By Dan Burns

(Reuters) – The U.S. Auto Sector’s Production Decline this Year is More Than a Big Negative for Detroit – It’s a Major Drag on the Whole Economy.

The third quarter saw the slowest growth in gross domestic product for more than one year at a mere 2% annualized. It was less that a third the rate of growth in the quarter before.

Although the Delta variation of COVID-19 had a significant role in flooding the country in July, August, September, it also put an end to consumer spending. Thursday’s poor GDP reading revealed that the most affected sector was by far the automotive industry.

The auto sector accounted for 2.4 percent of the drop in GDP during that time. This was the largest drag Detroit had on U.S. production in over 40 years, and it is one that has rarely been seen other than during a recession. Officially, the contraction caused by COVID-19 lasted only two months in spring 2020. Since then, the economy is in recovery mode.

(For graphic on The drag from Detroit – https://graphics.reuters.com/USA-ECONOMY/akpezawbavr/chart.png)

A worldwide shortage in microchips is the main reason for problems within the automotive industry. These chips are essential to operate all modern vehicles’ complex systems. However, the global shortage of microchips has made it difficult for the automotive industry to recover from its last-year’s shut downs.

U.S. car production is now at an all-time low of 7.51 million units in nine months. This level of decline can be attributed to a recession. The September run rate was 7.51M vehicle assemblies, excluding the brief dive to nearly zero in the COVID shut downs. This was the lowest since 2010, when the sector was still reeling from the financial crisis.

(For graphic on motor vehicle production slumps – https://graphics.reuters.com/USA-ECONOMY/xmvjolbqkpr/chart.png)

The same thing is happening with the U.S.’s inflation picture. While the chip shortage is one part of a larger puzzle that explains why inflation has reached its highest point in many decades, it has also caused pricing to change like never before in the automotive space.

New cars are so difficult to find, people in search of vehicles push up the prices for used cars. For three consecutive months, the price of used cars soared more than 10% for this spring.

It has resulted in the greatest difference between inflation rates for new and used cars, and light trucks.

(For graphic on one way the chip shortage is influencing inflation – https://graphics.reuters.com/USA-ECONOMY/zjpqkezxmpx/chart.png)