Steel, Aluminum Demand at Risk if Honda, Ford Cut Back Auto Production

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Steel – and, increasingly – aluminum demand could be hit this quarter if automakers cut back on production.

Auto inventory levels have soared over recent months as frigid temperatures and winter storms in the past six weeks have slowed retail sales and showroom traffic, Reuters reported in a recent article. As a result, inventories of unsold vehicles at dealers have soared, triggering a new round of steep discounts by carmakers and their dealers.

The article advises that some of the heftiest discounts are being offered by Ford and General Motors dealers on the 2014 Ford F-150 and Chevrolet Silverado full-size pickup trucks, usually two of their strongest sellers. Unusually, Japanese automakers Toyota and Honda have also joined in the discounts, a step they usually shy away from (preferring to cut production first), but all automakers seem intent on maintaining market share.

Carmakers have yet to announce cuts to production, but with inventories rising from 71 days in December to 114 days last month at Honda, and Ford’s Fusion rising to 97 days, producers must be poised to make cuts if the incentives do not shift cars.

Cars = Confidence?

Car sales are often seen as a bellwether of consumer confidence, so news from HSBC that the US economy expanded at a slower pace in Q4 than originally estimated should not come as any surprise when viewed alongside the auto sales numbers.

The slower growth in Q4 points to less momentum being carried into 2014 and saw GDP growth revised down to 2.4% annualized, compared to 3.2% reported in the first estimate. The main driver of the downward revision was consumer spending, the bank reports, which was reduced from 3.3% to 2.6% growth.

All is not doom and gloom, though.

To be continued in Part Two.

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