Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Global auto makers bucked a wider manufacturing growth trend in
September, reporting a steep loss of production. Output fell at a
rate not seen since May 2020, underperforming global manufacturing
to a record extent.
The underperformance largely reflected supply delays, which rose
to unprecedented levels in September, resulting in a marked
shortfall of production relative to orders. However, while business
expectations revived in the global auto sector, both supply chains
and inflows of new orders - both of which deteriorated in September
- will need to be closely watched for signs of whether this
optimism will translate into higher production.
Global auto production slumps
Global manufacturing output growth picked up in September from
the 14-month low witnessed in August, according to IHS Markit's PMI
surveys, but the improvement was by no means broad-based. Most
notably, auto and parts makers reported a steepening production
decline, recording the sharpest drop in output since May of last
year.
Besides the downturn seen in the height of the initial pandemic
outbreak last year, the latest decline in auto production was the
steepest in the 12-year history of global sector PMI data
availability.
Chart 1: Global manufacturing output
Record autos underperformance
Moreover, of the 26 sectors covered by IHS Markit's global
sector PMI, the auto sector downturn in September stands out as
being the only major contraction of any sector. The only other
sector to report a decline in business activity was insurance,
where only a marginal decline was observed.
Chart 2: Global sector PMI output
rankings
The September drop in auto production was also notable in
representing by far the biggest underperformance of the sector
relative to all manufacturing seen over the 12-year history of the
global PMI sector data.
Chart 3: Global automaker output growth relative to all
manufacturing
This widening underperformance represents a change from the
outperformance seen in the year to June, when auto makers
benefitted from strong demand amid a pandemic-related shift from
public transport to cars.
However, the current underperformance marks a return to the
near-constant, below-par growth recorded in the three years leading
up to the pandemic, which was a period marked by falling demand for
cars amid the shift to electric vehicles and concerns over rising
tariffs due to the US trade war. New orders fell in the sector
continually between late-2018 and the start of the pandemic.
Chart 4: Global manufacturing new orders
While September also saw a return of weakening demand, with new
order inflows into the auto sector declining for the first time
since June of last year, it is worth noting that backlogs of orders
rose at an increased rate, posting one of the largest expansions
seen over the past decade as production still lagged demand. These
'pent up' orders suggest that demand is not the only cause of the
weakening production trend in September.
Chart 5: Global manufacturing backlogs of
work
Auto makers backlogs rise at one of fastest rates in a
decade
This shortfall of output relative to demand is further
illustrated by the divergence between current output growth and new
orders. Despite easing in September, the new orders index for the
global auto sector remains considerably higher than the output
index, albeit the gap narrowing somewhat from the all-time high
seen in August.
Chart 6: Global manufacturing new order minus output
growth (i.e. production surplus/shortfall relative to
demand)
The surveys therefore point to demand exceeding production
capacity over the third quarter as a whole to an extent not
previously recorded by the surveys, and a shortfall that greatly
exceeds that seen in any other sector covered by the PMIs.
Chart 7: Global manufacturing new order minus output
growth, sector rankings
Record supply delays for auto makers
The production shortfall is first and foremost caused by supply
chain delays. Average supply delivery times reported by global auto
and parts makers showed the longest lengthening on record in
September, having lengthened continually during the pandemic. The
lengthening for the sector in September also exceeded the average
for all manufacturing, suggesting car producers are facing
worse-than-average supply delays.
Chart 8: Global manufacturing supply
delays
While the supply delays were reported for a broad variety of
components, the most widely reported issues were related to the
provision of semiconductors. Some encouragement can be gleaned from
a decline in the number of global manufacturers reporting shortages
of semiconductors to have been in short supply in September,
dropping from an all-time peak in the April to May period, albeit
still running at almost eight times the long-run average to
underscore the ongoing supply challenges.
Chart 9: Semiconductor shortages reported by global
manufacturers
Future expectations: down but not out
Some further encouragement can be drawn from the PMI survey's
future expectations index, which asks companies whether they
anticipate their own output to be higher, the same or lower in a
year's time. This index had slumped to a 14-month low in August
among auto sector companies, but rebounded in September to hint at
some renewed optimism about the year ahead.
Chart 10: Global manufacturing
expectations
Whether this renewed optimism is met by reality depends not just
on the supply situation, which overall showed no sign of improving
in the auto sector in September, and the current state of demand,
which also deteriorated in September. The suppliers' delivery times
index and new orders indices will therefore be key indicators to
watch going forward.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
