A Bumpy Road Ahead for the Auto Industry
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A Bumpy Road Ahead for the Auto Industry

Much like the overall American economy, the U.S. auto industry has matured significantly over the past 30 years.  Cars never been safer and more efficient than they are today.  Combine this improved quality with historically favorable financing options and it is no suprise that more Americans than ever before have been able to obtain a vehicle.  Despite these technological improvements and favorable economy that are signs that the auto industry may be in for a bumpy ride in the relatively future.

On the positive side, auto-makers did a outstanding job fighting through the financail crisis when unemployment was hovering near 10% and demand was low.  Fast forward to today and unemployment rests at a 50-year low!  As more workers have entered the workforce, incomes have rose and Americnas went car shopping.  After the foreclosure mess of 2009, banks became enfatuated with auto loans.  Lending for cars became attractive for banks because the empircal evidence of 2009 demonstrates that in lean times people tend to prioritize their car payments over other financial obiligations.  So much so that during the financial crisis many borrowers chose losing their home over their car.  Now 10+ years later, banks have begun extending credit to lower credit borrowers believing that these loans are safe. While lending standards have not deteriorated to levels seen during the financial crisis deliquency rates are rising.  Auto loans that are 90-day past due 4.7% of outstanding loans within striking distance of the financial crisis high of 5.3%. 

With any weakness in the labor market the auto industry is at risk of seeing deliquency rates jump higher.  This is a product of 45 million Americans carrying student loan debt on their credit files and the increased cost of owning a home.  Put together there is likely to be less and less room for car payments in household budgets in the future.  

In addition, the car industry is faced with structural changes  not seen in the 100 plus years since Henry Ford invented the automobile.  These titans of industry are faced with reshpaing supply chains, auto-designs, retraining dealers and overhauling their entire business to meet the growing demand for EV vehicles.  Even though these companies are likely to succeed ithere is little doubt in our mind that the process will be costly.

However, most importantly is the subtle but visible fundamental shift away from car ownership.  Ride-sharing and a preference for urban living has turned transportaiton into an on-demand event.  Getting by without a car is entirely feasible for many Americans today.  Combined this with the fact that autonomous vehicles (while further away from mass consumption) will decrease the need for car ownership it seems the industry has lots to be worried about.