Like the reality television star he used to be, President Donald Trump knows about to tease an audience. While visiting Detroit last week, the president promised a “very big announcement having to do with your industry” while talking before a group of auto industry executives and workers in a former assembly plant.
He wasn’t about to tip his hand. “Let’s keep them guessing back there,” he said referring to the throng of journalists.
While in the emotional center of the American auto business last week, the president stopped an Obama-era effort to raise fuel economy standards to 54.5 miles per gallon by 2025. Dropping the regulation brought applause from the industry. Trump also has promised to redo the North American Free Trade Agreement with Mexico. Vehicles and vehicle parts represent one of the largest categories of Mexican-made imports into the U.S.
Whatever the presidential proclamation in the week ahead, the auto industry has experienced two consecutive years of record sales. Since his election, the stocks of General Motors and Ford have roughly tracked the overall SP 500 — GM has done slightly better, Ford slightly worse.
But the business of selling cars and trucks to Americans could be getting more difficult. Borrowing money to buy a car or truck likely will be more expensive as the Federal Reserve raised interest rates. Twenty-sixteen saw a record amount of subprime auto loans and already some of those high-risk borrowers are having a tough time making their payments. Late last year, New York Federal Reserve economists estimated six million subprime car buyers are at least 90 days late on their loans.
The auto industry has a huge impact throughout the broader economy. The Center for Automotive Research has estimated every job with an automaker is worth another seven. Record auto sales come with other spending — from accessories to sales taxes. So while the president has promised a big announcement for the auto industry, what it really is, is a big announcement for the economy.
Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.