One of the shifts was added only about six months ago to build the redesigned Chevrolet Camaro, sales of which were down 9 percent through October.

Both GM and Ford released statements saying they look forward to working with Trump to strengthen the industry, but neither addressed how his election could affect their growing manufacturing operations in Mexico. Trump was particularly vocal on the campaign trail about Ford, calling the company's plan to end small-car assembly in Michigan "a disgrace."

Cadillac President Johan de Nysschen, speaking at a conference in Portugal the day after the election, said GM had done "contingency planning" for a Trump win but moving work back into the U.S. isn't practical.

"We have significant capital investments we have made into the plants," de Nysschen said, according to the Financial Times. "It's important to note that we produce for the global stage, not only for North America. We're able to divert a lot of Mexican production to serve other global markets that require our vehicles. I think that we will be able to accommodate whatever new developments lie in store."

Regardless of anything Trump does to regulate vehicle production, stable consumer demand is the bigger concern for automakers. Szakaly, the NADA economist, said he expects spending on new vehicles to continue largely unaffected, given that unemployment is at historic lows.

"Over the medium and longer terms, Trump's stated or understood policy objectives will produce significant positive tailwinds, particularly as they direct us to lower corporate taxes, increased infrastructure spending and reduced regulation across all aspects of business," Szakaly said. "If increased infrastructure spending happens and certain tax cuts materialize, it will mean a better long-term outlook than what's in front of us at present."

But because Trump made so many exaggerations and conflicting statements on the campaign trail, the industry has to wait to find out which of his proposals he intends to pursue seriously and how much of his strong rhetoric was just for show.