ACS Industry

Buy Cars...Chemists need jobs

Blog Post created by ACS Industry on Oct 13, 2016


US auto markets are critically important to chemists and the chemical industry.  They represent our largest single market and are worth around $60bn in chemical sales, with each auto using around $3500 of chemicals.

Today, as with housing (which I discussed a year ago), the auto market seems to be hitting a cyclical peak, with many players expecting a downturn next year. This would not be unusual, as the chart highlights.  It shows housing starts on the vertical axis versus auto sales on the horizontal axis. It suggests the industry has gone through 4 distinct phases over the past 40 years:


  • 1973-84, very volatile, purple. Housing starts and auto sales saw strong volumes in 1973, 1976-9, but crisis levels in 1974-5 and 1980-2
  • 1985-98, very stable, green. Auto sales were generally rising, whilst housing starts were plateauing
  • 1999-2007, Y2K and sub-prime mania, red. Easy money pushed auto and housing volumes to unsustainable levels
  • 2008-16, slowing demand, blue. Low interest rates initially supported a slow recovery in housing and auto sales, but housing starts stalled after 2014 at half the peak subprime level, although auto sales continued to rise


What is particularly noticeable is the way that auto sales really began to pick up from 2012, as manufacturers chose to support sales growth via a major extension in the average length of auto loans to a record 5.6 years – thereby reducing monthly payments and making cars more affordable.  Unfortunately, as we saw with the subprime disaster, increasing the number of loans generally means lowering their quality, as credit analysts Experian report:


  • Total auto loans reached $1.02tn in Q2 2016, up 22% from Q2 2014
  • The average loan for a new car is now $30k
  • Loans financed 87% of all new auto sales, with 31% using leases
  • Deep subprime loans are up 12% YTD, as lenders maximise interest income
  • The longest loans (up to 7 years) also have the lowest average credit score


Now we may be moving into pay-back time, with JPMorgan Chase CEO Jamie Dimon warning that “Auto is clearly a little stretched, in my opinion, someone is going to get hurt”.

One sign of the possible downturn is that auto sales fell 1% in Q3 versus 2015, despite a major increase in incentives.  These rose by $400 per vehicle to an all-time record of $3888 – higher even than in December 2008.  The average car sold over the Labor Day weekend was discounted by 10%, as dealers cleared unwanted inventory. In addition, there appears to be growing competition from the used car market.  All those new cars sold on leases since 2012 (with typically a 3-year term) are now starting to be handed back.  2016 is seeing the number of cars coming off-lease rise by more than a quarter – helping to explain the growing pressure on new car sales and pricing.

There is also a more fundamental question emerging over the long-term outlook for auto sales.  This was foreshadowed back in 2011 in a TED talk by Ford’s chairman, Bill Ford, where he warned that a “business as usual” strategy would inevitably lead to gridlock, and noted that:

“The average American spends about a week a year stuck in traffic jams, and that’s a huge waste of time and resources….

Chemists therefore perhaps need to prepare for not just a cyclical auto market downturn in 2017, but something more fundamental.  I will return to this topic, and what we can do to boost employment despite these adverse trends, in a later post.



Paul Hodges is chairman of International eChem (, trusted advisers to the chemical industry and its investment community. He is a member of the World Economic Forum’s Industrial Council on chemicals, advanced materials and biotechnology, and presents the ACS ‘Chemistry & the Economy’ webinars.