The automotive market, a mirror of the situation of the world economy

Tuesday 04 April 2023

April 2023 | 2 minute read      

The automotive market, a mirror of the situation of the world economy

Author: Bastien Drut
Chief Thematic Macro Strategist, CPR AM

The car is one of the symbols of modern civilization. Some worship it and others try to do without it, even hate it, but the state of the automotive market is in our opinion a true reflection of the situation of the world economy.


Everyone has heard it: automotive production has been extremely disrupted since the start of the covid crisis, largely due to problems with the supply of components and, in particular, semiconductors. There has certainly been some improvement in recent months, but semiconductor supply times remain historically high and car production therefore remains very weak compared to normal. If we take the case of the United Kingdom, car production in 2022 was the lowest since 1956. But even in a country like Germany, the shock is severe since the production of cars in 2022 was 26% lower than in 2019, which constitutes an interesting point of comparison because it was the last full year before the covid crisis. In the United States, automobile production improved a little in 2022, but this fell again at the very end of 2022 and at the start of 2023.


Two points should be emphasized here:

  1. First, we can clearly see that the semiconductor industry is absolutely crucial for the economy and that the question of industrial sovereignty is tightly bound to this.
  2. Second, we can clearly see that the automotive industry, which weighs heavily in the global economy, continues to suffer from shortages of components.

The second potentially relevant point on the link between cars and the global economy is inflation. With the sharp drop in production above, we have, quite logically, seen a sharp rise in the price of cars. If we look at the JD Power index which tracks the price of new vehicles in the United States, the average price was just over $46,000 in January 2023, compared to just under $35,000 at the end of 2019, an increase of 34% over the period. The price increase not only impacts new vehicles, as the scarcity of new vehicles has led to a scarcity of used vehicles. Here too, prices have soared, the price of used vehicles in the United States has increased by more than 20% since December 2019. And the impact on inflation does not stop there because the increase in the price of cars has caused an increase in the price of car insurance, repair and maintenance and car rentals. This is now an essential factor for central banks to take into account when assessing inflation paths. This price trend is worsening social inequalities since the average monthly payment to buy a new car is now close to $800 in the United States, whereas it was less than half at the end of 2019. Moreover, payment defaults on subprime auto loans just hit their highest levels since 2006, as shown by Moody's data.


Finally, the extremely rapid adoption of electric vehicles is also a big factor, given this is an integral part of many countries' strategy to decarbonize the economy (it is worth noting that road transportation represents roughly 16% of global greenhouse gas emissions). Governments are increasingly seeking to promote the development of electric vehicles, for example through subsidies: under the Inflation Reduction Act adopted last summer in the United States, subsidies can go up to $7,500 for a new electric vehicle and $4,000 for a used electric vehicle. Things are moving very quickly: in 2021, the share of electric vehicles in global car sales was 8.6%, compared to only 0.7% in 2015, for example. According to the International Energy Agency (IEA), this share should be more than 20% in 2030 given the measures that have already been announced and could even reach 35% if countries fulfil their commitments. Indeed, there has been a significant acceleration in the electric vehicle industry.

Unfortunately, this exacerbates some of the problems we mentioned earlier since many more semiconductors are needed in electric vehicles versus internal combustion vehicles, thus making electric vehicles more expensive. The IEA estimates that for a medium-sized vehicle, an electric car costs on average $10,000 more than an equivalent combustion engine car, before subsidies and tax benefits. This price difference is smaller in China because the vehicles are smaller and the competition between producers is stronger.


In short, the automotive industry, which was less talked about before the covid crisis, now occupies a central place in several megatrends (this is very clear in the case of electrification and decarbonization) but also in the evolution of inflation itself and, by extension, in the policies of central banks.


Bastien Drut

Chief Thematic Macro Strategist, CPR AM




Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of April 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: June 2023

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