Third quarter auto production to be significant boost to U.S. GDP

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Apparently, the U.S. auto industry is working off a significant backlog of inventory because I have been hearing that pretty much everyone in North America is planning to ramp up production for the third quarter.  This is prima facie evidence of the huge inventory-based production changes which I have said will make Q3 and Q4 look much better than Q1 and Q2.  In April, in my post “The Fake Recovery,” I said:

Obviously, this means that U.S. Q1 and perhaps even Q2 GDP will be very low due to the subtraction of inventories now being purged. However, when we get to Q3 and Q4, this effect will be gone and quarterly and yearly comparisons will look favourable. So the inventory purge may mean a huge upside surprise to GDP in the second half of the year and early 2010 – potentially enough to see positive GDP numbers.

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The automakers are doing their part to make this story come true.

  1. Chrysler (via Bloomberg):

    Chrysler Group LLC, the U.S. automaker created out of bankruptcy last week, said it will resume production at seven vehicle plants the week of June 29.

    The facilities are in Michigan, Ohio, Missouri, Ontario and Mexico, the company said today in a statement. Chrysler reopened a Detroit car factory on June 15. Other assembly plants may not open until late July after they are reconfigured to build 2010 models, spokeswoman Dianna Gutierrez said in an interview…

    Based on the current sales level and limited production, Chrysler’s inventory may be well under 200,000 at the end of July, said Haig Stoddard, an automotive analyst at IHS Global Insight’s Troy, Michigan, office.

  2. Ford (via USA Today):

    Ford is boosting its third-quarter production schedule after seeing more demand for its cars and trucks in June, the company said Monday.

    Ford (F) plans to increase production by 16% compared with the third quarter of 2008. The automaker had said it would increase production 10%, but is adding another 25,000 vehicles because it’s seen some stabilization in June auto sales, to be reported Wednesday.

    The news comes amid several preliminary reports that June sales have been stronger than recent months. Last week, Edmunds.com and J.D. Power reported that June sales had increased significantly compared with May sales.

  3. GM (via WSJ)

    …The deep discounts that General Motors Corp. and Chrysler Group LLC have offered to boost sales are also likely to bolster June sales.

    Those factors suggest "the worst is behind us," Mr. Pipas said. "Even if sales fail to hit the 10 million milestone, we’re still not slipping back." A GM spokesman also said an annualized 10 million sales rate is possible for June.

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Expect Q3 to be significantly better than Q2.  Moreover, we should also expect Q2 to be well above the -5.5% annualized GDP change we saw for Q1 in the U.S.

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