Saturday, October 07, 2017

Importing Deflation: Auto Industry

Margins in the automobile business are dropping fast.  While US-based automakers manage to make most of their products (83%) in the USA, non-US labels are barely over 60%--at least by the measures created in a study from American Automotive Policy Council and cited by DetroitBureau.

Whatever the 'product balance' numbers are, it is critical to understand that the US automakers are competing against lower-cost non-US product.  Thus, US automakers squeeze suppliers and dealers, regularly, and hard.  Ford Motor just announced that they will reduce 'material costs' (read:  suppliers) and 'engineering' to increase its pretax from 6% to 8%.  Ford did not say so, but you can bet the house that a chunk of money will also come from the hides of dealers.

When imported/foreign-made components or whole goods force cost & price reductions, that's called "importing deflation."  The auto industry, overall, is about 1/6th of the country's economy--same as healthcare.  So the deflation, most often seen and felt in wage/benefit reductions, is meaningful.

It's what Trump talks about, people.  Pay attention.

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