Last post I commented on an article on Auto Observer that discusses the risk of deflation. It is also worth noting the flip side--that pressures are mounting that could quickly raise vehicle prices.
Industry watchers with a more than a few miles behind them (this includes me.) will remember this playing out once before back in the late Sixties and Seventies. Concerns about vehicle safety and oil embargoes that focused attention on fuel conservation resulted in a wave of regulation. This regulation sent auto makers scrambling to comply--efforts that may have succeed in meeting the regulatory requirements, but that also resulted in some of the worst vehicles every foisted on the car buying public. (It is not too much of a stretch to connect the still lingering reputational problems of the Detroit 3 to this generation of vehicles.)
It took over a decade for technology to catch up and for vehicles to be offered that both complied with regulations AND offered good performance, drivability and styling.
But all this is expensive. And it seems we are experiencing a repeat of the cycle.
Safety and sustainability concerns are again encouraging an increase in regulation. The good news is that the industry is in a much better position respond as technology has progressed markedly.
But--all these regulations will put pressure on automakers to push up vehicle prices to cover the related costs. Add to this the fact that interest rates have been in a long term decline--a trend that is about to be reversed and you have the makings for an awkward increase in costs in a market where many buyers remain absent.
