Over capacity in the car industry

The joint leader of Unite, the union, Tony Woodley, said the crisis is now so severe that a major car plant faces the threat of immediate closure.

Quite. It\’s just what he car industry needs too.

There\’s massive over capacity globally…..and this is nothing to do with the credit crunch either.

We\’ve got more car factories capable of producing more cars than anyone wants to buy at or above their production cost. Thus some of those factories should close and the various resources should be employed doing something else.

4 comments on “Over capacity in the car industry

  1. Tim, I don’t suppose you have figures for what a car costs to manufacture, and how much extra is laden on top to cover all the various government imposts and taxes ?

    I look at say a small Nissan and it says £ 8000 – I reckon there is a genuine £ 4000 worth of car there incl all the sales side costs.

    So no, people no longer want to buy grossly over-priced taxmobiles !

    Alan Douglas

  2. They don’t even want to buy them with borrowed money.

    The problem of over capacity has been touched on in the news. The BBC have said in 2007 the installed capacity of the car industry was 20% more than they produce. From my meagre knowledge I’d guess a substantial proportion of that over capacity is in the US, where auto workers unions are still a powerful presence but, that cannot explain it all.

    Attracting investment and employment to a region isn’t just down to wage differentials, it is also encouraged through grants and tax breaks. I’ll bet the car industry is a dab hand at exploiting them.

  3. While it’s true that a certain amount of the total production capacity needs downward revision, that process is, in and of itself, greatly guided by entrepreneurial decision-making, which, in turn, is rendered much more difficult by government intervention.

    Managements of enterprises are faced with a multiplicity of choices in how to proceed. They might close certain facilities outright and dispose of assets, reduce the production (and labor force) of some, etc. Some may even plan such coordinated reduction in production that, combined with price reduction and excess labor-force reduction, may yet “get them by” a certain period with such manageable losses that they’re able to “bounce back” quickly when conditions improve and sales and profit vista less clouded by prospect of competition from less-savvy competitors

    What must be realized in such situation (more in some than in others) is that even reduction of production carries costs. Workforces and even outside vendors and contractors are “assets” that don’t show on balance sheets but will cost money and time to replace once no longer available.

    A simple illustration is in operation of a gold mine. When demand and prices are slack, workforce and effort is contracted as necessary to mine more profit-intensive ores, keeping on workers most difficult of replacement and laying off the less-specialized; as demand (and prices) rise, more labor (and facilities) can again be employed and greater attention paid to ores of lesser profitablitlity. And, to repeat, it may even make long-range sense to run a certain level of losses in order to retain the services of the most critical labor specialists who might otherwise, if discharged, go elsewhere for employment and severely compromise, at least in time, any future re-start.

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