Workers are seen at the FCA Mack assembly plant in Detroit, Michigan, United States, March 10, 2020. REUTERS / Brendan McDermid

October 29 (Reuters) – The decline in production in the U.S. auto sector this year is more than a big drawback for Detroit – it’s a major drag on the economy as a whole.

Growth in gross domestic product slowed to the slowest pace in over a year in the third quarter, to just 2% annualized. This was less than a third of the growth rate of the previous quarter. Read more

While the Delta variant of COVID-19 played an important role as it swept the country in July, August and September and dampened growth in consumer spending, the biggest weak spot in Thursday’s low GDP reading was the auto industry – by a thousand countries.

Overall, the auto sector subtracted 2.4 percentage points from economic growth during this period. It was the biggest drag Detroit had on American production in four decades – and rarely seen outside of a recession. The contraction caused by COVID-19 officially lasted only two months in the spring of 2020, and the economy has been in recovery mode ever since.

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The main culprit behind the difficulties of the auto industry is a global shortage of microchips, which are needed to run all the complex systems of a modern vehicle. But with the global economy rebounding from last year’s shutdowns, it’s not just the auto industry that is chasing these chips, and they have become a global shortage.

As a result, US motor vehicle production has fallen in six of the past nine months and is at a level more typically associated with a recession. The execution rate of 7.51 million vehicle assemblies in September was the lowest – excluding short-lived near-zero diving during COVID shutdowns – since 2010, when the industry collapsed. was recovering from the financial crisis.

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It also plays into the image of inflation in the United States. The chip shortage is just one piece of a complex puzzle of forces driving inflation to its highest level in decades, but in the automotive space, it has shaken price dynamics like never before.

With new cars so hard to find, consumers who need a vehicle are bidding on used car prices. At one point this spring, used car prices have climbed more than 10% per month for three consecutive months.

This pushed the inflation rate difference between new and used cars and light trucks to the largest on record in favor of used vehicles.

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Reporting by Dan Burns; Editing by Daniel Wallis

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