Pub. 14 2015-2016 Issue 4

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 9 new jersey auto retailer W W W . N J C A R . O R G S etting records is never easy so it is very hard to imagine that we have broken two records this past year, an annual sales record for light vehicles AND the longest period of growth since the 1920’s. In fact we have had six years of continuous growth in sales — an unbelievable stretch. So, with sales eclipsing the 17.4 million mark in 2015, what does 2016 hold for the automotive industry and retailers? We certainly see sales rising, albeit not as strongly in 2016 compared to 2015 and there are some clear headwinds forming that could derail growth. But there is a difference this time, most economic risks are coming from foreign markets rather than U.S. domestic issues and these foreign risks are highly centered on China, with a sprinkling of EU troubles and Japanese malaise thrown in for good measure. There is no denying that international weakness is growing. Just witness the desperate moves on the part of central banks in Japan and the Euro zone moving rates into negative territory. Europe and Japan are chronically weak. What is more concerning is the commodities contagion that has spread from China to Brazil, South Africa, and even Australia. And yes, China is on our minds. It’s all about China because so much of the global economic slowdown is due to China’s economic slowdown, particularly the peak of demand for global rawmaterials. China was the engine of growth in terms of investment in roads, buildings, and factories. This intensive round of capital investment led to a voracious rate of commodities consumption. This rate of commodities demand then led to more capital investment to support that demand, this time in places like Brazil, South Africa, Australia, and even Mongolia. So there are two effects from China’s slowdown. The first is the direct impact on the Chinese economy, decreased investment and a large amount of overcapacity in almost every industry. The second is pullback in investment by commodity-producing countries. At least for now the commodity centric countries are feeling the pain much more so than mainland China. The U.S., Japan, and Europe are not immune to this contraction and many U.S. companies concentrated in heavy equipment have already seen revenue and profits fall. Even in light vehicles, the deep recession in Brazil (the worst in at least 50 years) has already caused a dramatic falloff in sales. South Africa, suffering from both a commodities price collapse and a drought, is also seeing sales decline. These are not just the effects from China’s growth rate declining. We have not even entered a period where growth in China actually contracts, which is an inevitable outcome. Nor do these Successfully Navigating the Global Slowdown BY STEVE SZAKALY GLOBAL SLOWDOWN  continued on page 10