How Will the Government Shutdown Impact the Auto Industry?

Thu, 10/03/2013 - 01:59 | CARY, N.C.

By Staff Writer Sarah Rubenoff

On the third day of the first partial U.S. government shutdown in 17 years, Congress will continue its negotiation efforts to pass a series of bills to fund the government. In the meantime, the country waits, as does the automotive industry.

The effects of the shutdown on the automotive sector are arising in a few different corners — perhaps most noticeably within the National Highway Traffic Safety Administration.

Dealers and consumers should not expect to receive any notices from the NHTSA as long as Congress remains at an impasse.

An alert on the NHTSA’s website says:

"Due to a lapse of Federal Government funding, NHTSA is unable to post any new recalls after close of business September 30, 2013. Recall searches will remain available but are only current as of that time. Consumers can continue to file safety defect complaints via this website, but they will not be evaluated by NHTSA staff until funding and services are restored."

Automakers, of course, will still announce their own recalls, but we can expect no information to make it out of the NHTSA as long as the government shutdown continues.

And not only will new recalls not be announced, consumer complaints can be filed, but they won’t be touched or analyzed until the government reopens.

And the NHTSA isn't the only federal organization tied to the auto industry that has shuttered its doors this week.

The Federal Trade Commission is closed for the shutdown, with the majority of its branches put on indefinite hold.

That said, the Consumer Financial Protection Bureau, which has been active in automotive lender compliance regulation as of late, will not be impacted by the shutdown.

Potential Impact on Auto Sales

During any type of federal action as dramatic as a government shutdown, many wonder what the impact will be on the economy.

In the case of this market, how will the partial shutdown affect auto sales?

Edmunds.com chief economist Lacey Plache explained earlier this week that auto buyers have separated the economy from Congress in the past, and the industry most likely has little to worry about.

"The American people might be questioning their faith in government right now, but they still have confidence in the economy. In fact, American car buyers have been remarkably resilient in the face of the Congress' antics over past year," Plache said.  "There's no reason to believe that auto sales will suffer in the coming days or weeks as this mess gets sorted out in Washington."

Kelley Blue Book analysts told Auto Remarketing that effects on auto sales may depend on the length of the government shutdown.

Jack Nerad, executive editorial director and market analyst at Kelley Blue Book, said, "We expect the government shutdown, which in reality is a very partial government shutdown, to have minimal effects on auto sales. 

"If the shutdown is not resolved in the next several days it could have some effects in areas heavily populated by federal government workers, but the short-term effects won’t cause a ripple."

Alec Gutierrez, senior analyst at KBB, agreed, saying that if the partial shutdown lasts more than a couple of weeks, the auto sector may begin to see the effects as October’s sale numbers come in.

"The impact of the government shutdown on auto sales will be largely dependent on the length of time it lasts,” he said. 

"If government workers are out of work for a few days, auto sales will likely continue on unscathed.  Should this turn into a prolonged shutdown that lasts several weeks or more, expect to see the sales pace take a hit in October and the months ahead."

Ricky Beggs, editorial director at Black Book, gave Auto Remarketing a similar scenario, suggesting that we may begin to see some regional effects if it lasts longer than two weeks.

"Like all Americans, Black Book will be keeping a watchful eye on the negotiations taking place in Washington, D.C. At the moment we do not feel the current pause in government activity, including the work stoppage, will have any material impact on auto sales and auction activity," Beggs said.

"Should the pause linger for more than two weeks and we may start to feel some regional impact where government workers are heavily concentrated, but a lot can happen over the next two weeks and we hope for a quick resolution," he continued.

OEM Response

Ford executives, during their September sales conference call on Tuesday, gave their take on concerns regarding how the shutdown may impact the Blue Oval, in particular.

Jenny Lin, senior U.S. economist for Ford, explained consumer confidence could take a plunge, perhaps affecting the numbers of potential buyers on dealers' lots.

"Any type of disruption in government operations would adversely affect directly government spending, confidence, business consumer confidence and financial markets. So we urge our government leaders to continue to work together and we remain hopeful that shutdown won't be very long," Lin said, according to a quote published in a presentation transcription of the dealer group’s by Seeking Alpha that can be found here.

And some OEMs have focused on their customers that may be out of work when responding to the shutdown this week.

Hyundai Motor America revealed it has made an addition to its Assurance program that will potentially help federal employees.

Under the plan, Hyundai will defer all auto loan and lease payments during the shutdown for current Hyundai owners who are furloughed, the company said.

"We recognize the impact on family budgets that the furlough will drive,” said John Krafcik, president and chief executive officer of Hyundai Motor America. "Like we did almost four years ago when we launched Hyundai Assurance, this is our way of saying 'We've got your back' during this uncertain time."

Current Hyundai owners will have their payments deferred for as long as they are out of work.

And in a move that could potentially boost sales for the Korean automaker in the next few weeks, furloughed employees who buy a Hyundai in October will be offered a 90-day payment deferral.

Sarah Rubenoff can be reached at srubenoff@autoremarketing.com. Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.