The automobile industry has a major impact on the value of both platinum and palladium ETFs. The precious metals are both used in the manufacturing of catalytic converters within automobiles.

The demand for automobiles is down considerably over the past few months, which has put a dent in the recent values of platinum and palladium. ETFS Physical Platinum Shares ETF (PPLT: Profile, Quote, Advanced Chart, News) and ETFS Physical Palladium Shares ETF (PALL: Profile, Quote, Advanced Chart, News) grew during the first four months of the year to all-time highs in April; however, since that time the funds have dropped approximately 13% and 20%, respectively.

Major countries such as the US, Japan, and China have experienced dips in automobile sales, especially in the second quarter of 2010. TheStreet.com reports that US sales declined 10.8% to 982,000 units in June. Sales were well over a million units in previous months. Despite slow automobile production, analysts remain optimistic that there will be a favorable turnaround in the fourth quarter as consumers are motivated by year end incentives.

The chart below illustrates the sharp decline PPLT has suffered since it peaked in April.

To meet demand, ETFSecurities added new shares to its popular platinum and palladium funds on Monday. The new combined value of the funds now rests at $871 million.

ETFSecurities raised the number of shares in the ETFS Physical Platinum Fund (PPLT: Quote, Profile, Advanced Chart, News) to 11.22 million shares, up from 4.78 million, Reuters reports. The firm also created another 5.92 million shares to its ETFS Physical Palladium Fund (PALL: Quote, Profile, Advanced Chart, News) for a total of 18.8 million shares. The new issues should help to contain the possibility of a share price that exceeds its NAV.

The platinum and palladium funds were met with much anticipation on their launch date, securing tens of millions in dollars in assets in just the first few trading days. ETFSecurities’ US based metals funds are now worth a combined $1.5 billion after crossing the $1 billion mark on February 3.

A looming debt crisis in Europe has put a damper in palladium’s success. The metal, which linked together more than a year of back-to-back monthly climbs, has dropped 16% in May alone.

The May 2010 slump, which follows a rally from January 2009 to April 2010, is the biggest drop since the collapse of Lehman Brothers, indicating that a failure in Europe could be worse for metals than the fall of one of the most connected investment banks, BusinessWeek reports. Palladium now trades for $455 per ounce.

Despite falling consumption in the automobile industry, where palladium is used in catalytic converters, ETFSecurities plans to issue more shares of its ETFS Physical Palladium Fund (PALL: Quote, Profile, Advanced Chart, News). The exchange-traded fund, now just a few months old, has been contributing to the steepening climb in palladium’s price, though analysts expect its impact in the markets will wane once investors fulfill their appetite for the metal.

The value of palladium as a hedge against inflation and economic calamity was put to the test amidst worries over European solvency. Investors swapped palladium positions for gold, seeking the ultimate protection against another financial crisis.

Both palladium and platinum fell to a multi-week low as investors reorganized their metals positions. Most notably, palladium investment in ETFSecurities’ funds dropped 4.8% last week, while gold inflows grew by 1.2%, BusinessWeek reports. The negative correlation implies investors do not see palladium or platinum funds to be equivalent to gold in terms of solid wealth preservation.

While gold remains flat in the past five trading sessions, other precious metals, including silver, palladium and platinum, which are all generally considered to be industrial metals, fell. Analysts contend the recent price changes in the palladium family imply their value is largely in the industrial sector and not as a store of wealth.

ETFSecurities trip across the Atlantic and into American markets has proven to be a great success. The company has filed to grow its platinum and palladium ETFs with the issuance of new shares ahead of increasing investment demand.

ETFSecurities will issue 6,440,000 new shares for the ETFS Physical Platinum Shares (PPLT: Quote, Profile, Advanced Chart, News) and an additional 5,920,000 new shares for the ETFS Physical Palladium Shares (PALL: Quote, Profile, Advanced Chart, News), according to two SEC filings. Early enthusiasm for exchange-traded platinum funds that began well before the products official launch continues on with both funds soliciting a combined $772 million from investors. The new issues will allow for growth well past the $1 billion mark.

However, investors should expect a brief delay for the new shares filing. Last year the SEC waited several weeks to allow new issues of United States Natural Gas (UNG: Quote, Profile, Advanced Chart, News), despite investor demand that outpaced the number of shares and left the fund to trade with a near 10% premium to its NAV.