Saturated cars drag the global economic downturn

The auto industry is in recession faster than expected, with a series of economic threats.

In 2018, the auto industry experienced a “severe recession” in production and business, forecasting a similar decline this year, according to the International Monetary Fund (IMF). The IMF sees this industry as a key factor in the decline in industrial output, and believes that the prolonged recession will directly affect the global economy.

Most say that stagnant car sales “won’t last long,” said IMF chief economist Gita Gopinath. In addition, the barriers to reviving the industry “appear more durable than we thought”.

The auto industry represents 20% of the recession in GDP and approximately 30% of slow growth in global trade, according to the latest IMF World Economic Outlook report published this month. The decline occurs when some automobile markets reach their maximum saturation – or “extreme automobile consumption” – and the opposite movements in automobile supply and demand are threatening to engulf the industry. deeper karma.

Limitations of supply

Carmakers face tougher pressures on regulating profits and trade tensions that directly impact their core businesses.

More stringent anti-pollution laws are being implemented across the EU and China, forcing carmakers to focus more on technologies that limit emissions. The imposition of tariffs between the United States and China also increased the price of major carmaking materials, eroding the profitability of carmakers.

The trend towards autonomous and electric vehicles is also proving to be very expensive. New technologies require a wide range of expensive research and development costs, as well as the need to overhaul the production line to accommodate complex battery packs, road sensors, and connectors. .

Car and component manufacturers have also issued a series of alarm signs. Volkswagen on October 30 lowered its sales target, predicting that “the automobile markets will shrink faster than previously anticipated in many regions of the world.” Continental parts company announced a record reduction of $ 2.8 billion on October 29, showing that expectations of the global market are becoming weaker and weaker.

General Motor recently ended a five-week strike after it plans to close factories, invest in autos and cut manpower.

Weak demand

In that situation, the demand for cars of global consumers becomes less than ever. Carpooling and carpooling services are replacing personal vehicles in densely populated areas, the IMF said. The saturation of cars also poses a problem, as the population in developed markets has exceeded the years when they bought the most cars, WSJ said.

Many consumers are also “waiting and watching” in buying cars because advances in technology and electric car production are rising strongly worldwide, according to the IMF report.

As car sales in healthier economic regions have plummeted, market development has not been able to revive the gloomy sales as fast as car companies have expected. China’s auto market is stagnant because the country has grown to saturation and tax incentives have also reached an expiry date, the IMF said. Car sales in China fell 12% last year. Indian consumers are even less interested in cars, with sales down 14% in the same period.

The number of people buying cars tends to increase in income-increasing markets, but slight increases did not occur “at the rate we expected,” Gopinath said, “Demand for long-lived goods. as high as cars haven’t come back yet. “