- Demand for new cars is falling in the US, according to HSBC.
- Honda, Nissan, Ford, and General Motors have announced thousands of job cuts in Europe.
- Trade wars are hurting international auto exports and reducing demand.
- But there is hope – “industrial recessions” don’t last very long, and there may be an immediate bounceback.
The world is cooling off its love affair with cars, and that is a factor pushing the global economy toward recession, according to two economists at HSBC.
To make their point, they produced the below chart comparing new car registrations to retail sales in the US. The US economy has been doing well, and shoppers have kept up their retail demand. But the same can’t be said for automobiles:
“Car demand is in decline due to a greater focus on environmental policies, increased urbanisation and investment in alternatives – be it on- demand cars or public transport,” according to the HSBC economists Janet Henry and James Pomeroy.
Sales of smaller “passenger cars” have been in decline for a while in the US. But sales of SUVs and trucks have held up. Overall, total vehicle sales are flat but the longer term trend is that sales growth is in decline.
It’s not just the US. The car industry in Europe is shrinking, in terms of jobs:
- Honda has announced it will close its plant in Swindon, England, with the loss of 3,500 jobs.
- Honda also plans to close a factory in Turkey.
- Nissan said it would not build its X-Trail SUV in Sunderland, England.
- General Motors announced it was shutting seven plants globally in November, with 14,000 jobs lost, reduced or moved.
- Ford is cutting operations in Europe with the loss of “thousands” of jobs.
- Jaguar Land Rover in January said it would cut 5,000 jobs in the UK.
“Parts of the world are already in industrial recession,” Henry and Pomeroy said in a note to clients seen by Business Insider.
The HSBC pair are most concerned about the reduction in global trade and the effect that has had on global exports. Trade wars – the US versus China and Britain versus the European Union – have hit manufacturers the hardest as companies and consumers try to reduce their exposure to uncertain international markets. In so doing they have reduced their aggregate economic output, hurting jobs.
‘Much of the weakness in the global economy has been concentrated in the manufacturing sector’
The damage has been uneven. The US and China are still doing relatively well thanks to their governments’ fiscal stimuli. But industrial production in Europe and Japan is suffering.
“The surprise indices for the Eurozone and LatAm have collapsed since mid-2018 and consensus growth forecasts for the major economies have been lowered aggressively over the past six months or so,” the HSBC note said.
“The consensus estimates for the US and China in 2018 are still completely unchanged from their June forecasts, while the full-year outturn for German GDP growth of 1.5% was 0.9% percentage points below its April consensus forecast. Japan’s was 0.7ppts below and the latest consensus for Latin America is 1.2ppts below the mid-year consensus high.”
“Much of the weakness in the global economy has been concentrated in the manufacturing sector: the global manufacturing PMI has dropped by 3.6 points since the beginning of 2018 while the services PMI has edged down by 1.6 points,” the note said.
There may, however, already be light at the end of the tunnel. “Industrial recessions” tend to be short, just a couple of quarters. And most of the major economies are based in services and not manufacturing. In Germany, analysts expect the industrial sector to bounce back from a contraction in the second half of 2018.
“There are tentative signs that the worst of the industrial downturn may now be behind us in Europe and Japan, particularly as some of the one-off country-specific factors start to wane,” Henry and Pomeroy said.
Read more about the troubles of the auto industry:
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