Medium-run capacity adjustment in the automobile industry
Economics Department Policy Note no. 21
• On average across countries, capacity utilisation stood at around 70% in 2012, well below the historical average in manufacturing of around 80%. France, Italy and Spain face much lower utilisation.
• Projections of future car sales suggest that growth will mostly take place in emerging markets. The growth rate until 2020 is projected to average 3% per year for OECD countries and 9% per year for the BRIICS.
• A comparison of projected production levels in 2020 (between 125 and 130 million cars worldwide) with actual capacity in 2012 indicates that additional production capacity of around 35 to 40 million cars needs to be built over the next eight years. The countries with the biggest projected need to expand capacity in the medium term are India and China.
• As cars are mostly traded within regions, car plants in European countries might hardly benefit from the strong growth in emerging markets. Hence, while car demand may be sufficient to clear excess capacities in Europe as a whole by 2020, overcapacity may persist in a few countries, in particular Italy and France. Reducing overcapacity in these countries might be difficult without substantial improvements in competitiveness.
• There is a large degree of uncertainty surrounding these projections. Notably, they do not account for policy changes to mitigate greenhouse gas and other pollution emissions as well as congestion, which could significantly reduce the increase in demand, particularly in emerging markets.
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