Iran War Could Significantly Impact US Auto Sales. Here’s Why

If history repeats itself, the U.S. auto industry could see a decline in auto sales in part because of the war in Iran, according to data compiled by Lansing-based economic consultants.

On February 28, the United States and Israel bombarded Iran after President Donald Trump said Iran was developing nuclear weapons that threaten America’s allies and could “soon” reach the shores of the United States. Iran retaliated by attacking Israel and Middle Eastern countries that host US military bases.

The war has led to fluctuations in the prices of crude oil from that part of the world and consumers are feeling it where they come from. The average price of gasoline reached $3.60 per gallon as of March 12, according to the AAA auto club. That compares to one month ago when the price was $2.89; in fact, gasoline has not been that expensive since 2024.

What the car industry is saying is that new car sales are likely to increase. In the past six oil crises, auto sales have fallen by more than 10 percent of average sales. In three of those periods, average sales fell 40% or more, according to the Anderson Economic Group.

The group notes that it is impossible to predict what may happen in the end as a result of the Iran war, but past episodes involving wars and oil embargoes have had significant effects on US auto sales.

“History shows that Americans cut back on car purchases when there are wars, invasions, and oil embargoes,” said Patrick Anderson, CEO of Anderson Economic Group, in a statement. “While we don’t know how long this battle will last or what the results will be, at least six times since the 1970s, an event like this has caused a significant drop in car sales.”

Factors that can affect sales

That said, there are important differences in the way cars are built and used today that could protect the auto industry from declining sales compared to the way cars were built and used by consumers during the recessions of the 1970s and 1990s, Anderson said. For one thing, cars are more reliable and fuel efficient than decades ago.

“Secondly, most people work from home for at least half of the work week,” Anderson said, reducing their need for as much fuel as in the past. “Third, the US now has enough energy. All these factors reduce, but do not eliminate, the vulnerability of the United States to oil supply shocks.”

Ultimately, about 1% of the fleet in operation today is electric vehicles giving consumers that option and holding existing vehicles longer, he said.

Still, as two tankers caught fire in an Iraqi port on March 12 after being hit by boats suspected of being loaded with Iranian explosives, according to Reuters, Anderson said, “We may be looking at this (car sales) in jeopardy soon.”

Historical oil events that have impacted automobile sales

Here’s the data Anderson found covering oil-related events that have impacted US auto sales:

• 1973-74 Arab Oil Embargo: Auto sales drop 44.7% (domestic production only – US, Mexico and Canada).
• 1979-80 Iranian Revolution and Second Oil Shock: Auto sales dropped 40.9%.
• 1990-91 Gulf Crisis (Iraq invades Kuwait): Car sales dropped 18.6%.
• The 2008 Oil Spike and the global financial crisis: Car sales fell by 45.5%.
• The Arab Spring and Libya of 2011 provided a shock: Car sales fell by 19%.
• 2022 Oil price hike in Russia and Ukraine: Auto sales down 12.7%.

How to do it

Anderson drew on historical data from auto sales statistics and the Federal Reserve Bank of St.

The Anderson Economic Group listed the sales decline as the largest change in monthly sales volume over a 12-month period. Anderson said this is a sequential approach that focuses on a specific 12 months rather than an episode of two or more years and involves different events.

“We then compare that drop to average sales over the same 12-month period,” Anderson said. “An alternative approach – which tends to exaggerate the loss – is to calculate the maximum value.”

For example, the group calculated the drop in sales since the 1973-74 oil embargo as 3.3 million sales — using domestic production data because it’s the only reliable data from that time — using a 12-month window, Anderson said.

“If we look at the long term, we see a decrease of more than 4 million units,” he said.

Similarly, due to the oil boom in 2008 and the global financial crisis, Anderson said the group recorded a 4.9 unit decline in vehicle sales from August 2008 to February 2009.

“That’s a huge drop, in a very short period of time,” Anderson said. “However, if we go back to 2007 and start from the peak of auto sales in October 2007, we can calculate a decline of 7.2 million units. That, in our view, would be an exaggeration of the effects of the oil crisis and combined with the deep recession.”

The group also noted that trucks’ share of sales, fuel economy, vehicle durability, and energy independence in the US varies greatly over the decades. Also, monthly auto sales vary from year to year, so it doesn’t mean sales are down entirely due to “power prices.”

This article is from the Detroit Free Press: Iran war could have major impact on US auto sales. Here is the reason

Reporting by Jamie L. LaReau, Detroit Free Press / Detroit Free Press

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