Cascade Die Casting Group Inc. is a manufacturer heavily concentrated in the automotive industry. Although the company recently lost business related to the closure of several General Motors plants, the industry shift from low price-point cars to higher-margin trucks and SUVs has President Patrick Greene cautiously optimistic about continued growth in 2019.
With the automotive industry focusing more on SUVs, trucks, and crossovers with higher price points and higher barriers for customers, where is the ceiling?
I think there are two things that are going to hurt the number of vehicles that are sold. Every vehicle now has more expensive safety equipment, sensors and features in it than it ever did before. All those things are adding up to a higher cost to the vehicle. And then on top of that, we also are facing higher interest rates. People that want to lease a vehicle or are borrowing money to buy a vehicle are getting sticker shock when they realize that if interest rates have doubled, then that cost of financing is double, and their cost to the vehicle, thus, is going up. That’s going to be a real challenge, a real headwind for us as we go forward. People are either going to continue to drive a car longer, or they’re going to look for a used car that has the features that they want and maybe not quite as high on the price.
And that is assuming that the price of oil is going to stay low as well.
That’s true. That one, I’m more confident on. I look at the price of gas and the fact that the U.S. now has become an exporter of oil. Now, we’re in very good shape for that and I think that we’ve never been stronger from that standpoint. There is a level of abundance of oil that we’ve not seen produced in the U.S. in our lifetime that is going to at least take some of that risk away. When you talk about people buying cars, the cost of gas is a pretty significant cost for car ownership. If we can have lower gas prices, that allows them to potentially afford a car that they otherwise wouldn’t be able to. In terms of the economy as a whole, I think the oil and gas prices are a plus for consumers, even though we’ve got interest rates and some other things going the other direction.
So it’s a balancing act, right?
That’s for sure. There are pluses and minuses in the economy, but I’ve gone to a lot of economic updates and talked to some analysts over the last three or four months, and I think that the pluses actually outweigh the minuses in the economy right now. From my perspective, and it doesn’t mean we’re going to grow fast, but I don’t see any significant risk right now of a sharp falloff in demand that looks like a recession. But the challenge of any recession is it’s always the things you don’t expect that cause it. If we anticipated them all, we’d be in good shape. Even though a lot of indicators are all positives, it’s going to be the thing we don’t expect that starts the next recession. And it’s not if it happens, it’s when it happens.
When a recession happens and people don’t have as much disposable income, will they go back to those cars with the lower price points?
That’s true. Some of the automakers right now are offering the opportunity to still buy things at a lower price point like the way that Chrysler has dealt with the minivan. They’ve got the high-end one, but then they’ve left the old Caravan minivan as an offering that is a much lower price. It’s dated, it’s got old tools. We continue to get orders on that product years after they thought they were going to cancel it. They’ve decided to continue to produce those vehicles and really the intention there is to be able to offer two different minivans. An old model that’s much cheaper and a new model that’s better. That is the kind of thing that may help offset some of the risks of driving up the price of automobiles.
How is pulling out of NAFTA and the likely adoption of the USMCA affecting your corporate decision-making?
NAFTA and the new USMCA is critical to the automotive industry because so many vehicles’ part supplies cross over those borders. And then the vehicles cross over the border. Getting that right is going to be very important. I’m pleased that at least we have gotten some level of movement toward a resolution with the new USMCA, because that one is critical to have in place and we need to get that done for the sake of all three countries involved. Ideally, it won’t impact us much. We do ship from the U.S. to our customers who are in Mexico and in Canada. That does impact us if that doesn’t come together. Especially in the automotive industry, and us being neighbors with Canada here in Michigan, it’s pretty darn important that we have a good trade agreement in place, something that can stand the test of time as we go forward.
Interview conducted and condensed by Jessica Young.