Category Archives: Auto Industry

Understanding the Seventh District’s economic slowdown in 2015

As I noted on this blog in February 2015, 2014 was a pretty good year for the Seventh District. Real District gross state product (GSP) grew 1.2%, the unemployment rate fell from 7.3% to 5.8%, and payroll employment grew 1.5%. The strong finish to 2014 led me to feel quite optimistic for how 2015 would turn out. Unfortunately, it has become increasingly clear that economic activity in the Seventh District has steadily slowed as 2015 has progressed. While the District is certainly not in recession, it is now likely growing at a below-trend pace. In this blog post, I provide evidence of the slowdown and explore how the fortunes of District states’ signature industries have both contributed to and helped mitigate the slowdown.

While we wait for the GSP data for 2015 to be released (due out in June), arguably the best overall indicator we have for 2015 District economic activity is our Midwest Economy Index [1] (I should note here that we will be releasing a new survey-based activity index later this month). Figure 1 shows values for the MEI from 2014 to the present. The index was well above zero throughout 2014, indicating that growth was consistently above trend. Just as 2015 began, the index began to decline, and it entered negative territory in June. The most recent reading of the MEI (for November 2015) indicates that District growth is somewhat below trend.

1-MEI

Some important indicators included in the calculation of the MEI are payroll employment, the regional Purchasing Manager Indexes (PMIs) [2], and per capita personal income. Not surprisingly, they also largely suggest that economic activity in the District slowed in 2015. Figure 2 shows that while District payroll employment grew by an average of 23,000 jobs per month in 2014, the pace of growth slowed to only about 12,000 new jobs per month in 2015. Figure 3 shows the simple average of the five PMIs available for the Seventh District. This average also indicates that economic activity declined notably starting in 2015. As a counterpoint, figure 4 shows that the pace of growth in real personal income per capita has not slowed much in 2015: The annualized growth rate for 2014 was 3.08% and the available data for 2015 (through Q3) indicate that the annualized growth rate has only slowed to 2.94%.

2&3-Emp&PMIs

4-RIPC

While the preponderance of evidence suggests that Seventh District economic activity slowed in 2015, it turns out that the experiences of individual states within the District have been quite different. Figure 5 shows the sum of the contributions to the MEI for the eastern states of the District (Indiana and Michigan) and the sum for the western states of the District (Illinois, Iowa, and Wisconsin). Growth in 2014 was above the District’s long run trend in both sub-regions, but the western states outperformed the eastern states. The pace of activity in the eastern states picked up steadily through the first half of 2015 and has since slowed to near the District’s trend. This experience contrasts quite notably with that of the western states. Activity in these states began to slow at the end of 2014 and continued to slow until the middle of 2015, at which point conditions improved some.

5-WEMEIs

One approach to understanding the different experiences of eastern and western District states is to do an economic base analysis for each state. Such an analysis identifies the industries whose employment is especially concentrated in a state (and therefore likely quite important for the state’s economy) by calculating a location quotient (LQ). A location quotient is the ratio of the share of employment in an industry in a state to the share of employment in an industry in the U.S. as a whole:

Formula

As an example, if the machinery industry’s share of employment in Michigan is 1.3% and the machinery industry’s share of employment in the U.S. is 1%, then the location quotient is 1.3, and we say that the machinery industry is 30% more concentrated in Michigan than in the U.S. as a whole.

For this blog post, I calculate location quotients for each state for each of the 3-digit NAICS industries that are available from the Bureau of Labor Statistics’ (BLS) payroll employment survey.[3] I then consider the industries in each state with a location quotient greater than 1.5. This approach successfully identifies the signature industries one typically thinks of for each state in the District. For example, the analysis picks up Michigan’s auto industry, Indiana’s steel industry, and Illinois’s, Iowa’s, and Wisconsin’s machinery industry.

Table 1 shows the high-location quotient industries for Indiana and Michigan, along with the percentage of overall employment the industry represents and the year-over-year employment growth rate of the industry from November 2014 to November 2015. With the exception of the primary metals industry (where employment fell by 0.93%), employment grew for all of Indiana’s high-LQ industries and was solid for most of them. The story is even clearer in Michigan, where the auto industry dominates. Employment in the transportation equipment industry grew 4.59% over the past year.

To summarize the overall growth of District states’ flagship industries, I calculate the average growth rate for the industries, weighted by their relative size. Employment in Indiana’s flagship industries grew 1.35% over the past year, while employment in Michigan’s flagship industries grew 3.38%. Thus, even though the pace of growth in economic activity slowed in Indiana and Michigan in the second half of 2015, it was still a good year for both states.

6-Table 1

The story is more mixed for the states in the western part of the District (table 2). Machinery (and the fabricated metal producers who support them) has not faired well in the past year: Illinois, Iowa, and Wisconsin all saw notable declines in machinery and fabricated metal employment (with the exception of Wisconsin’s machinery employment, which was flat). However, Iowa and Wisconsin were helped by strong growth in other flagship industries (food products in both Iowa and Wisconsin and finance in Iowa). Illinois has few other flagship industries to help it, though it’s worth noting that Chicago has fared much better than downstate Illinois because of its concentration in business services and finance. Average employment growth for Illinois’s high-LQ industries was dismal (-2.04%), while growth was solid for Iowa’s (1.58%), and slow for Wisconsin’s (0.73%). Thus, although some flagship industries have done well in the western states in the District, the struggles of the machinery industry appear to have put quite a damper on their economic performance.

7-Table 2

So we see that the overall slowdown in the District in 2015 was not a shared experience across District states. The eastern states (Michigan and Indiana) did notably better than the western states (Illinois, Iowa, and Wisconsin) and these differences are relatively consistent with the performance of states’ flagship industries. What does the future hold for these flagship industries? At the moment, it’s hard to find much evidence that there will be a significant reversal of fortunes in 2016. The auto industry is likely to continue to benefit from steady growth in the U.S. economy and low gasoline prices, while the machinery industry is likely to continue to suffer from weaker global growth and depressed commodities prices (which hurt demand for both mining and agriculture machinery).

That said, while flagship industries certainly play an important role in a state’s economy because of all the related industries that support them, there are still many industries that are not closely related to them. For example, Iowa’s contribution to the MEI has been negative for most of 2015 (not shown), likely because of the struggles in the farming industry (see the Chicago Fed’s latest AgLetter for more details). The converging trends in the MEI (figure 5) suggest that these other factors are also making their presence known.

[1] The MEI is a weighted average of 129 Seventh District state and regional indicators measuring growth in nonfarm business activity from four broad sectors of the Midwest economy: manufacturing, construction and mining, services, and consumer spending.

[2] The PMIs included in the index are for Chicago, Iowa, Detroit, and Milwaukee.

[3] Data are not available for all 3-digit NAICS industries because there is not sufficient employment in some industries in some states for the BLS to be able to cover them accurately.

Detroit Association of Business Economists 2015 Annual Automotive Outlook

On January 22, 2015, the Detroit Association of Business Economists (DABE) held its annual Automotive Outlook Symposium at the Detroit Branch of the Federal Reserve Bank of Chicago. The event was attended by approximately 50 guests, including DABE members together with other local business leaders, academics, and media representatives. I was among the speakers, as was Peter Sweatman, director of the University of Michigan Transportation Research Institute (UMTRI).

Sweatman was appointed UMTRI director in September 2004. UMTRI was created in 1965 with the main goal of improving vehicle safety and sustainable transportation in the U.S. and around the world. It currently has a staff of 102 full-time researchers, faculty, graduate students, and administrative staff affiliated with the University of Michigan, who have conducted over 1,000 research projects over the years. In its latest endeavor, UMTRI has created a public/private research and development partnership called the Michigan Mobility Transformation Center (MTC). The goal of the MTC is to be in the forefront of research and development of vehicle connectivity. This includes vehicle to vehicle (V2V) and vehicle to infrastructure (V2I) technology. As Sweatman pointed out, it’s not just about transportation but about safe and sustainable personal mobility that transcends just getting from one place to another. The vehicles of the future will free the occupants from many of the hands-on tasks and decision processes that are part of operating a vehicle today. By doing this, it is believed that the driving experience can be transformed into a much safer and more productive and enjoyable experience for the vehicle occupants. The major goal of the initiative is to make vehicles of the future much safer by adding technology that will aid in accidence avoidance. Vehicles will not only be able to communicate with one another, they will also be linked with their surrounding environment. For example, Sweatman explained that the connected vehicle (CV) technology could warn drivers before they reach areas of dangerous weather, poor visibility, or other hazardous road conditions. The vehicle could be programed to respond to these conditions on its own either by adjusting its speed or offering alternative routes or a truly autonomous vehicle could choose to take an alternative route on its own. If the driver were to decide to continue to travel on the perilous road, the CV would inform the driver of any accidents in path ahead immediately giving the driver or the vehicle time to adjust accordingly.

CV technology is in its infancy today, and there is still a lot of research and development to do before it can be implemented. To aid in this work, MTC has adopted a plan in collaboration with the Michigan Department of Transportation (MDOT). The plan has three pillars:

  1. Ann Arbor Connected Vehicle Test Environment (2014+)
  2. Southeast Michigan Connected Vehicle Deployment (2015+)
  3. Ann Arbor Automated Vehicle Field Operational Test (2016+).

Pillar 1 of the connected vehicles (CV) pilot deployment program commenced on August 21, 2012, and included a pilot deployment of 2,836 vehicles— cars, trucks, buses and motorcycles—equipped with wireless communication devices in the Ann Arbor area. This phase ran for six months and was extended for an additional three years by the U.S. Department of Transportation.

Pillar 2 will test the rationality of connected vehicles by implementing a jump from research to regional deployment. It will include 20,000 vehicles together with 500 infrastructure nodes located based on safety and congestion needs and the installation of 5,000 vehicle and pedestrian safety devices. The U.S. has invested approximately $1.0 billion dollars over a ten-year span for this research.

Pillar 3 will include an automated Ann Arbor, where a select group of industry and government partners will work together. This phase will include testing in a simulated city (M City) a $6.5 million 32-acre site located in Ann Arbor near the University of Michigan campus and is scheduled to open in July 2015.

The investment that has taken place so far is likely just the tip of the iceberg in terms of what will be needed to complete a national intelligent transportation system. Sweatman argued that if the needed investment is made to complete a national system, it will not only provide an opportunity for the U.S. to lead the world in developing a CV technical knowledge base, it will also lead to the creation of numerous high-tech jobs in Michigan and throughout the country.  For more information on this topic, follow some of the links provided in this article or on the University of Michigan Transportation Research Institute website.

Following Dr. Sweatman’s presentation there was a short presentation summarizing the 2014 light vehicle industry. Here are some of the highlights from that presentation. There were 16.434 million light vehicles sold in the U.S. in 2014 making it the best year the industry had seen since 2006, when 16.504 million light vehicles were sold. Although job growth has been good in the auto industry, the pace of growth has slowed in conjunction with the slowing pace of growth in sales. As a result, the automotive and parts sector added 41,600 jobs in 2014, down slightly from the peak job growth year of 2012 when the industry added 59,600 jobs. Average hourly earnings of automotive manufacturing workers, which were flat for most of the period following the 2008 recession, grew only slightly in 2014, up just 0.5% when adjusting for inflation. According to data from J.D. Power and Associates, vehicle incentives as a percentage of total vehicle prices rose to 9.1% in 2014, while the average transaction price for a new vehicle grew to an estimated 56.7% of median household income. One of the more controversial developments of 2014 was the number of vehicles recalled. According to data from the National Highway Traffic Safety Administration, vehicle manufacturers recalled almost 64.0 million vehicles in 2014, the most ever reported. And, of course, the biggest story was the reduction in gasoline prices through the year, with the national average for a gallon of regular gasoline falling more than $1.10 from December 2013 to December 2014. This resulted in about $600 per year in fuel cost savings for the average driver. Looking ahead, there will be 16.9 million and 17.0 million light vehicles sold in the U.S. in 2015 and 2016, respectively, according to the Blue Chip Indicators consensus forecast. If you’d like to see more information or to view the entire presentation you may click here.

Michigan Automotive, More Than Production

By Thom Walstrum and Bill Testa

The dispersion of auto assembly line-type jobs from Michigan to the rest of the U.S. has been widely discussed. But it may be important to examine whether other jobs in the automotive value chain have also dispersed, particularly R&D and headquarters-administrative jobs. It is possible that a sizable part of automotive R&D and administration are spatially separable from production, with important implications for the economic health and growth prospects of Michigan.

To shed some light on this, we use microdata from the IPUMS CPS[1] to track trends in production, office, and R&D jobs in both Michigan and the rest of the U.S. We sort any individual who reports working in the auto industry into one of these three occupational categories. For example, we classify engineers and technicians as R&D and assembly line workers as production workers. (We further classify as “other” those occupations that could fall into multiple categories, such as security or janitor).

Figure 1 shows that total employment in the automotive industry has been relatively steady in Michigan, averaging 413,000 from 1970 to 2005. Since then, there has been a distinct decline; by 2012, Michigan’s auto employment was 262,000. In contrast, auto employment steadily increased in the rest of the U.S., rising from 588,000 in 1970 to a peak of 974,000 in 2007. The rest of the U.S. also saw heavy losses in the second half of the 2000s, with auto employment at 710,000 in 2012.

Trends in the R&D segment of the auto assembly are quite different. As figure 2 shows, R&D employment in Michigan grew steadily until the 2000s, from 28,000 in 1970 to a peak of 90,000 in 2001. Growth in R&D jobs in the rest of the U.S. generally kept pace, though with the exception of a couple years in the early 2000s, the majority of R&D jobs have resided in Michigan.

And so we see that R&D employment has made up an increasing share of overall auto employment in Michigan. In 1970, 6 percent of Michigan’s auto employment was found in R&D. By 2012, this share had climbed to 22 percent. This contrasts sharply with the rest of the U.S., where the proportion of auto employment in R&D grew from 1 percent in 1970 to 6 percent in 2012. Looking more broadly, 46 percent of Michigan’s employment is in either R&D or office occupations, compared with 24 percent in the rest of the U.S. At least by this measure, Michigan remains the nerve center and the creative engine of the U.S. auto industry, even as production jobs have dispersed.

This glimpse of the changed employment composition of Michigan’s auto assembly sector raises further questions. In particular, what is the outlook for Michigan’s R&D activities in light of the shifting geography of auto production activities? And what, if any, public policies might be influential to R&D’s continued success in the state?

________________________________________

[1]cps.ipums.org. IPUMS CPS provides an occupation variable that is unified across changing occupational coding schemes from 1968 to present. The CPS survey combined Michigan and Wisconsin from 1968 to 1976. To allow the time series to extend back to 1968, we calculated by employment category the proportion of worker-years Wisconsin contributed to combined MI-WI totals from 1977 to present. We then used that proportion to scale down the pre-1977 MI-WI employment numbers to represent only Michigan and to scale up the ROUS numbers so to include Wisconsin. (Return to text)

Mexico’s Growing Role in the North American Auto Industry

Thomas Klier

Mexico’s auto industry has experienced tremendous growth since the mid-1980s. Last year, 19% of all light vehicles produced in North America originated in Mexico (see table 1). That is up sharply from 20 years ago and puts Mexico ahead of Canada in terms of the number of vehicles produced.

Table 1: Distribution of light vehicle production in North America

Source: Author’s calculations based on data from Wards Auto Infobank.

On May 30, a panel of distinguished experts gathered at an event hosted by the Detroit branch of the Chicago Fed to discuss factors behind Mexico’s growth as a vehicle producer.

Most of the presentations are available here.

Also, see a recent Chicago Fed Letter on the same topic.

Mexico has a long history of vehicle production; by the late-1930s Ford, GM, and Chrysler were producing vehicles in the country. Over the years, the Mexican auto industry was shaped by economic development policies put in place by the Mexican government. Starting in the mid-1960s, a policy of import substitution favored production of vehicles and parts within Mexico. A number of years later, the policy focus changed to export promotion, which encouraged Mexican producers to seek international markets for their products. In 1995, Mexico, the U.S., and Canada signed the North American Free Trade Agreement (Nafta). It established a framework and set out a timetable for boosting trade among the three countries. In the process, Mexico has become a very attractive export platform for North, Central, and South America (see table 2). In fact, the country has negotiated more than 40 free trade agreements, more than any other North American country. In addition, Mexico has benefited from a general improvement in its manufacturing competitiveness during the past few years. Its productivity-adjusted wages are the lowest among major manufacturing countries, it is an energy rich country, and it has a history of manufacturing (35% of the country’s GDP is represented by manufacturing).

Table 2: Light vehicle exports from Mexico by destination region

Source: Brendan Case, Alan Ohnsman, and Craig Trudell, 2012, “Automakers boost investing on vehicle factories in Mexico,” Bloomberg, November 13, available at www.bloomberg.com/news/2012-11-14/automakers-boost-investing-on-vehicle-factories-in-mexico.html.

In that context, it comes as no surprise that last year Mexico exported 83% of its light vehicle production. In fact, growing exports explain nearly all of the growth in Mexican light vehicle production during the last 30 years or so. Mexican light vehicle production is up by 2.4 million units since 1985. During the same time, its light vehicle exports rose by 2.3 million units. Lately it has been foreign-headquartered vehicle producers, such as Nissan, VW, Mazda, and Honda that have announced expansions of their Mexican production operations, continuing the upward trend of Mexican light vehicle exports.

Not as visible but at least as important is the ongoing growth of motor vehicle parts suppliers in Mexico. Companies large and small continue to invest in order to keep up with growing demand for parts in vehicle assembly in Mexico, as well as to feed the supply chain north of the border. Supply chain linkages, however, extend in both directions. Due to the integrated nature of the North American auto industry, growth in Mexico’s vehicle assembly has resulted in growing U.S. motor vehicle parts exports to our neighbor to the south.

Mexico’s Growing Role in the North American Auto Industry

Thomas Klier

Mexico’s auto industry has experienced tremendous growth since the mid-1980s. Last year, 19% of all light vehicles produced in North America originated in Mexico (see table 1). That is up sharply from 20 years ago and puts Mexico ahead of Canada in terms of the number of vehicles produced.

Table 1: Distribution of light vehicle production in North America

Source: Author’s calculations based on data from Wards Auto Infobank.

On May 30, a panel of distinguished experts gathered at an event hosted by the Detroit branch of the Chicago Fed to discuss factors behind Mexico’s growth as a vehicle producer.

Most of the presentations are available here.

Also, see a recent Chicago Fed Letter on the same topic.

Mexico has a long history of vehicle production; by the late-1930s Ford, GM, and Chrysler were producing vehicles in the country. Over the years, the Mexican auto industry was shaped by economic development policies put in place by the Mexican government. Starting in the mid-1960s, a policy of import substitution favored production of vehicles and parts within Mexico. A number of years later, the policy focus changed to export promotion, which encouraged Mexican producers to seek international markets for their products. In 1995, Mexico, the U.S., and Canada signed the North American Free Trade Agreement (Nafta). It established a framework and set out a timetable for boosting trade among the three countries. In the process, Mexico has become a very attractive export platform for North, Central, and South America (see table 2). In fact, the country has negotiated more than 40 free trade agreements, more than any other North American country. In addition, Mexico has benefited from a general improvement in its manufacturing competitiveness during the past few years. Its productivity-adjusted wages are the lowest among major manufacturing countries, it is an energy rich country, and it has a history of manufacturing (35% of the country’s GDP is represented by manufacturing).

Table 2: Light vehicle exports from Mexico by destination region

Source: Brendan Case, Alan Ohnsman, and Craig Trudell, 2012, “Automakers boost investing on vehicle factories in Mexico,” Bloomberg, November 13, available at www.bloomberg.com/news/2012-11-14/automakers-boost-investing-on-vehicle-factories-in-mexico.html.

In that context, it comes as no surprise that last year Mexico exported 83% of its light vehicle production. In fact, growing exports explain nearly all of the growth in Mexican light vehicle production during the last 30 years or so. Mexican light vehicle production is up by 2.4 million units since 1985. During the same time, its light vehicle exports rose by 2.3 million units. Lately it has been foreign-headquartered vehicle producers, such as Nissan, VW, Mazda, and Honda that have announced expansions of their Mexican production operations, continuing the upward trend of Mexican light vehicle exports.

Not as visible but at least as important is the ongoing growth of motor vehicle parts suppliers in Mexico. Companies large and small continue to invest in order to keep up with growing demand for parts in vehicle assembly in Mexico, as well as to feed the supply chain north of the border. Supply chain linkages, however, extend in both directions. Due to the integrated nature of the North American auto industry, growth in Mexico’s vehicle assembly has resulted in growing U.S. motor vehicle parts exports to our neighbor to the south.

How Do High Gas Prices Impact Detroit Vehicle Producers?

by Thomas Klier and Ryan Patton

The Detroit automakers (Chrysler, Ford, and GM) appear to be making headway in their market shares during this era of high and volatile fuel prices. If so, this represents something of a turnabout.

When the price of gasoline rises quickly, Detroit usually tends to struggle in the marketplace. It is not surprising that increases in the price of oil can lower the demand for automobiles. But the Detroit automakers feel the pinch more than their foreign-headquartered competitors. Those companies produce a more fuel-efficient mix of vehicles, not least because their home markets face much higher taxes for gasoline and, therefore, they need to focus on fuel efficiency all the time, not just when gas prices go up.

Let’s take a closer look at the two most recent episodes when the price of gasoline in the U.S. rose quickly and to similar levels. Between October 2007 and July 2008, the price of gasoline rose by 45%, topping out at $4.06 per gallon in the summer of 2008 (see figure 1). Just over two years later, after giving back all of its increase and then some during the second half of 2008, the price of gas rose in a similar fashion from September 2010 to May 2011, when it peaked at $3.91 per gallon. (Figure 1 also includes a third episode of rising gasoline prices. It is shorter in duration than the other two, ending in April 2012 with gasoline topping out around $3.90.)

Figure 1

Note that these two episodes took place at different points of the business cycle. During the first half of 2008, the U.S. economy was in a deep recession: GDP was contracting, and light vehicle sales were falling fast. The second period takes place after the recession ended. At that time, vehicle sales were rising, albeit slowly. During both periods of rising gasoline prices, consumers purchased an increasing share of cars versus trucks, especially small and midsize cars (see table 1).[1]

In combining data on vehicle fuel efficiency (available from www.fueleconomy.gov) with vehicle sales, we can calculate the change in the fuel efficiency of all new vehicles purchased during the respective periods (see table 2). Not surprisingly, we find that during periods of high and rising gasoline prices, consumers on balance favor cars over trucks. This effect was more pronounced during episode 1, which mostly took place during the recession. In both episodes, consumers purchased a more fuel-efficient mix of vehicles. That effect was stronger during episode 1 when the sales-weighted fuel efficiency of light vehicles rose by 5%, and fuel efficiency increased in seven of the eight vehicle segment groups.

How well did the Detroit producers fare in the market place during these two episodes? Overall the Detroit producers lost market share during the first episode, but gained market share during the second episode (see figure 2).

Figure 2:

Given that consumers purchased a more fuel-efficient mix of vehicles in both episodes, it is possible that the improved market share gains of the Detroit automakers reflect improvements in the fuel efficiency of their products. To explore this hypothesis, we focus on the small and midsize car segments, the part of the market in which Detroit has traditionally not done well during periods of high gasoline prices. Tables 3 (small cars) and 4 (midsize cars) tell the story. During the second episode of rising gasoline prices, Detroit’s product offerings, even among the small cars, fared noticeably better than during episode 1. The tables highlight only the top five selling small and midsize models, measured in units sold, for both the Detroit producers and their competitors. For each model, the tables report the market share and fuel efficiency (averaged across individual trim lines and combinations of engines and transmissions on offer).

Note that all continuing Detroit models listed became more fuel efficient over time. In addition, new models, such as the Chevy Cruze, were successfully launched. But not only did the fuel efficiency of the Detroit carmakers’ products improve, so did their market share. In both segment groups, the five best-selling Detroit models as a group picked up market share—nearly 3 percentage points in small cars and just over 6 percentage points among midsize cars.

Click to enlarge

Click to enlarge

The previous two tables suggest that it was indeed improved product offerings that resulted in market share gains for the Detroit producers. There is, however, a caveat to this interpretation: Episode 2 took place shortly after the March 2011 earthquake and subsequent tsunami in Japan, which severely affected its manufacturing sector. It is possible that Detroit’s gains in this period were related to supply constraints among Japanese competitors.

We try to get some additional insight by looking at a more recent, though less sustained, episode of gasoline price increases. Between December 2011 and April 2012, the price of gasoline rose quickly to $3.90 per gallon. While episode 2 took place shortly after the earthquake, episode 3 covers a period that includes the recovery of the Japanese producers, notably Honda and Toyota, from production constraints related to the earthquake. (The industry press suggests that both companies had returned to full production by September 2011; see for example a story from Automotive News).[2]

Tables 3 and 4 also provide information from the last three months of episode 3, and we can see that a couple of trends continued: All of Detroit’s continuing models became more fuel efficient, and Detroit’s market share continued to be higher than in episode one in both segments, despite the abating supply constraints for the Japanese producers. On the other hand, the Japanese producers regained market share, especially for the midsize car segment. Note the strong increase in market share for the Toyota Prius, a vehicle exclusively produced in Japan, between episodes 2 and 3. Four of the five top-selling midsize cars not produced by the Detroit carmakers were produced by Japanese carmakers. The share of those four dropped by nearly 10 percentage points between episodes 1 and 2, likely reflecting supply constraints. By April 2012, it had recovered 3 percentage points. In small cars, the market share rebound of Japanese models was smaller in magnitude, with Detroit’s share barely falling back between episodes 2 and 3.

We conclude that, on net, the evidence suggests that the relative improvement in market shares of small and midsize vehicles produced by the Detroit automakers during the first half of 2011 was due to both product improvements in fuel efficiency and supply constraints experienced by their Japanese competitors.

Much has been written about renewed consumer interest in the fuel efficiency of vehicles (see for example here). Detroit appears to have taken note of this trend—leading to positive results in the marketplace.

______________________________________________________________________________________

[1]Consumers tend to substitute vehicles subject to the utility they expect to obtain from a specific vehicle, such as transporting a family, towing a boat, or mainly commuting to work. Substitutions across specific vehicle models likely involve vehicles within the same or closely related segment groups (Table 1 distinguishes four segment groups each for cars and trucks). Trucks tend to be less fuel efficient as a group. For example, in 2011 the sales weighted average fuel efficiency for cars was 26.0 mpg; for trucks it was 19.2 mpg. (Return to text)

[2]We do not have evidence of changes in the relative price of Detroit’s versus the Japanese companies’ products during this time. Note, however, that episode 3 includes the Chevrolet Sonic, the only subcompact currently being produced in the U.S. Its production is supported by a special labor agreement with the UAW that provides for a much higher share of entry-level wages being paid at the Orion, Michigan plant, where the car is being produced (see, for example, the following story in the New York Times).(Return to text)

Auto Sales and the Seventh District

by Paul Traub

Continued improvement in U.S. light vehicle sales has been good news not only for the automotive industry, but also for the Seventh District. The chart below plots the percentage change in U.S. light vehicle sales against the percentage change in real gross state product for the District from 1991 through 2010. It should not come as any surprise that these two factors are very highly correlated (correlation coefficient of 0.82, where 1.00 would imply a perfect correlation) since four of the five states in the District currently have automotive assembly plants. If we add Ohio’s assembly production to that of the Seventh District states—Iowa, Illinois, Indiana, Michigan and Wisconsin—the region accounts for roughly 50 percent of the total U.S. automotive production. Given this relationship, we would expect last year’s increase in light vehicle sales (up 10.2 percent in 2011 over 2010) to have a favorable impact on the District’s overall economic growth for 2011—those numbers are due to be released later this year.

And so far in 2012, sales of light vehicles in the U.S. continue to outperform expectations. The seasonally adjusted annual sales rate for April 2012 was reported to be 14.4 million units; year to date through April, the rate has risen to 14.6 million units. In addition, the share of vehicles sold in April that were produced in North America was estimated to be about 77.3 percent. This is a significant increase from February 2009, when the percentage of North American produced light vehicles sold in the U.S. dropped to just 70.5 percent, reaching its lowest share since November 1986; at the same time overall sales volumes were bottoming at levels not seen since 1974.

So how do we assess the strength of the current auto sector recovery? The following chart shows the current light vehicle sales recovery compared with those that followed auto industry downturns in 1970, 1974, 1981, and 1991. For comparison purposes, an index for each downturn was created by setting the trough for each cycle to 100. This index comparison shows just how much more severe the initial sales decline was in the 2009 auto recession compared with the average of the previous four downturns. However, it is interesting to see that the current recovery has followed the average of those four recoveries fairly closely, except for two notable points in time. At both of those points in time, there were identifiable events that seem to have had significant effects on the auto industry.

The first event was the Car Allowance Rebate System (CARS), also known as “cash for clunkers.” This was a $3 billion program that was intended to provide an incentive for Americans to purchase more fuel-efficient vehicles by trading in their less fuel-efficient ones. The Department of Transportation reported that nearly 700,000 clunkers were taken off the road during this program, resulting in 684,941 new vehicle purchases. It’s difficult to say exactly how many of those sales were incremental purchases, but it resulted in a spike in vehicle sales as purchases were pulled ahead from subsequent months. The decline in the sales rate immediately following the end of the program made it appear as if the recovery in vehicle sales might be stalling.

The second event that stands out clearly is the March 2011 earthquake in Japan. While it is difficult to calculate the earthquake’s precise impact on U.S. light vehicle sales, it is clear that the auto industry’s recovery was adversely affected by the supply disruptions that followed this disaster. Over time, however, this might have added to pent-up demand as consumers waited for product availability from their preferred manufacturers.

Even with these two outliers in the data, this auto sector recovery seems to track average past auto sector recoveries fairly closely for the 12 quarters following the bottom of the cycle.

The recent recovery of the U.S. auto industry has been good for the Seventh District for many reasons, but most notably for employment. Between December 2009 and March 2012, the District has seen a 2.9 percent increase in nonfarm payroll employment, compared with an increase of 2.7 percent nationally. Even better, the District has seen a 9.1 percent increase in manufacturing jobs, compared with an increase nationally of just 4.1 percent. In fact, the Seventh District has accounted for 38 percent of the entire nation’s manufacturing jobs added during this timeframe. And it looks like there may be potential for adding even more jobs in the Midwest if auto sales continue to rise.

The May 2012 Blue Chip consensus for U.S. light vehicles for calendar year 2012 now stands at 14.5 million units having been increased five times since bottoming in October of 2011 at 13.3 million units. That equates to a 1.2 million unit increase in the light vehicle sales forecast. And at 14.5 million units, this forecast is still 100,000 units below the industry’s performance year to date, which implies that there may be further upside potential for auto sales in the coming months. Next year looks even better— 2013 sales of light vehicles are now projected to be 14.9 million units.

This recent surge in sales appears to have taken some of the region’s auto producers by surprise. General Motors announced this week that it is increasing its U.S. light vehicle forecast for 2012 by 500,000 units, bringing its revised forecast up to 14.0 to 14.5 million units. Ford Motor Company’s expectations for this year seem to be even more optimistic, anticipating total sales of 14.5 to 15.0 million units. In fact, according to a recent article in the Financial Times, Ford plans to add 400,000 units of production capacity. However, its market share still might fall, because production increases are lagging demand. And Chrysler announced that it will not be observing its traditional two-week summer shutdown in four of its assembly plants, so that it can produce additional vehicles to address the increase in demand. This news from Chrysler is especially good for the District, which hosts three Chrysler assembly plants—two in Michigan, the Jefferson North Assembly Plant and Sterling Heights Assembly, and one in Belvedere, Illinois.

Even though the pace of this improvement seems to have come as somewhat of a surprise, there were indications that sales were getting ready to improve. As reported earlier this year by R. L. Polk, the average age of cars and trucks on U.S. roads hit a new record of 10.8 years on July 1, 2011. That is up from 10.6 years in 2010. Used vehicle prices have continued to increase, providing the consumer with added equity to use as a down payment at trade-in. Employment levels are slowly improving, helping to improve consumer sentiment, as measured by the University of Michigan’s Consumer Sentiment Index. In addition, Comerica Bank announced that vehicle affordability, as measured by vehicle price relative to median income, recently improved to its best reading since the third quarter of 2009. And finally, higher fuel prices might actually be working as an incentive for consumers to replace their less fuel-efficient vehicles with newer more fuel-efficient ones. So, all things considered, there may be more positive surprises in our future.

Trends in Motor Vehicle Trade—A U.S. Perspective

by Thomas Klier

Motor vehicles tend to be sold near where they are produced. However, when local demand does not suffice to support a dedicated assembly plant, some vehicles are shipped across longer distances, including across oceans. The share of newly produced light vehicles (cars and minivans, sports utility vehicles or SUVs, and pickup trucks) exported from the U.S. to countries other than Canada or Mexico averaged only 4% of U.S. light vehicle production between 1996 and 2011. The share of new vehicles imported from outside the NAFTA (North American Free Trade Agreement) area was somewhat higher over this period, at 19%, as the U.S. has traditionally run a trade deficit in cars and light trucks.[1]

This blog updates our earlier analysis on U.S. vehicle exports and adds some discussion related to vehicle imports.

Exports

During the past two years, exports of new and used vehicles from the U.S. have continued the strong growth exhibited since 2003. After the sharp decline of activity during the latest recession, exports rose again sharply and, by the end of 2011, had nearly matched the pre-recession peak reached in 2007 for new vehicles and in 2008 for used ones (figure 1).

Figure 1

Source: USITC

Table 1 provides more detail regarding destination countries and regions for exports of new and used light vehicles from the U.S. While Canada and Mexico together represent the primary destinations, the relative importance of these two NAFTA partners has fallen a bit since 2007 (representing 55% in 2011, down from 64% four years ago), as most of the growth in exports of U.S. produced new vehicles originated from elsewhere (figure 2). Last year, Germany and China were as important as Mexico as destination for U.S produced new vehicles. Exports of used vehicles, on the other hand, are much more dispersed; Nigeria, Benin, and the United Arab Emirates jointly account for nearly one-third of all U.S. used-vehicle exports.

One of the factors behind this trend is the implementation of new trade agreements, such as the U.S. free trade agreement with South Korea, which was ratified in November 2011 and reduces South Korea’s tariff on passenger vehicle imports from 8% to 4%. Both the Detroit-based carmakers (Ford, General Motors, and Chrysler) and Honda and Toyota have announced a noticeable increase in exports of vehicles produced in the U.S. to South Korea. In the case of the Japanese-based carmakers, the decision to export to South Korea from North America instead of from Japan is likely influenced by exchange rate trends, which have strengthened the yen for some time.

Another phenomenon that has coincided with the increase in the share of non-NAFTA destinations has been the arrival in the U.S. of premium producers, such as Mercedes and BMW, that now ship output from their U.S. locations to countries around the world. While the U.S. and more generally, North America, very likely represent the largest single market for vehicles produced at the U.S. plants of these two producers, they tend to export a much higher share of their the U.S.-based production than a typical mass producer of vehicles. Furthermore, their U.S.-based plants are the sole producers of specific products, suggesting that their role in motor vehicle exports from the U.S. is not being jeopardized by the current lower rates of capacity utilization in the European motor vehicle industry.

Figure 2

Source: USITC

Table 1

Source: USITC

Imports

Data on imports of vehicles sold in the U.S. are available for a much longer time frame. Vehicle imports have averaged 20.6% of U.S. sales since 1980. That share declined rapidly during the decade between the mid-1980s and the mid-1990s—a time when foreign-based producers quickly expanded their production capacity within North America, ramping down their imports of finished vehicles from overseas in turn. This “onshoring” of vehicle production has a corresponding impact on the trade in motor vehicle parts. When an overseas producer’s vehicle assembly plant is first set up in the U.S., the so-called domestic content, that is, the share of parts sourced from within the U.S., is noticeably lower than that of a comparable native assembly plant. Over time, however, the domestic parts content of vehicles produced by foreign-headquartered producers tends to rise significantly.

Since the mid-1990s, the import share of U.S. sales has been trending up again as additional companies have entered the U.S. market. The small car segment, of heightened interest to consumers in times of rising gas prices, represents a relatively small share of the overall market in the U.S. and many of the small vehicles sold in the U.S. tend to be produced overseas. However, the import share of U.S. vehicle sales has declined by 4 percentage points during the past two years (figure 3) despite rising gas prices –gas prices were rising from the beginning of 2009 through May of 2011. Figure 3 also illustrates that cars continue to represent a large majority of imported vehicles.

Figure 3: import share in US light vehicle sales (blue line) and car share in US vehicle imports (red line)

Note: Imports are defined to originate in non-NAFTA countries.

Source: Ward’s autoinfobank

Figure 4 shows that the decline in the vehicle import share results from a decline in imports from Asia, as European imports have continued their steady increase exhibited over the last 15 years. Japan, by far the largest source country of U.S. vehicle imports from Asia, was negatively affected last year by the earthquake and subsequent tsunami. However, the decline in imports starts earlier than that, suggesting a contributing role of the yen/dollar exchange rate, which started a steady decline (strengthening of the yen) in 2007. In fact, while the share of U.S. light vehicle sales represented by imports from Asia peaked in 2009, the share of U.S. sales represented by vehicles produced in North America by Asian headquartered carmakers continued to rise through 2010, barely showing a decline in 2011. By the end of February 2012, that share had reached 30.4%, surpassing the previous peak from 2009 (29.9%). In other words, the share of U.S sales represented by North American production of foreign headquartered carmakers did not experience the same decline as that of vehicles imported from Asia.

Figure 4: Import share of US light vehicle sales by region of origin

Source: Ward’s autoinfobank

Combining both of these developments, rising exports of new vehicles, up 50% since 2009, and declining imports of light vehicles, nearly flat since declining by a million units between 2007 and 2009, have resulted in the smallest U.S. trade deficit in light vehicles since 1998 (see figure 5).

Figure 5: U.S. vehicle imports and exports

Note: The data for exports and imports are drawn from two different sources and don’t necessarily match up perfectly.

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[1]Data on imports, sales, and production, are from Ward’s Auto Group, Auto Infobank, online database; data on exports are from the United States International Trade Commission website. Note that the definitions in both data sets don’t match perfectly. Ward’s data are based on individual vehicle models and their size classes. The trade data on vehicle imports are defined, at the most disaggregated level, by fourteen 10-digit codes and distinguish passenger vehicles from vehicles for the transport of goods, engine type, and engine capacity.(Return to text)

Automotive Outlook and the Regional Economy

by Paul Traub

On Thursday, January 19, 2012, the Detroit Association for Business Economics (DABE) held its annual Automotive and Economic Outlook luncheon. This event is held each January at the Detroit Branch of the Federal Reserve Bank of Chicago in memory of Robert Fish—a past president and founding member of the DABE. Meeting in the Detroit area since 1975, the DABE is a chapter of the National Association for Business Economics (NABE). The DABE meets six times between September and May, and members and guests have the opportunity to hear from experts on various sectors of the economy. As the DABE’s premier event, the annual January luncheon always coincides with the Detroit International Auto Show, and it featured two experts on the automotive sector.

The speakers at this year’s event were Kristin Dziczek, who is the director of the labor and industry group at the Center for Automotive Research (CAR), and George Magliano, who is the senior principal economist for IHS Automotive. Both speakers have more than 20 years of experience in researching the automotive industry and manufacturing. Dziczek’s presentation titled 2011 Detroit 3 – UAW Labor Contracts was an in-depth review of the results of the 2011 UAW (United Auto Workers) contracts and their impact on the labor costs and competitiveness of the Detroit Three automotive manufacturers (Chrysler, Ford, and General Motors). Magliano’s presentation titled US – Light Vehicle Outlook was just that—a concise analysis of what to expect in the coming years from the U.S. automobile industry, particularly in terms of sales of light vehicles (cars and light trucks).

Dziczek provided automotive employment forecasts for the United States and Michigan, as well as an overview of the 2007 UAW contracts and details on the final 2011 UAW contracts. Additionally, she provided insights into issues that the Detroit Three and the UAW will need to address through 2015. Dziczek said that the Detroit Three’s U.S. automotive employment numbers had started falling years before the 2008–09 recession; Detroit Three domestic employment appeared to bottom out in 2009, at about 170,000 employees. She explained that by 2009 the Detroit Three had shed almost 240,000 employees in the U.S., or 58% of their domestic work force, in just eight years. In Michigan, the Detroit Three had seen their employment fall by 112,000, or 52%, over the same period. The good news is that CAR projects total Detroit Three employment in the U.S. to increase by 18%, or 31,000 employees, over the period 2009–15, reaching a level of 201,000. Also, Detroit Three employment in Michigan is predicted to jump by 32%, or 33,000 employees, over the same period, totaling 135,000 by 2015. Based on these forecasts, we can see that CAR is expecting U.S. automotive jobs to reconcentrate in Michigan—at least to a certain degree.

In 2007, the Detroit Three and the UAW were able to agree on labor contracts that Dziczek considered “a game changer.” Important aspects of the contracts included the use of voluntary employee beneficiary associations (VEBAs[1]); a two-tier wage structure that lowered the entry-level hourly wage to $14.00; and no pay increases. To compensate workers for no annual pay increases, the Detroit Three agreed upon a signing bonus of $3,000; lump-sum profit sharing distributions as a percent of an employee’s base pay of 3% in 2008, 3% in 2009, and 4% in 2010 (the last two were suspended in 2009); a cost-of-living adjustment, or COLA (also suspended in 2009); pension increases; and some product guarantees[2] (some of which were never fulfilled). The most significant result of the new labor agreements was that the average hourly labor cost was reduced from $72–$78 per hour to about $50–$58 per hour. All of these changes set the stage for the 2011 labor contracts, which involved some additional changes to the previous contracts that Dziczek called “evolutionary, not revolutionary.” These changes included such cost containment strategies as the elimination of the jobs banks (which paid laid-off workers a high percentage of their salaries for an indefinite period); the continuation of the suspension of the COLA; and no pension increases at this time. Like the 2007 contracts, the 2011 contracts helped keep the Detroit Three’s costs competitive with those of other major automotive manufacturers. Dziczek pointed out that one important issue that bears watching in 2015 is how the two-tier wage structure is addressed. The initial agreement had a cap on the number of entry-level workers—more specifically, only a certain percentage of total employment could be made up of such workers. The UAW would like to see that cap kept in place, while the auto companies would like to see it either increased or removed altogether. Other critical issues include limiting pension liabilities; pushing to increase employees’ share of health care costs; and staying the course on variable compensation (profit sharing versus wage increases).

George Magliano provided a detailed and informative macroeconomic outlook, on which he based his light vehicle forecasts. Magliano explained that, of course, the major risk to his economic forecast is the European debt crisis. According to IHS and Magliano, even though Europe is in a recession, the U.S. economy is expected to continue to grow slowly over the forecast horizon. Magliano’s forecasts for 2012 are as follows: Real gross domestic product (GDP) will grow about 2.0%, employment will rise by 1.2 million, Consumer Price Index (CPI) inflation will remain at 1.5%, oil prices will settle at about $91 per barrel, and housing starts will remain weak (at around 730,000 units). Long-run real GDP growth is expected to settle at 2.5%–3.0%, and payroll employment is predicted to remain below its previous peak (in 2007) until 2015. The slow growth in employment will keep income growth down while households will continue to save more, keeping the long-term trend for consumption at around 2.0 percent.

Even with these somewhat conservative assumptions about the economy, all is not doom and gloom for the auto industry. Light vehicle sales are expected to continue to increase over the coming years, driven by the pent-up demand that has been created over the past few years. Another positive for the automakers is that retail vehicle sales, rather than fleet vehicle sales, remain the main driver of growth. This is an important part of the industry’s recovery in that margins on retail sales are greater than those on fleet sales. This factor—along with stronger used vehicle prices, lower vehicle incentives, and reduced cost-pressures on the manufacturers—should help to keep the automakers profitable, even in the face of a slow-paced economic recovery. Magliano said that IHS predicts light vehicles sales will be about 13.5 million in 2012 and 16.2 million in 2015. Going forward, the mix between car sales and light truck sales will move back in favor of car sales (54% car sales versus 46% light truck sales), as the manufacturers deal with impending higher fuel economy standards. With the recent UAW contract concession discussed above and other capacity restructuring, the auto industry has become more profitable, as evidenced by the fact that it is already making money at volumes well below the peaks reached back in the early 2000s. The bottom line is that the auto industry is in the best shape it has been in many years and is therefore well positioned to withstand economic adversity, claimed Magliano.

As evident in these two presentations, there is much to be optimistic about when it comes to the U.S. auto industry—even the prospects for the original domestic manufacturers look better. The domestic auto industry should come out of this latest recession a lot stronger than it was in 2007, as long as the industry’s stakeholders are willing to continue to work together to keep costs in line with those of foreign competitors.

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[1]A voluntary employee beneficiary association (VEBA) is a type of trust fund that can be used to provide employee benefits. The UAW agreed to a form of VEBA with the Detroit Three thus removing the liability for health care from the accounting books of the Detroit Three.(Return to text)

[2]A product guarantee is a type of commitment that identifies where future vehicles or components will be produced.(Return to text)

Digging Out of a Hole – A View from Detroit

Paul Traub

Digging out of a hole sounds like an oxymoron, but that seems to be what is happening with this particular economic recovery compared with recoveries from past recessions. Rather than the more rapid growth we would expect from the type of recession the U.S. just experienced, the economy is experiencing very tepid growth. The latest gross state product (GSP) data show just how slowly the recovery is proceeding for the Seventh District. [1]

Even though the District is leading the nation during the recovery in its manufacturing and agricultural sectors, as of the end of 2010 its total output is still lower than it was in 2005. The District is making some progress, but the direction of the recovery does look more like tunneling out of a hole than a vertical assent.

To get a sense of how different this recovery is, we can look at past rebounds from recession. For example, on average, three years after the start of the previous two recessions, the region had already experienced expansion of over 10.0%. By 2010, three years after the start of the 2007 recession, total GSP for the District is still 2.6% below its 2007 level. This hole is pretty deep.

It is important to note that the recession was not evenly distributed across all District states. The following chart shows the GSP for each state in the District indexed to calendar year 2000. It can be seen here that Michigan never really recovered from the 2001 recession. In fact, Michigan’s previous GSP peak was eight years earlier back in 2003.

While Wisconsin, Indiana, and Illinois seem to have tracked each other very closely over the past decade, Iowa has shown the strongest growth of all the states in the District. In fact, Iowa has experienced 21.3% growth since 2000. Its growth has been supported by a rise in agricultural commodity prices and the fact that it didn’t experience a housing price bubble, which has allowed the real estate sector to continue to show growth over the last decade. On the other hand, Michigan’s economy, which has been hurt significantly by declines in auto sales, has shown the weakest growth, its 2010 total GSP is still below where it was in 2000.

The next chart compares real state product growth in the District states from 2009 to 2010 with the nation as a whole.

The District grew at 2.8% in 2010, compared with 3.0% for the nation. Two of the five states grew at rates greater than the nation and four out of five states grew faster than more than half the states in the country. Michigan, which has been struggling for the past decade, actually did quite well growing at 2.9% and coming in at 16th place among all the states. Indiana, Iowa, Wisconsin and Illinois placed 3rd, 13th, 23rd, and 32nd, respectively.

In terms of job growth, the region’s economy may be performing slightly better than the nation overall in 2011. Through June 2011, the District had created jobs at a faster pace (0.9%) than the nation as a whole (0.7%), albeit from a much lower trough.

Michigan, which lost population in the last census, actually led the District in the first half of this year with job growth of 1.9%, it ranked 4th in the nation in growth of nonfarm payroll jobs. On the other hand, Indiana ranked last with employment down 0.4% in July 2011 on a year-to-date basis.[2] Even though Indiana has seen a decline in total nonfarm July 2011 year-to-date, the state has experienced job gains in two sectors, mining and logging (1.5%) and manufacturing (1.2%).

Still, total nonfarm payroll employment in the District remains well below its previous peak. In fact, as can be seen in the following chart, nonfarm payroll employment for the District is still below where it was in 1996. In addition, the nation as a whole has also seen a sharp decline in nonfarm payroll jobs since the start of the latest recession — nonfarm payroll employment for the country is currently about where it was in 2004.

If we take a closer look at manufacturing employment data for the nation and the District, we see an even more distressing picture. Since 1990, the nation and the District have lost about 35% of their manufacturing jobs. This is equivalent to over 6.0 million jobs nationally, of which the District accounts for about 1.1 million. At its peak in 2000, the District accounted for 19.1% of the nation’s manufacturing employment. By July 2011 its share had fallen to about 18.6%. Also at the peak in 2000, the region had 474,000 auto related jobs, which accounted for about 14.4% of the region’s manufacturing employment. As of July 2011, manufacturing employment in the region was 2.2 million jobs, of which 203,600 or 9.3% were in the auto industry.

Some of the employment declines have come about from labor-saving productivity improvements, but many are the result of declining U.S. auto sales together with declining market shares of the Michigan-based Detroit 3 auto makers and their suppliers.

In the past couple of months total light vehicle sales have been disappointing but, on the bright side, the traditional domestic manufacturers have been doing relatively well. In fact, on a year-over-year basis through June of this year, the Detroit 3 collectively saw sales increase by 15.5% versus an increase of just 7.6% for the industry as a whole. The Japanese manufacturers experienced a decline in sales on a year-over-year basis of 11.6%, largely due to supply disruptions as a result of devastating earthquake in Japan. In addition, some customers may be postponing purchases until the Japanese manufacturers can get their inventories replenished. Thus, absent the impact of the earthquake and related supply disruptions, auto sales overall would have been stronger in recent months.

It remains to be seen when auto sales will regain the positive momentum they had shown earlier in the year but despite recent setbacks, the August 2011 Blue Chip consensus for light vehicle sales for 2012 is 13.6 million units. This is a 30.1% increase from the 10.6 million units sold in 2009 and an increase of 1.4 million units from the July SAAR of 12.2 million units. In addition, Ward’s Automotive is projecting that by 2012, vehicle production in the District will be up by 2.3 million units from its low point in 2009. If these projections are correct we would expect to see some more positive gains in manufacturing employment for our region — especially Michigan. Meanwhile, we just have to keep digging.

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[1]GSP is the equivalent of GDP at the national level – the sum total value of all goods and services.(Return to text)

[2]State rankings include the District of Columbia. (Return to text)