Le Dossier De Presse

Recent Developments in the Automobile Industry

The automobile industry plays an important role in overall business cycle developments. Although the

industry accounts for only a small share of industrial output in most OECD economies (around 5½ per cent

in the median OECD economy), it is comparatively volatile and can thus, at times, make a large

contribution to aggregate fluctuations in economy-wide activity. And with the location of final assembly

and motor parts production having become increasingly internationalised over time, disruptions to supply

in one country, as in the aftermath of the earthquake and tsunami in Japan this March, can potentially have

adverse near-term effects in others.

This note takes stock of recent developments in global car production and sales and explores the

extent to which they are contributing to the softening of global activity in the second quarter of 2011. 1

• A sharp downturn in motor vehicle and parts production accounts for a sizable proportion (well

above the direct share of output in total production) of the observed slowing in the growth of

economic activity since the early part of 2011. The direct impact of the decline in vehicle and

parts production in the second quarter is equivalent to a reduction in the annualised rate of GDP

growth of 2½ percentage points in Japan, around ½ percentage point in China and between 0.1 to

0.2 percentage points in the United States, the United Kingdom and France.

The

main findings are the following:

• There are clear signs of global supply-chain effects, with production disruptions in Japan in the

aftermath of the earthquake and tsunami having direct effects on production, sales and prices in

other countries.

• In the major economies, the level of new car sales in April and May is estimated to have been 4¾

per cent below that in the previous two months. This points to some possible underlying

weakness in car demand, and thereby private consumption, in the second quarter of this year,

even allowing for the impact of shortages in availability and rising car prices due to supply-side

disruptions and the effects from the phasing-out of earlier schemes to support car demand.

• At current low levels, car sales are well-below estimated longer-term trend levels in many OECD

economies, suggesting that scope remains for strong, pent-up demand for cars to emerge as the

recovery progresses.

Motor vehicle and parts production

After declining sharply following the onset of the recession, car production has recovered gradually

since the latter half of 2009, helped by considerable direct government support as well as the boost to

demand provided by assorted temporary car scrapping schemes to encourage new sales. In the first quarter

of 2011, car production in the United States and Germany was over 20% higher than a year earlier, with

1 . The note follows on from the earlier analysis of Haugh et al. (2010).

2

production in the United Kingdom and France having risen by 16% and 7%, respectively. This strong

growth in production was an important contributor to the pick-up in GDP growth over the same period.

In May 2011, when OECD Economic Outlook 89 was published, the global recovery was projected to

gain further momentum only slowly, with the adverse supply-side shocks from high commodity prices and

the earthquake and its aftermath in Japan expected to result in lower activity in the second quarter of 2011,

including car production and sales. In particular, anecdotal evidence was already starting to appear that the

supply-chain effects of the Japan earthquake could be larger than first assumed. Subsequent evidence has

revealed the sizable extent to which motor vehicle production in Japan and elsewhere has been adversely

affected, and the large contribution this has made to the softer growth of industrial production in several

economies (Figure 1):

• In Japan, the average level of passenger car production in March and April was 55% lower than

in January and February, with production declining to a level last seen in early 2009. Production

of motor parts declined by 40% in the same period. Together, the production shortfalls in these

industries accounted for almost one-half of the large aggregate decline in Japanese industrial

production in these months, as well as for a large proportion of the sharp drop in Japanese export

volumes. The subsequent bounce-back in production of passenger cars and parts in May

represents around three-quarters of the aggregate rise in total industrial production that month.

Assuming that production rises by a further 5½ per cent in June (broadly in line with the Survey

of Production Forecast), the decline in passenger car and motor parts production in the second

quarter is directly equivalent to a decline in GDP of just under 2½ percentage points at an

annualised rate.

•

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