Daily Management Review

US Economic Growth Dragged Down By Chip Woes Faced By Detroit Car Makers


US Economic Growth Dragged Down By Chip Woes Faced By Detroit Car Makers
The slump in the performance and production of the auto sector of the United States so far this year is more than a big issue for Detroit because it has turned out to be a major issue for the American economy.
During the third quarter, America’s growth in gross domestic product slipped to its worst rate in more than a year, at an annualized rate of only 2 per cent. The pace of growth in the preceding quarter was more than three times higher.
The car sector was by far the greatest weak spot in Thursday's dismal GDP figure even though there was a curb on consumer spending growth as the Delta variant of the coronavirus swept over the country in July, August, and September had a large part in the slowdown.
Over the third period, American economic growth was slowed down by the car industry overall by 2.4 percentage points.
That was the most significant drop in the American output in four decades caused by the performance of Detroit-based companies, and one that has not been witnessed except during a recession.
In the spring of 2020, a two-month-long contraction in the US economy was triggered by Covid-19 and since then there has been a recovery in the economy.
A global lack of semiconductor chips is the fundamental cause of the car industry's problems so far this year as such chips are necessary for operating all of a contemporary vehicle's complicated systems. However, as the global economy is recovering from the lockdowns of last year, those chips are in high demand across the board, and not only in the car industry, and they have become a global shortage.
That has resulted in a decline in American auto manufacturing in six of the previous nine months, and it is currently at a level that is commonly witnessed during a recession.
The assembly of 7.51 million vehicles in September was the slowest for Detroit carmakers since the industry's shaky comeback from the financial crisis in 2010, excepting a brief dip to virtually zero during the Covid-19 shutdowns.
It's also reflected in the current state of inflation in the United States. The chip scarcity is only one piece of a complicated jigsaw puzzle of variables pushing inflation to its greatest level in decades, but it has thrown pricing dynamics into disarray like never before in the car industry.
Consumers who are seeking a vehicle bid up old car prices since new cars are so hard to access currently. Used automobile prices soared by more than 10 per cent every month for three months in a row earlier this spring.
As a result, the gap between new and used automobiles and light trucks has widened to its biggest in history, favoring used vehicles.