with Taylor St. Germain


This week on TrendsTalk, ITR Economist Taylor St. Germain takes a deep dive into the auto market and reviews production, sales, and inventory data. What is our outlook for the auto market over the next few years? Tune in to find out!


pixel graphic
Taylor St. Germain


Taylor St. Germain

As an experienced economist, Taylor St. Germain provides consulting services for small businesses, trade associations, and Fortune 500 companies across a spectrum of industries. His dynamic personality and extensive knowledge of economic trends and their business relevance are highly valued by clients and colleagues alike.

“Join me on the TrendsTalk podcast to explore the world of economics. Episodes offer insightful discussion and expert interviews. We cover relevant economic concepts in an accessible way. Whether you are a curious layperson or an industry professional, TrendsTalk is your go-to source for thought-provoking analysis and a deeper understanding of the economic forces shaping our world.”

Key Episode Takeaways

  • 0:48 – North America Light Vehicle Production data overview
  • 4:25 – Growth expectations for 2025 and 2026
  • 5:27 – Reviewing retail sales data for the auto market
  • 6:31 – We are starting to see weakness form in both production and retail sales
  • 7:32 – Reviewing US automobile inventories
  • 8:39 – Our production forecast over the next three years
  • 9:18 – Summary and conclusion

The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hi everyone. I’m Taylor St. Germain with ITR Economics, and welcome to this edition of TrendsTalk. We at ITR Economics are your unbiased and apolitical source of economic intelligence, and today we’re going to discuss the auto market. I wanted to share three data sets with you in particular, first looking at production, then retail sales, and then finally, inventories just to get an overall perspective of where the different data sets within this larger auto industry are and what they’re suggesting as we move forward.

So I wanted to start with North America light-vehicle production. This is one of our trends, report data sets, and again, it’s really capturing units or volume in terms of those production values. So let me give you some perspective as we sit here today. When we look at the growth rates for North America light-vehicle production, the 3/12 rate of change or the quarter-over-quarter growth rate that peaked in October of 2022 at 26.6%, and we’ve seen that growth rate generally slow down ever since.

As we sit here today with the most recent data point I should say, which is March of 2024 that we have for light-vehicle production, we’re only up 3.9% on that 3/12 rate of change. So we’ve gone from 26.6% in October of ’22 all the way down to 3.9%. As we look at that data point for March of 2024. So it’s clear that production is slowing down. If you look at our Trends report, we’re often quoting the year-over-year growth rate, which peaked at 15.5% as we looked at the middle of 2023, and that growth rate has slowed down to 8%.

So the quarter-over-quarter growth rate and year-over-year growth rate are still positive as we sit here today, but clearly in that slowing growth trend in terms of the phase of the business cycle. Now we love to look at 3/12s, 12/12s, get that quarter over quarter year over year, but I did want to call out also the 1/12 rate of change. That would be the current month over the month, one year ago, that same month one year ago because in March of 2024, that month-over-month growth rate actually dipped negative. It came in at minus 5.8%. So again, of course, the month-over-month growth rate leads the quarter-over-quarter growth rate, which leads the annual growth rate. So sometimes I like to quote the 1/12 rate of change because it gives us a little bit of a lead time in terms of where we’re headed. And to see a negative number means it’s likely that we continue to see some weakness coming our way as we look at the production values.

And of course, this is contingent on the other two data sets we’ll talk about in terms of retail sales and in terms of inventories, but it’s very clear we’re starting to see some weakness and a more pronounced slowdown as we look at the production values. Now, we do forecast this data series out over the next three years. In 2024, we expect North America light-vehicle production to come in at a positive 0.5%. So clearly, what we’re saying in 2024 is that we’re going to continue to see these growth rates slow and likely on the one-twelve or 3/12 contract as we progress further into ’24. So our ’24 forecast 0.5%, that’s comparing all of ’24 compared to ’23, and that gets us 15.7 million units.

As we look forward to ’25, we do expect that growth rate to pick up slightly, although not much, where we have ’25 coming in about 1% up compared to 2024, and that’s 15.8 million units. It’s really 2026 where we start to see this growth pick up in terms of the growth rates in a much more meaningful way. In 2026, we have the forecast coming in at 3.7%, so that’s ’26 compared to ’25, which would get us to 16.4 million units.

So in terms of production, we’re not talking about the bottom falling out here, and that shouldn’t be a surprise to anyone who’s listened to Trends Talk. As you know, the industrial recession we’re projecting in 2024 is very mild, but it is clear that the growth rates will likely be lower in ’24 and ’25 than what we’ve experienced throughout about the last year and a half. But again, as we get into ’26, that’s where you see that more noticeable pickup.

Now that’s production, right? That’s the manufacturers that’s looking at volume. I think it’s also important to look at retail sales, the consumers buying their automobiles. I’m looking at a series that’s light vehicle retail sales. And very similar to the production values, the annual growth rate has slowed down. We saw a peak in September of ’23 at 13.1%, and we’re sitting at 10.6% with the 2024 value.

So again, it’s slowing growth rates. All of these peaks seem to have materialized at this point to where we’re still seeing growth, but the growth is coming at a slower pace. But similar to production, if you look at the month over month, that 1/12 rate of change, the value in April of 2024 was negative coming in at minus 3.3%. So the month-over-month growth rate for production has turned negative. The month over month for April has turned negative when you look at retail sales.

Now we’re not going to overreact to one month of data. We need a more consistent trend in order to suggest that this decline will continue. But I think it’s very clear that we’re starting to see that weakness form. So it’s not just in production, things are slowing down, it’s also in retail sales, and that’s likely due in part to these higher interest rates. Consumers might be a little bit hesitant out there to purchase a vehicle at this point in time because those rates are still high. We look at delinquency rates related to consumers as well, auto delinquency rates in terms of auto loans, and those are rising, although they’re still historically quite low.

So yes, there’s something to watch but not worry about is the phrase that we like to use in terms of that delinquency rate, slightly higher delinquency rates than where we were over the past year, but still nothing that’s to the level of outright concern in terms of what I would suggest there.

The last series I wanted to call out is US automobile inventories. Now, these numbers are in terms of dollars. So if we look at where inventories peaked on a 12-month moving average, we peaked at about 5.794 billion in September of 2023, and with the recent data point in March of ’24, we’re at 5.6 billion. So inventory levels in terms of dollars have come down slightly, but still elevated compared to where we were. As we look back over these past few years, of course, we know all about that shortage with semiconductors that really impacted automobiles. So I would say inventories are still a bit high. So when you look at higher inventories, when you look at a consumer that’s purchasing fewer vehicles in terms of that month-over-month growth rate, and you look at production value slowing, or again month over month being down, there’s some of that weakness that’s clearly starting to form.

Now, again, our production forecast is positive as we look out over the next three years, but those growth rates coming awfully close to that zero line in ’24 and ’25. So the major takeaways here are that we need to prepare for a slowdown. I think one of the biggest challenges as we’re budgeting and planning is to avoid what we call linear thinking or linear budgeting. Simply assuming that the growth that we’ve experienced in the past will continue into the future. Many of us know that the economy is cyclical and so is the automobile industry.

So acknowledge that growth rates are slowing down, and we’re starting to see some weakness as you put your plans together for ’24 and ’25, but I don’t want folks to lose sight of that growth that comes back in 2026. We should really be taking these next two years with some of this slower growth to ensure that we’re prepared to take on some of this growth that’s coming our way as we look further down the line. So a little bit of pause, but there’s some good news as we look further into the second half of this decade.

I think everyone’s cheering on this Federal Reserve to get these interest rates down. I know we at ITR certainly are, and I think you can see how much higher interest rates can impact industries and consumers, and I think the automobile trends are quite telling in terms of that. If you’re curious about interest rates, listen to our podcast, Fed Watch by our CEO Brian Bolio. He will keep you updated on when we should finally start to see some of these rates come down, which will be good news I think, for just about every manufacturing industry that we’re tracking.

I hope you found this information helpful. Please remember to like and subscribe to TrendsTalk wherever you listen to your podcast, and I’m looking forward to seeing you on the next one. Take care for now.