The automobile industry is an oasis in the Indian economy in terms of having high quality data. Commercial vehicles are of particular interest given that CV sales is a component of investment demand in the economy. Hence, we can learn something about investment demand in particular, and business cycle conditions in general, by looking at what is going on with CVs. If you try to draw a graph of the time-series of CV sales, you will find that this is very noisy. And if you convert it to year-on-year growth, this is not useful since each value of the year-on-year growth is a moving average of the latest 12 one-month changes. You’ll pickup what was happening in the last year, and not what is happening right now.
Swaminathan S. Anklesaria Aiyar has an article in Economic Times on India’s remarkable emergence as an exporter of automobiles. Mahesh Vyas has an article in Business Standard on the recent rebound in automobile production and sales. And, here’s the link to the CMIE website on
Let’s look at global conditions. It’s interesting to look at (seasonally adjusted) US data for sales of automobiles. Possibly helped by the cash-for-clunkers program, this data shows a strong bounce, back to the levels seen in early 2009. Click on the graph to see it more clearly:
Giovanni Veronese emailed me a fascinating graph, with seasonally adjusted data for Indian commercial vehicles. Click on the graph to see it more clearly. This is not quite comparable with the above, since it pertains to commercial vehicles and not cars. And, Indian exports are unlikely to have benefited from the US cash-for-clunkers program. All the three lines on the graph are seasonally adjusted levels, indexed to 100 for the production of January 2005. The red line is for Indian exports. It shows a very high rate of growth – a roughly 50% rise over the period from 2005 to early 2008. This is the incredible rise of India as an automobile exporter, the story told by Swaminathan S. Anklesaria Aiyar. Unlike sales of cars in the US, this has not recovered to pre-crisis levels.
The green line is domestic sales. This shows a recovery similar to that seen in the US – back to the values much like those seen immediately before the crisis, but without a cash-for-clunkers program being run by the government.
The blue line is automobile production. It shows savage cuts in production executed by the industry when the financial crisis appeared. This was unlike the standard script for downturns as we know them, where firms generally build up inventory when sales slow down. This time around, working capital financing in order to hold inventory was hard to find. I also think that the headlines and television dramatisation of the early stages of the downturn, accompanied by sharp movements in the prices of securities, were useful as an early warning system. This triggered off action by CEOs well before the full bad news came out through sales. As a consequence, there was very little inventory in hand, and production bounced back nicely when sales came back.
If the three indexes had continued to grow as they had done pre-crisis, then all three would have been roughly at values like 200 today (i.e. one doubling ahead of the values of January 2005). Instead, we’re back to the pre-crisis level or worse. Exports are just a bit more than half the pre-crisis high. In the case of production, we’re at a value of 130, which is significantly behind the pre-crisis level of 150.
It is really important to do seasonal adjustment, and then eyeball time-series of seasonally adjusted levels, in order to understand what is going on with these series. We’ve been updating a set of series every Monday morning, and releasing these as a public good.
Originally published at Ajay Shah’s Blog and reproduced here with the author’s permission.