That doesn’t mean the industry is heading for another severe downturn. It just means that the market demand will slow down over the next couple of years. Overall economic conditions are expected to remain healthy in the United States for the foreseeable future. Wages are rising and so are employment levels. This will maintain a bottom under the light vehicle market for at least the next two years.
Another factor that will affect the demand for new cars over the next few years is their improved durability. Customer satisfaction surveys indicate that the quality of motor vehicles has improved, so many Americans are keeping their cars longer. So the same high quality standards that automakers used to get customers to buy a new car at short notice will now have the longer term effect of keeping them out of the showroom for longer periods of time.
Other factors are on the horizon that could also put downward pressure on sales. The supply of cars and parts made in Mexico and Canada could be affected if the Trump administration pushes through major changes to NAFTA. Manufacturers are also moving ahead with autonomous and electric vehicles, although it is not clear how or when the market will accept them. My best estimate of how long it will take to generate strong market demand for these types of vehicles is over two years but less than 10.
The rise – or dare I say maybe even the fall – in fuel prices will also be a factor in the future direction of market demand for new types of automobiles. Although currently low by historical standards when adjusted for inflation, prices at the pump are increasing in early 2018. Since gas prices are historically relatively low, this lends credence to recent proposals. aimed at raising the gasoline tax for the first time since 1993 to offset some of the costs of a desperately needed but politically difficult infrastructure bill.
In summary, for the plastics processors who supply the automotive industry, the overall market demand for your products this year will not be as strong as it has been in recent years. But despite the current phase of data consolidation, domestic auto sales remain at a historically high level. And for those of you who are exposed to manufacturing facilities and markets outside of the United States, you can rejoice as global motor vehicle sales continue to increase. Research firm IHS Markit estimated that global sales of light vehicles increased 1.5% in 2017, to 93.5 million cars and trucks.
I have one other thought on the demand for plastic parts this year, although I’m not sure if or how it will affect the market. Evidence suggests that because of quality improvements, owners keep their cars and trucks on the road longer. And as mentioned above, the ratio of vehicles to licensed drivers is at an all time high. Therefore, it occurs to me that these two trends may put upward pressure on the demand for spare parts.