What will the auto industry look like under Trump?

November 10, 2016

New presidents bring new advisors, new staff, and of course, a host of new policies and priorities. That's true even if the new guy and the old guy belong to the same political party; when they come from different parties, as Trump and Obama do, the changes can be much more dramatic.

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Of course, we write about cars, so we're particularly concerned about the effect that a Trump administration will have on the auto industry, energy policy, trade relations, environmental regulations, and such. Here are a few possible scenarios, based on our own predictions and those of analysts:

Fuel prices remain low: We've written about this before, but thanks to the glut of oil in the markets right now, fuel prices aren't expected to rise anytime soon. If Trump policies open access to more drilling areas, that could help keep the oil a-flowing, even if OPEC decides to scale back production. In fact, even if Trump does nothing on that front, gas prices should remain low, due to increased oil production in Brazil, Canada, Russia, and Kazakhstan (none of which are bound by OPEC rules). 

Demand for electric vehicles and hybrids grows, but slowly: The genie is out of the bottle as far as electrics and hybrids are concerned. Automakers have invested so much time and energy developing new powertrains and new vehicles to use them, there's little chance that a president could bring all that work to a grinding halt. (Remember, the Prius really came of age during the presidency of oil-friendly Republican president George W. Bush.)

However, as fuel costs remain low, there will be little incentive for consumers to shell out the premium prices that many electrics and hybrids command--especially if the federal tax credit for purchasers of electric vehicles disappears. Those premiums could come down as demand shrinks, and/or if battery technology improves and economies of scale at facilities like Tesla's gigafactory push battery prices lower. However, the real driver of demand for hybrids and electrics will almost certainly be higher gas prices. Not surprisingly, the price of Tesla stock took a nosedive yesterday. 

Demand for trucks, SUVs, and crossovers continues to climb: That shouldn't come as any surprise. With low gas prices, Americans are more likely to opt for larger, less fuel-efficient vehicles--though whether the Trump administration encourages tweaking or completely abandoning the EPA's 2025 fuel economy goals could have a significant effect on demand. 

U.S. vehicle exports decline: On numerous occasions, Trump has said that he wants to break or re-negotiate a range of international treaties, including free-trade agreements. If that happens, shoppers outside the U.S. will likely pay more for American-built vehicles, which, in turn, will curb foreign demand for cars, trucks, and SUVs made here. That won't stop companies like Ford from making vehicles elsewhere--like, say, Mexico--and exporting them to other countries. However, exports of vehicles made in the U.S. will likely take a hit. 

Consumers pay more for imported vehicles: The flip side of the above is that the cost of vehicles imported to the U.S. may climb. Depending on how trade agreements are altered, the increased cost of imports could stem from newly imposed U.S. tariffs, tighter restrictions on the number of vehicles that importers are allowed to bring in, or any number of other factors.

That would affect nearly every automaker doing business in the U.S., including Detroit-based Fiat Chrysler, Ford, and General Motors. Since companies like Ford have begun to abandon U.S. production of many cars due to slack demand, it could make cars even less attractive to U.S. consumers because they'd be come with higher prices. That, in turn, would drive demand for larger, American-made vehicles even higher.

Got any predictions of your own--any we might've missed? Share your thoughts in the comments below.

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