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How the Car Transporting Industry is Affected by a Recession
Estimated reading time: 9 minutes
You won’t get very far in your day without encountering someone talking about a recession. The debate about whether the US is going to see one in 2023 is raging. There are even people saying that the US is in the middle of one right now.
Many indicators suggest the US isn’t in a recession right now, for example, robust monthly payroll gains and a host of other economic data points. Many economists and experts agree, however, that there is massive potential for the US to avoid entering a recession.
Is a recession coming?
Every so often, there’s a recession that seems to take everyone by surprise. The chances are that this time around, we’re not going to be as unprepared as before. A recession has been on the cards for a while now, according to economists. Most are predicting it will start early this year.
For there to be a recession, there have to be two consecutive quarters of negative gross domestic product (GDP). On this premise, the US entered into a recession in the summer of last year (2022).
However, the National Bureau of Economic Research (NBER) has a slightly different definition of recession. The official NBER definition of a recession is a significant decline in economic activity that’s spread across the economy and that lasts more than a few months. According to this definition, there was no recession in the summer of 2022.
Why is it so hard for us to think we’re in a recession? The labor market is strong and corporate earnings continue to grow. Real personal income has also seen monthly gains after declining in early 2022. In addition, recessions are very uncommon, occurring just 8% of the time over the past three decades.
That being said, a recession may be just around the corner. Hold onto your hats, it may arrive at some point soon.
A wide range of economic indicators is taken into consideration when NBER is determining a recession. Most of those indicators continue to show the economy is still robust. However, there are no hard and fast rules for dating a downturn.
There are also no fixed rules about what measures contribute information to the process or how they provide weight to the decision.
A few of the NBER’s recession indicators have rolled over and turned negative since the end of 2022. One of these metrics is the industrial production index.
If you look at the data from the labor market, it doesn’t suggest that the US is in the midst of an economic downturn. For example, US payrolls have experienced robust growth. While the data looks very positive, things could change, possibly in the blink of an eye.
What are the experts saying about a 2023 recession?
According to some economists and Wall Street experts, it’s highly likely that the US will be able to avoid a recession this year. Even if one comes, it might not be as severe as previous downturns, for example, after the early Covid pandemic and the 2008 financial crisis.
Nevertheless, the fact that a recession may come along, even if it’s a mild one, is leaving many auto transport providers and potential car shipping customers, wondering how the industry will weather the storm.
A wide range of people use auto transport services, so many elements could impact how the industry fares during an economic downturn.
Let’s look at some of those elements in turn and what any impact means for the car transport services.
How will the recession impact the auto industry this year?
With so much talk of an economic recession, many automotive industry workers are wondering what is going to happen over the next few months. Currently, there are ongoing issues with the supply chain, interest rates are at an all-time high, and inflation is rising at a rate never experienced before.
These things will impact the auto industry in several ways. Here are some estimations.
There may be a limited effect on the used car market
Production of new vehicles has increased in recent months, but there’s little chance that a recession will affect the used car market much.
In the past, recessions tended not to lead to a substantial fall in used car prices. Therefore, it’s expected that any current or future recession will be much the same.
The reason behind the lack of impact is that buyers typically have a tighter budget during a recession. There tends to be a switch from new to used car purchases which then increases demand.
While there has been a recent increase in the production of new cars, the prices increased as well. Anyone who can afford to buy a new car may end up doing so, but it’s unlikely that sales of used cars are going to fall much because new cars are more expensive.
For auto dealers, this year looks like it’s going to be a good one and they should have no issues filling their lots. Car transport companies can help with deliveries and the dealers won’t have to drop their prices too much.
Auto manufacturers may start laying off staff
An article published on CFODive in November of last year predicted that auto manufacturing could be next in line for big layoffs.
This follows on from the major job cysts made at major tech companies such as Meta, Twitter, and Amazon. The reason these tech companies had to make such hefty cuts was their heavy reliance on the supply chain. According to Bloomberg, these companies lost over $3 trillion in value due to the supply chain. The auto industry is also facing issues relating to the sourcing of parts and high-interest rates.
It’s unlikely there will be a market crash
There seems to be a split regarding how and when used car prices will fall. However, most seem to agree that some sort of major crash is highly unlikely. This is very good news for the auto transport industry.
Used car prices are not likely to fall too far below current levels and while they might still be expensive, the price of used cars is very attractive to middle-class consumers, more so than new vehicles.
What happens to the used and new car market during a recession?
The mere mention of a recession is just cause for making cuts, saving money, and spending less. The consumer tends to spend by need rather than choice in a recession. This means discretionary spending always plummets.
For many households, discretionary spending means deciding whether that shiny new car is so important after all. On the other hand, there are others for which a car is essential for work.
Historically, during a recession, sales of new and used cars decline significantly as many potential purchasers drop out of the market. However, it’s likely that any new recession will not be the same for car buying as previous recessions, such as the ones in 2008 and 2020.
During the “Great Recession” of 2008, new US vehicle sales dropped by almost 40%. The worst hit were gas-guzzlers. It was also the time when hybrid powertrains got their big break. The 2020 pandemic-driven recession was history’s shortest, lasting a mere two months. It might have been short, but auto sales still dropped 15% compared to 2019.
So what makes any imminent recession different? If you’ve driven past a dealer's lot recently, you’ll have noticed record lows in inventory levels. In 2008, dealer’s lots were jam-packed with new car inventory and there was little demand.
Fast forward to today, and the demand for new and used vehicles far exceeds the supply. Should a recession weaken the demand for cars, it might drive prices down slightly, but the decreases will be nowhere near those we saw in 2008 and 2020.
If you’re thinking about buying a new or used car, now might be a good time to do it. Don’t worry about looking further than your local car lot either. The car transport industry is thriving and if you spot your dream car online but it’s across the other side of the country, car transport providers like SGT Auto Transport will ship your new car to your door.
What does a recession mean for the housing market?
A recession tends to slow the housing market and can be a bad time to sell. If you’re in a position to buy, on the other hand, you might pick up a bargain.
Buying a house is a big financial undertaking, often one of the biggest you’ll ever make. A lot of your personal wealth gets tied up in your home. Month after month, for many years, you’ve got to keep making those mortgage payments or you risk losing your home. A recession can threaten your financial security and your home.
In real terms, many homeowners manage to weather recessions with very few problems. They are a cyclical part of a country’s economy and are to be expected. Recessions can have significant and sometimes dire consequences for the housing market.
If a country’s economy is doing poorly, fewer people will have money to buy homes. Supply is generally higher than demand and properties stay on the market much longer. Home values often fall to encourage sales. Overall, the housing market may stagnate. More people will struggle to pay their loans, and the rate of mortgage delinquencies and foreclosures is also likely to increase.
What does this mean for the auto transport industry? The number of people relocating may drop. There will also be a drop in the number of people looking to ship their cars to their new location.
What happens to the job market during a recession?
During a recession, more people become unemployed and there’s less opportunity in the market overall. The auto transport industry is closely linked to the job market. When fewer people are moving around because of their job, the need for car shipping services might also decrease.
Previous swings in the job market
Unemployment is an important recession indicator. In addition, it’s important to remember that it generally peaks long after a recession has started and can last well into the period of recovery.
The “Great Recession” in 2008 is a prime example. According to NBER, the recession began in December 2007 and ended in June 2009. In April 2008, five months into the recession, the US unemployment rate stood at just 5%. This was just a slight increase from the 4.7% six months earlier. Unemployment continued to rise right up until October 2009 when it hit 10%. This was four months after the official end of the recession and seven months after the stock market hit rock bottom.
As you can now appreciate, a recession has far-reaching effects across many industries, including car transporting. If a recession is just around the corner, and we really hope it isn’t, SGT Auto Transport will continue to meet people’s car shipping needs whenever possible.
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How does a recession affect the car industry?
During a recession, auto sales typically fall, often significantly. Many buyers will back out of the market until the economy recovers.
What industries are most affected by recessions?
Over the last seven decades, the world economy has gone through four global recessions. Some industries are more affected than others. The 5 industries most affected by a recession are as follows:
- Retail: Recessions tend to see a massive change in consumer spending
- Restaurants: If a restaurant wants to survive a recession it has to be prepared. This might include cutting back on expenses, reducing labor costs, and increasing prices.
- Travel and tourism: When consumers reduce non-essential spending, travel spending is often the first to be cut. Instead, consumers prioritize utilities and food.
- Real estate: A recession is not the best time to sell real estate. There is generally a lower demand and an increase in interest rates and construction costs.
- Manufacturing: During a recession, manufacturing companies have to deal with uncertain supply chains, labor concerns, and fluctuations in the price of raw materials.
How big is the auto transport industry?
If you measure the auto transport industry by revenue, the market size in the US in 2023 is $10.9bn. It is expected to increase by 1.3% during the year.
What is the auto transport industry?
Auto transport is a sector of the freight industry. The auto transport industry provides car shipping services to businesses and vehicle owners who want to move a vehicle or vehicles from one location to another.