Feeling the pressure

The United States automotive market will face several headwinds in the first half of this year as financing options remain expensive for retail buyers.

In the years following the COVID-19 pandemic, the U.S. Federal Reserve rapidly cut interest rates to help the economy rebound from the resulting downturn, making the past few years conducive for purchasing a new vehicle. However, as inflation mounted, interest rates climbed to multiyear highs in 2024, leading to a challenging environment for dealerships.

Data from Statista show a slowdown in car sales over three years. In 2022, light vehicle sales amounted to 13.8 million units, according to Statista via Ward’s. In 2023, sales grew 10.9 percent to 15.5 million units, the highest number since 2019 (16.9 million units). Predictions for 2024 range from 15.7 million to 15.8 million units, according to estimates from the National Automobile Dealers Association and Cox Automotive, showing a minimal increase from 2023. Looking at this year, analysts see sales ranging from 14 million to 16 million units, reflecting a flat trend at best and a 12 percent drop at worst.

Garey Rittenhouse, president of Maryville, Tennessee-based Regional Metal Services Inc., says the primary reason for the bearish outlook is the escalation of negative carry costs such as higher purchase price, finance rates, insurance and depreciation for consumers in the near term. The hike in these costs has outpaced the increase in real disposable income at the household level at a rate not seen since the 1990s.

Changes in production rates

As for automotive production, it appears most traditional domestic producers such as Ford, General Motors (GM) and Stellantis need to slash production capacity rapidly to normalize inventories being carried by dealerships in the first half of this year.

Some visible signs of weakness in the automotive sector include discounts on sticker prices and zero-rate financing being offered by dealerships to help liquidate inventory.

Stellantis seems ahead of the curve, having laid off thousands of employees across its plants in Detroit and Ohio in late October of last year. The company also intends to slow down production early this year to manage inventories.

Meanwhile, other automakers that took steps to keep inventory in check since 2022 will have more time to make adjustments and could allow for demand to rebound in the coming quarters before making decisions.

EV market slowdown, policy changes

Data from London-based Rho Motion show electric vehicle (EV) sales in the U.S. and Canada increasing 9 percent to 1.4 million units from January through October 2024 from the prior-year period. The report notes the U.S. and Canadian markets continue to grow at “a steady pace,” however, actions producers are taking show the pace is slowing compared with the double-digit increases seen in previous years.

In October, Toyota announced that it was delaying the launch of EV production at its site in Georgetown, Kentucky, to the first half of 2026 from an earlier projection of late 2025. On a global scale, Toyota has cut its 2026 EV production guidance by 33 percent to 1 million units given sluggish demand.

Similarly, GM indicated it cut its EV production target for 2024 by 50,000 units to 200,000 to 250,000. Paul Jacobson, CEO of GM, said these changes were needed to meet the slower-than-expected demand for EVs and to maintain profitability as inventory needed to be managed to prevent oversupply that could lead to deep discounts.

On the other hand, Ford has delayed production of its three-row electric SUV in Oakville, Ontario, to 2027 from an earlier timeline projected for this year. The automaker suggested the delay is to enable consumer demand for EVs to improve while battery technology reaches a more developed phase.

While large U.S. automakers take the necessary steps to reduce their inventories and better account for consumer demand, the most important development in the EV market could come from a policy change.

U.S. President-elect Donald Trump has indicated he plans to abolish the $7,500 consumer tax credit offered by the federal government for EV purchases.

The U.S. Treasury has allotted more than $1 billion in these tax credits since January 2024, accounting for about 150,000 EVs sold through October of last year under the policy. Therefore, a large part of EV sales is driven by incentives. This potential change could decelerate growth and impede the transition to EVs.

Impact on metal consumption

Aluminum and high-grade steel are two of the most widely used metals in automotive production. In the fourth quarter of 2024, many aluminum producers, both at rolling mills and secondary smelters, note a pronounced downturn in orders from the automotive sector.

In fact, a few secondary producers mention that some metal units that originally were scheduled for delivery in the first quarter of this year have been canceled or deferred, suggesting component manufacturers and die casters largely are bearish on automotive sales in the first half of 2025.

George D’Cruze is a U.S. aluminum analyst at Davis Index and can be reached at george.dcruze@davisindex.com.