Panicking during a market downturn is the expected and therefore boring choice. However, when it comes to the auto industry, investors should consider backing off their contrarian instincts. While the sector itself should continue to make fundamental gains over the long run, picking survivors is a different story.

For one thing, it’s no secret that the auto industry represented one of the worst market performers last year. From iconic, homegrown powerhouses to their Japanese rivals, very few escaped Wall Street’s extreme pessimism. Geopolitical tensions, a tough competitive environment, even a changing culture has negatively impacted this space.

Among the deflated contenders, only Tesla (NASDAQ:TSLA) stands out as the market segment’s “bright spot.” On a broader level, this dynamic makes logical sense. Unlike the traditionalists, Tesla is a proud disruptor. They do things their way, which has sparked rather interesting responses.

However, TSLA is no standard-bearer. Yes, shares did eventually close up for the year nearly 7% (6.66%, to be exact), but that enthusiasm quickly collapsed. Now, even the avant-garde Tesla finds itself on the precipice of joining its “analog” peers.

Can anything bring back the auto industry? Certainly, the situation isn’t hopeless. However, I’d exercise extreme caution in your ultimate pick.

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    The Auto Industry has Challenges on All Fronts

    A major problem in exploring the contrarian position with the auto industry is momentum. To put it bluntly, the sector is currently spinning its wheels.

    According to the latest statistics, automotive revenues for lightweight passenger vehicles have stalled. The situation is much worse for American car companies, which have deteriorated in popularity since the mid-1990s. Although domestics dominate in heavy-duty trucks, that segment alone can’t sustain the entire sector.

    Worse yet, Millennials just aren’t that into cars like prior generations. This is the demographic that routinely uses services like Uber or Lyft. And now that Google has introduced its Waymo driverless ride-hailing program, fewer reasons to own a car exist.

    With Generation Z coming to age shortly, this headwind could accelerate.

    If these challenges weren’t bad enough, the economic conflict between the U.S. and China could derail some domestic producers. Although the broader economic impact from the trade war is limited, individual names remain vulnerable. Right now, the Chinese aren’t in a mood to buy cars, let alone American ones.

    Should that dust settle, I’m not sure if domestic firms can reestablish their Chinese revenue stream. Due to President Trump’s alienating rhetoric, Japan and China now have closer ties. Moreover, German automakers, which have significant production facilities in the U.S., will likely benefit more from potential peace talks.

    As such, I’d wait before jumping onboard the auto industry. But if you can’t wait, you should probably avoid “made in the USA.”

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