Deutsche Bank: The Turnaround In Auto Manufacturing In Q3 Will Send GDP Surging

The current downturn on automobile sales may be slamming the U.S. economy right now, but the turnaround in Q3 will make GDP look fantastic, according to Deutsche Bank.

First, the awful current numbers.

From Deutsche Bank:

Following an -8.9% decline in April motor vehicle production, the level of production so far in the quarter appears to be down nearly -29% at an annualized rate relative to Q1.  If sustained in June, this would be the largest drop on record, bigger than the -23% decline experienced in Q1 2009 during the height of the economic downturn.

The chart below shows that a 30% decline in motor vehicle production could shave 2% off the GDP for Q2. Deutsche’s estimation is that the negative impact on the GDP will end up looking more like 1.5% because this production cutback is due to post-Japan tsunami supply line interruptions, not economic fundamentals.

And that’s good news for Q3 and Q4 as production should ramp up as the supply line normalizes.

From Deutsche Bank:

We calculate that motor vehicle production could add roughly two percentage points to underlying GDP in both Q3 and Q4 2011. If so, we should be able to realise our forecast of +3.9% second half growth. One positive industry anecdote has recently come from the Toyota Motor Corporation which said that it plans on being at 90% of planned production this month and 100% of normal production by this August.

This, however, counts on a v-shaped bounce back for motor vehicle production. Toyota’s latest comments suggest that’s a possibility, but there’s reason to doubt the turnaround will be so abrupt, including Japan’s continued struggle to put together its rebuilding strategy in the wake of political instability.

If it does materialise, there’s a lot on offer here in terms of Q3 GDP growth.