It isn’t just the U. S. auto industry that’s suffering a downturn:
More than 1.5 million workers in Germany depend on the automobile industry for their jobs. But that industry is now facing one of its worst crises ever. Respected giants BMW and Mercedes are particularly exposed as sales plummet.
It was time for Martin Winterkorn to relax. The exhausted chairman of the VW Group was sitting in a leather seat on the company jet, coming from a conference in Berlin where he warned attendees of the consequences of the financial crisis. It had been a long day. It was 9 p.m. and he was still in the air.
“We have never before seen this kind of a crisis,” Winterkorn, 61, said at the conference. The German auto industry, he told his audience, must prepare itself for a “tough, prolonged dry spell.” It would not be possible to avoid “difficult cuts” and “painful” measures, Winterkorn said.
That the Germans have apparently been taken by surprise by the present turn of events is remarkable to me. Germany has been running a trade surplus with China, one of the few countries in the world to do so, for some time. That surplus isn’t based on a Chinese love of lederhosen.
It’s based on the large amount of heavy machinery the Chinese have been importing for a decade or more. The Chinese have been importing heavy machinery to help them get into greater value-added industries, especially the auto industry. The Chinese aren’t stupid. Their leaders know that as wages there rise they’ll need something other than commodity exports on which to base continued growth.
But this puts European and American auto makers in a bind. There is huge Chinese or Indian market to pursue. The Chinese and Indians want those markets for their own auto companies (India’s Tata Motors bought Jaguar Land Rover not long ago). And they want to sell those cars in Europe and the United States, too.
Worldwide there is already for too much auto manufacturing capacity. No sound business plan for a U. S. or European auto maker can be based on manufacturing more.
I suppose technically, this is good for consumers as long as the countries don’t engage in protectionism (and they will), since all that competition and overproduction drives car prices way down, and allows consumers to have massive influence over what they get out of car companies. *
*It’s also good for professional and collegiate sports teams, at least in the US, who can then count on auto advertising to support their programs.
“Worldwide there is already for too much auto manufacturing capacity. No sound business plan for a U. S. or European auto maker can be based on manufacturing more.”
I agree that there is too much manufacturing capacity and it needs to be cut back. But, they are manufacturing companies and if they don’t manufacture cars, or something, what do they do? Write software?
They fold their tents and silently steal away. Unless they can get a subsidy to stay in business in which case they keep their doors open until the money dries up.
10,000 years ago the obsidian trade was the hottest thing going. It was traded over thousands of miles. Eventually obsidian got expensive and people found a substitute—bronze. When that got too expensive they found another—iron. If the obsidian trade had gotten government subsidies, we’d still be using stone axes.
The Japanese auto manufacturers are also experiencing excess capacity problems: “Toyota’s companywide sales in October were down 23% from the year before; Honda/Acura, -25%; Nissan Infiniti, -33%; Hyundai/Kia, -34%; and Mercedes, -24%.”
http://www.forbes.com/home/2008/11/10/flint-cars-automakers-biz-cz_jf_1111flint.html
I’ve seen various figures, but at least according to some, US passenger car sales peaked at about 11 million in ’85 and we have been steadily moving towards less than 6 million. America has experienced about five years of cheap cars with high rebates and zero percent financing. All that did was delay the bubble. And no I don’t want, let alone need, another car.