Global auto production has declined 32% on a year-ago basis largely because of the combined impact of the global trade war and pandemic.
There are signs that the disruptions to global supply chains will be lifted.
But as dour as that reality is, there are signs that the disruptions to global supply chains will ease as the global economy emerges from a deep slump and the United States begins re-establishing trade relations and rolling back tariffs next year with its major trade partners, excluding China.
The re-emergence of global auto production will be a major part of the economic narrative in 2021.
The breadth of the global supply chain and the depth of the global manufacturing recession in 2019-20 might best be summarized by the auto sector. Parts manufactured in Italy are used to assemble cars in China. The Lincoln MKZ is assembled in Mexico, using only 31% U.S. content. And auto parts famously cross the Canada-U.S. border several times among manufacturers before final assembly, making it difficult if not silly to try to assess the degree of domestic content.
The global manufacturing recession caused by the U.S. trade war resulted in a decline in the production of vehicles in 2018 and 2019 before the pandemic ate its way into the psyche of consumers and into business demand for vehicles.
Data from the pandemic-induced shutdown is subject to volatile swings, and data for this year is available only through the second quarter. Nevertheless, on a year-to-date basis, there has been a 32% worldwide reduction in vehicle production relative to the second quarter of 2019, according to the Bureau of Transportation Statistics. That suggests a deep hole from which the global economy will need to extract itself.
Of course, this will be driven by the intensity of the second wave of the pandemic and how quickly governments can move to produce and distribute a vaccine. In our estimation, this will be a multiyear process on a global basis.
As to domestic production, the U.S. auto sector that once produced 44% of all consumer and commercial vehicles worldwide held only a 12% share by 2019, according to the International Organization of Motor Vehicle Manufacturers.
General Motors and Ford are reimagining their products and competing with Tesla for the electric market, which is something that should be promoted to the best that public policy allows.
The manufacturing sector holds an outsized role in supporting the service sector and in creating household wealth, which cannot be overlooked.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
