Economix: Cars as a Harbinger of an Upturn

Carlos Osorio/Associated PressA Chrysler assembly line in Michigan last month.

For those who believe that the economic recovery has merely hit some bumps, and that growth will accelerate during the second half of the year, the automobile industry may offer the most persuasive evidence.

Sales of cars and light trucks plunged after the Japanese earthquake from an annual rate of 13.1 million vehicles in April to an annual rate of 11.8 million vehicles in May. That’s slightly better than last year, but 2009 and 2010 were the first years since 1982 in which Americans bought fewer than 12 million vehicles.

The decline, it seems clear, was driven by a lack of supply. The flow of vehicles from Japan came to a standstill. The 150-acre Toyota parking lot in Long Beach, Calif., where imported cars usually sit in long white rows, is as empty as the blacktop around a football stadium in springtime.

American factories also were disrupted. Most Toyotas sold in America are built in America, but many of the parts come from Japan. Companies based in the United States like Ford and General Motors also rely on Japanese parts. North American factories made 4 percent fewer cars and light trucks in May than in the same month last year, according to the trade publication Ward’s, which covers the auto industry.

The results can be seen most clearly in the dwindling inventory of vehicles available for sale. The standard metric compares vehicles sold on an average day with those available for sale. Ward’s reported that inventories would last 54 days at the end of April, but only 49 days by the end of May. And this ratio was buoyed by the declining pace of sales — actual inventories fell by an even larger increment.

With demand outstripping supply, automakers and dealers cut back on incentives. Edmunds.com reported that incentives on new cars fell 20 percent in April compared to the previous year. The average incentive of $2,118 on a new car was the lowest in seven years. It then dropped again in May.

This chain reaction — lower supply, higher prices, lower demand — is a key reason the economy is falling short of forecasts in the second quarter. It also has helped to drive up inflation indexes.

But there is a silver lining: By all indications, it is a problem that already appears to be fading away.

The Fed’s chairman, Ben S. Bernanke, included it Wednesday on a list of “factors that are likely to be temporary” in predicting that the pace of growth will increase in the third quarter.

Car companies outside Japan are ramping up production, hoping to lure away customers. And the Japanese automakers are racing to respond.

Toyota, the world’s largest automaker before the earthquake, said its Japanese factories will not resume full production until November. But its American factories, which produce most of the models sold in the United States, will return to full production by September, much earlier than expected.

The company told the trade publication Automotive News earlier this week that it was resuming its advertising campaigns and increasing its offers of sales incentives.

“There’s a perception that there’s no cars around, but we have good supply and got the pipeline going, so we are shifting focus to marketing,” Bob Carter, a Toyota executive, told Automotive News. “We have deals, and dealers have the vehicles.”

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