Every quarter, the car sector contributes significantly to the U.S. gross domestic product.
As a result, it attracts a lot of interest from economists, politicians, and investors due to its economic drivers.
With General Motors, Ford, and fiat Chrysler completing the big three, car production has expanded to become a significant contribution to the American economy since the invention of the first vehicle.
Ford is renowned for inventing the assembly line production method and the first vehicle.
However, in the large ocean of economic data and investment alternatives, it may sometimes be difficult to distinguish between the terms “auto” and “auto sector.”
Here is a summary of several important findings on the car business, including how economists and investment experts may approach it differently.
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The past
A number of businesses experimented with making cars towards the end of the 19th century, but it wasn’t until the Ford Company produced the first Model T on an assembly line in 1913 that the automotive industry really took off.
A revolutionary invention, assembly line manufacturing enabled Ford to increase the daily volume of its vehicle production while simultaneously improving working conditions for its workers and lowering the cost of cars for customers.
The sector has had a number of ups and downs, including the consequences of the Great Depression in the 1930s and the aftermath from default carryovers during the 2008 Financial Crisis.
The 21st century has seen the emergence of a robust car sector dominated by the three largest American automakers, General Motors, Ford, and Stellantis.
Finances
The North American Industry Classification System (NAICS) is used to categorise businesses and industries in the United States in order to collect economic statistics.
The Bureau of Economic Analysis’s quarterly gross domestic product report, which highlights the auto industry’s contribution mainly via the manufacturing of durable motor cars and components, is produced in part using this categorisation method.
As a result, other significant industries including transportation, petroleum, and food and beverage are also impacted by motor vehicle performance.
For NAICS categorisation, it may also be further subdivided into categories like sales finance, industrial design services, general automobile maintenance, new and used vehicle dealers, and more.
Economic Information
Of the $27.72 trillion in the U.S. GDP in 2023, $750 billion came from motor vehicles and components. This is equivalent to 2.7%.
In terms of the quantity of motor cars manufactured annually, the United States is ranked as the second-largest automotive manufacturer by the Organisation Internationale des Constructeurs d’Automobiles (OICA), behind China.
The United States produced 10.61 million passenger and commercial automobiles annually in 2023.
With 30.16 million, China was at the top of this ranking.
According to further OICA figures, with 1.74 million passenger cars produced in 2023, the United States will rank seventh globally.
With 26.12 million passenger automobiles manufactured, China led this list, followed by Brazil, Japan, India, Germany, South Korea, and Spain.
Over 2.8 million people are employed in the US automobile industry, which also generates over $130 billion in compensation annually.
As a result, the economy is significantly impacted by its people resources.
Trends in Economics
Auto manufacturing receives a lot of attention since it makes up a significant portion of all economies.
In 2019, it received the greatest attention in two areas: international tariffs and electric vehicle manufacturing.
North America’s international tariff problems have been settled, but new and current import taxes for Chinese and European automakers may seriously disrupt output and earnings.
Concurrently, the manufacturing of electric cars is gaining market share, which has its own consequences.
ICCT report “Global and U.S. Electric Vehicle Trends.”
The Dynamics of Investing
The majority of research on investing in the automotive sector is on the Global Industry Classification Standard (GICS).
Auto is classified as consumer discretionary throughout the 11 major GICS sectors.
Auto stocks, which are categorised as consumer discretionary, often increase and fall in tandem with expansions and contractions in the U.S. economic cycle.
As a result, stocks of consumer discretionary goods and automobiles perform best during periods of economic expansion and peak, while same stocks perform worst during periods of economic contraction and recession.
This is mostly due to the fact that, like all discretionary expenditure, firms and consumers prioritise cutting down in this area when money is tight and increase spending in this area when they have excess.
Taking a closer look, GICS also separates consumer discretionary into cars and components, which are further divided into cars and just-auto components.
Auto manufacturers, motorcycle manufacturers, tires and rubber, and auto components and equipment are also included in the GICS categorisation of the subindustry.
Investors wishing to make investments in certain segments of the car sector may find these distinctions particularly useful.
The mutual fund and exchange-traded fund (ETF) universes that serve as the foundation for managed fund investing may also be created by a variety of investment managers using these categories.
GICS classifications may also result in car indexes in the realm of investment.
The First Trust S-Network Future Vehicles & Technology ETF (CARZ), which focusses on electric vehicle manufacturing and technology, is the best passive auto index ETF investment in the whole investing business.
By weight, the leading automakers in this fund are:
- The Tesla
- Toyota Motor Company
- Ferrari N.V.
- The General Motors Company
- Group AG Mercedes-Benz
- Volvo AB (Class B)
- The Ford Motor Company
- Honda Automobile Company, Ltd.
- Automobile Holdings Geely Limited
- Stellantis, N.V.
Among the index fund’s other noteworthy non-automotive firms are QUALCOMM, Microsoft, NVIDIA, and Taiwan Semiconductor Manufacturing Company.
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