WASHINGTON — In January 2017, gauging whether the administration of President Donald Trump would be pro-business or populist was a challenge.
One year into the administration, it still is.
Industry watchers say 2017 proved to be positive on balance, especially with the late enactment of tax legislation. But they're still unclear about the potential risk to their bottom line from government policies in the years ahead.
Republicans control Congress, but legislative achievements were difficult to attain. Political analysts give Democrats a solid chance of retaking the House, if not the Senate, in midterm elections, which could slow any progress toward regulatory liberalization.
"On average, it was a good year for the industry. There was some easing of regulatory restrictions, but there are still a number of questions, such as uncertainty over NAFTA," said Mark Aiello, co-chairman of the automotive industry practice at law firm Foley & Lardner.
"Some regulations were changed, others were not and some are under discussion. So, it's a mixed bag at this point."
The president last month signed legislation lowering corporate and individual tax rates. Workers could start seeing larger paychecks sometime next month, although changes to the standard deduction and caps on itemized deductions could hurt certain taxpayers. The tax package also reduced rates for closely held partnerships such as auto dealerships, while retaining interest deductibility for floorplan financing.
The tax cuts will benefit bottom lines, but no one can say for sure whether the extra income will spur car buying. Plus, the complexity of the bill and the speed with which it was passed will create unintended consequences requiring legislative and administrative fixes that have yet to be worked out, said Dave Regan, executive vice president of legislative affairs for the National Automobile Dealers Association.
Gains from tax cuts could be offset by other factors, said Kristin Dziczek, director of industry, labor and economics at the industry-sponsored Center for Automotive Research. Most Americans will see incremental pay increases rather than a one-time check, and a large portion of the cuts go to people wealthy enough to buy a car at will. Add to that expected increases in interest rates and a potential contraction in credit due to the increase in subprime defaults, and it's not clear whether the tax cuts will spur consumer demand, she said.
"On the economy, Trump is a bit of a mixed blessing for the industry," said Charlie Chesbrough, senior economist at Cox Automotive. "The increase in the stock market, as a result of his deregulatory policies, has raised the net worth of car buyers, especially higher-income folks, so that's been a net plus," along with the tax cuts.
"At the same time," he added, "the real risks in the vehicle market come from government policy either in interest rates that come too fast or too soon, or some fiscal or trade policy that could have negative implications."
The threat of a prolonged government shutdown also looms large over the auto market. Lawmakers on Monday reached a short-term agreement to end a three-day shutdown amid differences over immigration and spending. The deal keeps the government open through Feb. 8. But a short-term spending deal wouldn't eliminate the threat of another shutdown later. If the government closes, hundreds of thousands of federal workers will be temporarily furloughed, which will reduce consumption.
"The economy has been doing very well, but it's also at a late stage in the business cycle," Chesbrough said.
"So, it could be more vulnerable to the shock of a government shutdown where people are not paid, which could have a very detrimental impact on the economy and vehicle sales."