An abrupt slowdown in America’s auto industry is signaling rough economic times ahead, says a Ball State University economics researcher.

While the overall economy is showing definite signs of slowing, the fortunes of automakers are changing a bit more abruptly, said Patrick Barkey, director of Ball State’s Bureau of Business Research.

"To those of us who lived through the recessions of the 1980s in the Midwest, the pattern probably seems familiar," Barkey said. "In the face of softening demand and ballooning inventories, automakers first turn to rebates to prop up sales, before finally caving in to production slowdowns, and their associated cutbacks and layoffs.

"In the recession of 1980 this cold wind came into the Midwest months before it showed up in the rest of the nation, and it took states like Indiana nearly half a decade to recover," he said. "Layoffs in Daimler-Chrysler, Visteon and other motor vehicle facilities in Indiana certainly looks like deja vu."

Production of vehicles and parts tumbled 12.6 percent in November, as measured by the Federal Reserve's Index of Industrial Production. That followed a third quarter in which vehicle output fell at 11.4 percent.

The decreases ring loudly through the entire industrial economy, especially in Indiana. Were it not for the slump in production by automakers and their suppliers, manufacturing would have actually managed a modest increase in output in October, he said.

November indicates a pattern of decline that is much more widespread, with every major sector except computers nosing downward, he added.

"But before we retreat to our bomb shelters to ride out the storm, there are a few new twists on the old story about the ups and downs in the motor vehicle industry and the Indiana economy to consider," Barkey said.

The starting point for this slump is a level of sales volume that is quite high. Even with this late-year decline, some analysts still expect to see car and light truck production in excess of 17 million units this calendar year. That translates to round-the-clock production at many facilities, raising hopes the reductions can be accommodated by cuts in overtime instead of payrolls, he said.

"The fact that showroom traffic has remained strong so long in the face of the historically lethal two-punch combination of high gasoline prices and higher interest rates is testimony to the robustness of the current economic expansion," Barkey said. "It certainly seems foolhardy to continue to forecast nothing but rosy times ahead for car sales, as some in the industry continue to do. But it is almost as foolish to call the current hiccup in car sales a sign that the good times are over for the U.S. economy."

(NOTE TO EDITORS: For more information about this story, contact Barkey at pbarkey@bsu.edu or (765) 285-5926.)