A setback at Audi found behind the weakness industrial output

HUNGARY - In Brief 04 Jun 2016 by Istvan Racz

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As is well-known for the reader, gross industrial output only grew by a marginal 0.5% yoy in Q1, dominated by a 1.4% yoy decrease of the output of the car industry, which represents close to one-third of the total industrial sector. And all that came after 8.8% yoy growth in industry and 18.6% yoy growth in car manufacturing in Q4 2015, so a rather sharp correction indeed. The most intriguing questions are: (a) what caused the setback; and (b) how serious / long-lasting that weakness is likely to be. The reason for us to write the current note is that Question (a) can now be clearly answered, and that from the information currently available, some preliminary conclusions can be drawn regarding Question (b) as well.So the reason is obviously a sharp setback of output at Audi Hungária, member of the Volkswagen Group, which we estimate to represent about 40% of the domestic car industry and some 4% of GDP, including its domestic supply chain as well. Audi's domestic car assembly production fell to 28 thousand units (-36% yoy), and its engine output dropped to 493 thousand units (-6% yoy) in Q1. Implicitly, this also means that other car manufacturers must have done rather strongly in Q1, but they were unable to compensate for Audi's sharp downturn.Audi's official explanation is that the setback was caused by model changes at the outset of this year, and it was thus temporary. To what extent these models changes and their timing had to do with last year's emission scandal at Volkswagen is not clear, but we suspect that a good part of the explanation lies around that problem. The whole of the VW Group recorded a 1.2% yoy decline in global unit sales and a 6.1% yoy drop of c...