The Trump victory has inflicted a heavy dose of uncertainty on the capital intensive global auto industry. Implications range from questionable consumer demand for autos, the future of tariffs (NAFTA) and changes to current and pending regulations which govern the industry.
Macroeconomic
For some time there has been a growing view that US auto sales have plateaued. With that as a backdrop, a Trump administration presents more policy unknowns which may lead to market volatility. That would not be good for consumer confidence – a key factor for vehicle demand.
Trade
President-elect Trump made it clear on the campaign trail that he wanted to impose tariffs on vehicles exported from Mexico into the US. Many of the major operating equipment manufacturers (OEMs) have vehicle production facilities in Mexico, and a few foreign OEMs (VW and Nissan, for instance), have large North American footprints there. At the very least, we believe Trump's presidency will slow the pace of the migration to Mexico for vehicles and parts destined to the US.
Regulation
An agreement between President-elect Trump and a Republican-led Congress to ease regulations relating to fuel economy should be positive for OEMs since it may prove difficult for all of them to meet the US mileage fleet target of 54.5 miles per gallon by 2025. To meet those targets, the next phase of development will likely involve expensive solutions, such as incorporating more aluminum or introducing carbon fiber into vehicles, as well as accelerating the move to an electric fleet. If the new Congress and President agree to extend the deadline by only a few years, it could ease near-term research & development and capital expenditure outflows by potentially billions of dollars.
Regardless of what transpires in Washington over the next year or so, the global supply base continues to consolidate. Mega-trends like autonomous driving, active safety features and weight reduction remain secular tailwinds to the industry.
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This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. This information is subject to change at any time without notice.
© Loomis, Sayles & Co.
© Loomis, Sayles & Co.
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