If history repeats itself, the U.S. auto industry could see a decline in auto sales due to the war in Iran, according to data compiled by a Lansing-based economic consultant.
On February 28, the United States and Israel bombed Iran after President Donald Trump said Iran was building nuclear weapons that threaten American 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.
Due to the war, crude oil prices have skyrocketed in that part of the world and consumers are feeling it quickly. According to the AAA Motor Club, the average price of gasoline as of March 12 was about $3.60 per gallon. This compares to a month ago when the average price was $2.89; In fact, the price of gasoline hasn’t been this high since 2024.
What this means for the auto industry is the real possibility that new car sales will decline. In six previous instances of an oil crisis, auto sales fell by more than 10% of average sales. Three of those times, their average sales declined by 40% or more, according to Andersen Economic Group.
The group says it is impossible to predict what may ultimately happen as a result of a war in Iran, but past episodes involving war and the oil embargo have had a significant impact on U.S. auto sales.
“History shows that Americans have sharply cut back on car purchases when there have been wars, invasions and oil embargoes,” Patrick Anderson, CEO of Anderson Economic Group, said in a statement. “Although we don’t know how long this war will last or what its impact will be, such an event has caused significant declines in auto sales at least six times since the 1970s.”
Factors that can affect sales
That said, there are some important differences in how vehicles are made and used today that could save the auto industry from a sales decline compared with how cars were made and how consumers used them during the crises of the 1970s and 1990s, Anderson said. For one thing, vehicles are far more reliable and fuel-efficient than they were decades ago.
“Second, many people work from home for at least part of the work week, making their gasoline needs lower than before,” Anderson said. “Third, the United States is now energy sufficient overall. All of these factors reduce, but do not eliminate, the sensitivity of the United States to oil supplies.”
Finally, about 1% of active fleets today are electric vehicles, providing consumers with options while also keeping their existing cars longer, he said.
Still, after two tankers caught fire in an Iraqi port on March 12 after being hit by boats loaded with suspected Iranian explosives, according to Reuters, Anderson said, “We may test this (auto sales) vulnerability very soon.”
Historical Oil Events That Affected Auto Sales
Here’s the data Andersen found linking oil-related incidents to the impact on U.S. auto sales:
- 1973–74 Arab oil embargo: Auto sales declined 44.7% (domestic production only – US, Mexico and Canada).
- 1979–80 Iranian Revolution and second oil shock: Auto sales declined 40.9%.
- 1990–91 Gulf crisis (Iraq invaded Kuwait): Auto sales declined 18.6%.
- 2008 oil spike and global financial crisis: Auto sales declined 45.5%.
- 2011 Arab Spring and Libyan supply shock: Auto sales declined 19%.
- 2022 Oil price hike in Russia and Ukraine: Auto sales fell 12.7%.
modus operandi
Anderson obtained auto sales statistics and historical data from the Federal Reserve Bank of St. Louis.
Anderson Economic Group calculated the sales decline as the largest change in monthly sales rate during a 12-month period. Anderson said this is a conservative approach that focuses on a specific 12 months rather than an episode that could last two years or more and include a wide variety of events.
“We then compare that decline to average sales over the same 12-month time period,” Anderson said. “A different approach – which overstates the losses – is to calculate peak-to-trough.”
For example, the group calculated the sales decline from the 1973-74 oil embargo as 3.3 million sales — using domestic production data because it was the only reliable data at the time — using a 12-month window, Anderson said.
“If we look at a longer time frame, we see a decline of more than 4 million units,” he said.
Similarly, to account for the 2008 oil spike and global financial crisis, Anderson said the group calculated a 4.9 million unit decline in auto sales from August 2008 to February 2009.
“It’s a huge decline in a very short period of time,” Anderson said. “However, if we go back to 2007 and start with peak auto sales in October 2007, we can calculate a decline of 7.2 million units. This, in our opinion, would exaggerate the effects of the oil disruption and make it too conflated with the Great Recession.”
The group also noted that trucks’ share of sales, fuel economy, vehicle durability and U.S. energy self-sufficiency have varied significantly over the past decades. Furthermore, monthly auto sales vary from year to year, so it is not entirely possible to attribute the decline in sales to “energy prices.”
This article originally appeared on the Detroit Free Press: Iran war could have significant impact on U.S. auto sales. here’s why
Reporting by Jamie L. Lareau, Detroit Free Press/Detroit Free Press
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