The automobile industry is among the sectors that have been hit most by the recession. Demand for cars fell sharply, accentuating the difficulties of excess production capacity already faced before the crisis and deepening the economic downturn in major car-producing countries. Relative to the general downturn, the decline in car sales was nonetheless not deeper than what was observed in the past.
The automobile industry…
This chapter considers the role of the automobile industry in the current cycle. It first examines the role of the industry in the economy, before analysing the relation between the automobile and business cycles. After casting some light on the sources of the collapse in car sales at the start of the crisis, the chapter discusses the policy measures, in particular car scrapping programmes, put in place to support the automobile industry. Finally it investigates the short and medium-term prospects for the automobile industry.
The main results are the following:
…is economically important…
The size of the automobile industry relative to overall activity is small, but because of its strong linkages with other parts of the economy, the final impact of a shock in the industry on the broader economy is sizable.
… and intertwined with business cycles
The automobile and business cycles usually move in line with each other but the amplitude of the cycle is higher in the automobile industry. The volatility of the automobile industry is also higher than that of the manufacturing industries as a whole.
It has suffered from constrained credit in the crisis…
Evidence for the United States and Canada suggests that the reduction in car sales since mid-2008 has been magnified by the lack of access to credit, leading many households to postpone their car purchases. This implies that continued improvement in financial market conditions could provide an impetus to car sales.
