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Global motor manufacturing slump hits oil demand

By John Kemp | China Daily | Updated: 2019-08-19 11:19

Nissan Motor employees assemble a Leaf electric vehicle on the production line of the company's Oppama plant in Yokosuka, Japan. [Photo/Agencies]

Global vehicle production is falling at the fastest rate since the financial crisis - depressing manufacturing output, freight and the consumption of oil and other commodities.

Global motor vehicle output declined last year by 1 percent, the first annual decrease since 2009 and only the third fall in 20 years, according to data from the International Organization of Motor Vehicle Manufacturers.

But output is on course to drop much faster in 2019, with production up so far in Japan, but down slightly in the United States and plunging in other major auto manufacturing centers, including China, India and Germany.

Motor manufacturing is one of the largest and most networked of all global value chains, making it central to the global economy. Motor manufacturers are among the world's largest consumers of energy and raw materials, intermediate products such as plastic, steel and aluminum, and services such as marketing and advertising.

The industry is a crucial source of demand for durable capital goods, a generator of high-value exports, and a provider of high-wage middle-class employment in most countries.

And its dispersed supply and marketing chains are a major driver of domestic and international freight demand, and by extension transportation fuels, especially diesel.

Growth in the worldwide vehicle fleet is the most important driver of consumption of refined fuels, and consequently crude oil.

Motor manufacturing therefore lies at the heart of the global energy system.

Right now, the industry's problems, with output falling for two years in a row, help explain the severe slowdown in oil consumption growth since the middle of 2018. Japan's vehicle production was up by 3 percent in the first five months of the year compared with the same period a year earlier.

But US vehicle output was down by almost 2 percent in the first six months, according to data from the US Federal Reserve.

China's output fell 13 percent in the first six months and Germany's was down 12 percent, in both cases the worst performance since 2009.

India's production was shrinking at a year-on-year rate of 11 percent in the three months from April to July, according to figures published on Tuesday.

Plunging vehicle production has been a major contributor to the weakness in global manufacturing and freight reported since the middle of 2018.

It explains the slowdown in oil consumption growth in 2018, which worsened in the first half of 2019, as the auto industry moved fewer parts around and put fewer vehicles on the road. Oil consumption growth is unlikely to accelerate again until motor manufacturing production itself starts to improve.

The article is written by John Kemp who is a Reuters market analyst. The views expressed are his own.

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