As the US automotive industry looks to 2014, hopes are high that strong growth in production and sales will continue. While optimism about the market is clearly warranted, it is also important to remain cautious – in part because of uncertainty about what will happen in Washington over the coming year.
Strong vehicle sales depend on a growing economy, and several of the biggest risks to the US recovery can be found in Washington. These include the risk of another fiscal crisis, as lawmakers face a 15 January deadline to agree on federal spending for the remainder of the fiscal year. Failure to reach a deal could result in another government shutdown, though both political parties seem intent on avoiding a repeat of October’s fiasco. Equally troubling is a 7 February deadline to raise the federal debt ceiling. While the Treasury Department can use “extraordinary measures” to push this deadline back until spring, another debt-ceiling crisis could revive talk of a US default, with its attendant economic risks.
These fiscal challenges will be coming to a head during a time of transition at the Federal Reserve. The term of Chairman Ben Bernanke ends in January, and he is virtually certain to be succeeded by Vice Chair Janet Yellen. Though Yellen is highly qualified, her succession to the top post would bring some uncertainty to monetary policy just as the Fed starts to “taper” down its economic stimulus. While no-one expects the Fed to raise short-term interest rates anytime soon, the gradual end to “quantitative easing” could cause volatility in financial markets.
The year ahead also holds uncertainty for federal tax and spending programmes. Federal support for advanced automotive technology R&D, including research related to advanced batteries and fuel cells, is under the same intense budget pressures as all federal spending programmes. Congress also must reauthorise federal highway programmes in 2014 and secure more stable sources of highway funds than the perpetually troubled gasoline tax. A Congressional report recently called for formulation of a national freight strategy, but this would require action by a Congress that seems incapable of taking on such large initiatives, no matter how worthwhile. Broad tax reform may also fall in that category.
Looking beyond Capitol Hill, the automotive industry will face a number of challenges on the…
Ian C. Graig
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