Toyota Idling
Toyota’s planning to let its plants go idle for a while in February and March in recognition of the fact that worldwide demand for cars has fallen through the floor.
This is the conceptual problem with efforts to “save” the car industry through bailouts or union busting or whatever you like. One assumes demand for cars will get higher than it is right now, but the industry has a whole just has more capacity to build cars than there is demand for new cars. Which is fine. When you look across the developed world and try to take stock of the medium- and long-run problems facing the OECD nations there’s just no way you’re going to reach the conclusion that an automobile shortage is a big concern. But obviously it’s not fine for the companies that make cars. There’s going to be a need for some shrinkage.
45 Responses to “Toyota Idling”
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January 6th, 2009 at 3:26 pm
Shorter Yglesias:
Let Japan save their auto industry while we don’t. I’m pretty sure Americans all have trust-funds like I do, and don’t need good paying jobs. And if they don’t have trust-funds, screw ‘em!
January 6th, 2009 at 3:29 pm
MattY, the purpose of the bailout is to effectively give a bridge loan to the car companies to ride out the slump in demand to ensure that their loans don’t get called in, forcing them into bankruptcy, before demand bounces back.
January 6th, 2009 at 3:38 pm
Wow Matt, so the world economy is entering a permanent slump? Because otherwise the idea that cars are never going to be sold or built again seems really stupid.
January 6th, 2009 at 3:40 pm
I agreed with the bailout from the perspective of preventing what could have a been a catastrophic failure with millions of job losses.
However, Matt is basically correct here, IMO. Structurally, the auto industry has major problems. And I’m not talking about the legacy costs of unions. Basically, it is geared on the idea that most people will buy a new car every couple of years. But there is no need for people to do this - and I think that part of what is going on right now is that people have decided that cars are too expensive to buy that often - and I wonder even an economic recovery in 2 years or so whether this will change. Because it is likely that with an economic recovery will also come rising oil/gas prices again.
I just think the auto industry needs a fundamentally new business model.
January 6th, 2009 at 3:42 pm
People here are assuming that demand is going to bounce back to the way it was in, say, 2004. I don’t think this is necessarily going to happen.
January 6th, 2009 at 3:42 pm
An interesting job-saving, money-saving and supply-shrinking idea: 4 day work week. People keep their jobs, and fewer cars are made. 17 million cars sold a year, paid largely through debt is incredibly unsustainable. We’ll be back to 11 mil a year, which is what we had before the Bush administration said go out and buy stuff no matter how much money you don’t have or the terrorists will win
January 6th, 2009 at 3:57 pm
“There’s going to be a need for some shrinkage.”
Every serious analyst has acknowledged that there is excess capacity in the domestic auto industry. The goal should be to a have a smaller, but profitable and viable domestic auto industry. It might be worth reviewing the example of the consolidation of the domestic steel industry.
January 6th, 2009 at 4:01 pm
Matthew needs to get to the bottom line of this Bushian toilet flush:
all the American consumer ultimately needs is a mattock, an axe, some seed corn, and an iron pot.
Plus firearms to rob those who have anything else.
January 6th, 2009 at 4:01 pm
Rob, did you miss “One assumes demand for cars will get higher than it is right now” ?
Petey & DTM:
1) Obviously it’s not only American companies/employees who are hurting. But putting aside from your exaggeration for effect:
2) The silver lining of any recession is that it removes the companies which were too short-sighted/inefficient/whatever to handle a downturn. Propping up GM is throwing more money down a hole just because we’re used to having GM around and are afraid to see it fail. The auto industry needs a contraction of its least efficient operators, and it’s a sad but unavoidable fact that these are the American car companies. That’s the reason to prefer the capacity cuts happen in America.
January 6th, 2009 at 4:01 pm
“What’s the bravest thing you ever did?”
“Get up this morning”
–The Road
January 6th, 2009 at 4:01 pm
But the idea that they last longer and longer is not. If the average lifespan of a car doubles, then even if ownership goes up by 90%, you need less capacity. Cars in the US have a 13-14 year lifespan. I don’t know about you, but I don’t remember seeing any ‘57 Chevys driving on the streets in 1971.
Combine this with ever increasing productivity of workers and factories, and you need fewer factories and workers to meet the needs of customers.
January 6th, 2009 at 4:06 pm
The current reduction in demand is not a new and enduring fact of life–it can’t be, unless everyone gives up their cars and starts walking everywhere. People have stopped buying new cars and chosen instead to drive older cars for a longer time…but you can’t do that forever, as evidenced by the relative scarcity of 1903 Ford Model T’s on the highways of this great nation.
January 6th, 2009 at 4:06 pm
A question for Sartre, if he was around:
Will the premiere of “The Road” in movie theaters in April 2009 further panic the US consumer and sink the stock market?
Or will “The Road” never premiere because the electrical grid will go down first?
http://www.flickr.com/photos/squidly/2869456951/
January 6th, 2009 at 4:08 pm
The smart move during a time of slack demand is to start thinking about accelerating the transition to new lines, because it’s those new lines, integrating elements of Ford/GM’s relatively successful global business, where the companies’ futures lie. The problem then becomes one of working capital.
To quote Daniel Davies, from before Christmas: “I’d put the failings of Big Auto down to simple bad luck - basically, making money out of cars is difficult, it’s not as if Nissan, Renault, VW or basically anyone except Toyota and BMW manage to do it consistently.”
January 6th, 2009 at 4:09 pm
If we were talking about the recession of 2002, I’d agree. But right now, we’re struggling to find avenues to spend money to stimulate the economy. The government wants to spend a trillion dollars, but can’t even find $200 billion of worthy projects. I’ve seen nothing that would have the cascading effect that propping up our sick auto industry would. It is by far the most efficient use of stimulous funds there is.
January 6th, 2009 at 4:22 pm
Petey,
Die horribly in a fire and burn in hell forever you loathsome, evil scumbag.
January 6th, 2009 at 4:26 pm
Structurally, the auto industry has major problems.[...] Basically, it is geared on the idea that most people will buy a new car every couple of years. But there is no need for people to do this - and I think that part of what is going on right now is that people have decided that cars are too expensive to buy that often - and I wonder even an economic recovery in 2 years or so whether this will change.
But is there any actual reason to think this will happen? I mean, car buying always slows or shrinks during recessions, and surges during growth periods. There are ~250M cars & trucks in the US right now for 111M households, 8% of which have no car at all; so, very close to 2.5 cars/car-having household. The average age of a car is already ~9 years, meaning (mathematically) complete turnover in 18 years, for average annual sales of ~14M - which is about where we’ve been. Cars are lasting longer, and so the average age has been increasing (it was 6.5 in 1998). But the increase is relatively slow (.16 years older/year); it’s not as if no one will buy a car for 2 years, and so the average age will therefore be 11 years in 2010, which is what it would take for a significant, permanent decrease in the number of cars sold per year.
Put it this way: If you double the number of carless households - completely unrealistic, but we’ll use it - that takes 20M cars out of circulation. But US population growth is 3M/year. Based on traditional ratios, that’s 2.5M new cars/year. In just 8 years you’re back where you are right now.
Bottom line is that it’s realistic to expect somewhat diminished US auto sales, but nothing on the order of what’s being suggested here. Meanwhile, of course, the annual increase in China and India will swamp whatever small decreases we see here - if eventual car ownership in those countries is 1/8 of what it is here, that would represent more cars than we have in America, virtually all of them to be built in the future. The vast majority won’t be built by American automakers, of course, but some percentage will be - unless Matt and his ilk get their way.
January 6th, 2009 at 4:40 pm
the industry has a whole just has more capacity to build cars than there is demand for new cars.
Why is it assumed that this problem can *only* be attacked from the supply end?
Last I heard, demand (in the economic sense) was defined as both the desire for and the capacity to buy a product. Obviously there are lots of people who desire cars - what they’re lacking is the capacity to buy them. Financing doesn’t help much - it’s too expensive, and unavailable to people who can’t prove they don’t need it. What they need is more *actual income* to pay for cars with.
So why not stimulate demand (for cars as well as for other things) by putting money in the hands of people who need it?
Of course this applies not just in the U.S. but around the world - if Japan can sell cars here, why can’t we sell them in Eastern Europe, or India, or China?
January 6th, 2009 at 4:58 pm
Has the male ego been revoked? Of course the demand for automobiles will recover as long as the American Male (in many cases females too) relies on his automobile to project his self-image, his self-worth. The phallic Corvette, the rough and tumble high-rise Ford 1, 2 or 350, the sleek Mercedes, the awesome Hummer, or the big-assed Ford and Chevy SUV’s will provide enough appeal to keep-um’ coming with gas prices at $2.00 or less. In the past couple of months, with gas prices in the mid $1.60’s, pick-up trucks and big SUV’s are the new vehicles that I see on the road. If credit unions, the auto company finance wings and banks continue to stretch out payments until all us rednecks can afford to make the monthly payment, there will be demand. The current crisis is a lull, not an infinity of no demand.
My hope is that government is smart enough to apply gasoline taxes that keep the oil producers from collecting more than about $40.00 or less per barrel. We need to keep the majority of the proceeds from $4.00 per gallon gasoline price in this country …not in some Saudi princes’ hands.
January 6th, 2009 at 5:01 pm
The auto industry needs a contraction of its least efficient operators, and it’s a sad but unavoidable fact that these are the American car companies.
Does it bother anyone else that this is simply not true? The most productive/efficient auto plants in North America are run by GM and Ford. Oh yeah - and Chrysler.
I will be careful to disregard anything elton says unless he backs it up with links.
January 6th, 2009 at 5:23 pm
Treating your post seriously, the problem with that idea is that you’re pulling demand forward. Then there’s the minor point that a seven year loan on an asset that depreciates as rapidly as a car is a great way for a bank to get burned.
January 6th, 2009 at 5:28 pm
Re Ben P’s comment “Basically, it is geared on the idea that most people will buy a new car every couple of years. But there is no need for people to do this”
————
You must not have owned a GM or Ford car. And if Toyota and Honda had not entered the North American market, the USA makers would be selling us even worse pieces of shit.
Anyone who have ever worked on an American car — and I’ve owned several — can not but help to hate Ford and GM executives with blinding fury. It’s infuriating to have to spend time and money to fix something that broke only because of some flimsy piece of shit part.
It’s not like they even save any money on their shitty construction — so I concluded that they deliberately build their cars to fall apart.
Save the workers — but let the GM and Ford executives eat shit and die. I hate the motherfuckers. Any bailout should be conditioned on throwing the executive cocksuckers out on the street. Without severance.
January 6th, 2009 at 5:29 pm
I haven’t owned a Ford Crown Vic but have heard that they are good cars. Maybe because policemen would beat the living shit out of Ford VPs if they were ever stuck with a shitty Taurus.
January 6th, 2009 at 5:48 pm
One assumes demand for cars will get higher than it is right now, but the industry has a whole just has more capacity to build cars than there is demand for new cars. Which is fine.
When you look across the developed world and try to take stock of the medium- and long-run problems facing the OECD nations there’s just no way you’re going to reach the conclusion that an automobile shortage is a big concern. But obviously it’s not fine for the companies that make cars. There’s going to be a need for some shrinkage.
I thought Matt was a Keynesian, who believed that the problem of excess capacity should be solved by increasing demand (i.e. the government buying the excess cars or pressuring consumers to buy them, subsidizing buying them, et cetera).
Why is the automobile industry the only industry where he actually thinks that the free market solution (liquidation, liquidation, liquidation) is a good idea? And why in Matt’s opinion do the principles that he applies to this industry not apply to the economy as a whole?
January 6th, 2009 at 5:52 pm
JRoth, did you even read your linked article? It states:
The good news for GM, Ford and DaimlerChrysler’s Chrysler Group is that all three made progress in 2005, narrowing the efficiency gap with North American plants operated by Toyota, Honda and Nissan.
Despite the efficiency of individual plants, the article indicates the Big Three still suffer from an production-efficiency gap compared to the Japanese automakers. More relevantly, I suspect you realize that my point was about the efficiency of the companies as a whole, not just how many sedans their plants pump out per hour. If the Big Three were capable of designing and building new cars that responded to the changing demands of the marketplace as well as the Japanese companies, then I’d consider them “efficient”. Feel free to substitute “successful” for “efficient” in my first post if that makes things clearer.
January 6th, 2009 at 5:59 pm
“Why is the automobile industry the only industry where he actually thinks that the free market solution (liquidation, liquidation, liquidation) is a good idea? And why in Matt’s opinion do the principles that he applies to this industry not apply to the economy as a whole?”
That’s easy: because Matt hates cars, and that blinds him to the logical Keynesian response in this case.
January 6th, 2009 at 7:17 pm
if Japan can sell cars here, why can’t we sell them in Eastern Europe, or India, or China?
Uh, GM and Ford sell lots and lots of cars around the world. The Chinese love their Buicks. The Eastern Europeans like little Fords and Opels.
The reason they don’t sell American-made cars, apart from the odd export model that ends up driven by a pop star or soccer player, is because the American market has been, for Ford and GM, completely disconnected from the rest of the world. It’s a large enough market to sustain its idiosyncratic self for decades, but not any more.
That’s starting to change. It’s a good thing. But if Ford and GM don’t have the working capital, they won’t get there, and someone else will, on the back of their investment. Think: Chinese-owned GM plants in Brazil selling Chevy-badged cars that undercut the noble Southron plants that Dick Shelby loves so much.
January 6th, 2009 at 8:07 pm
I would like to point out that Matt is taking a neo-Hooverite position towards the appropriate role of the Commerce Department. It was, after all, Hoover who used that bully pulpit to demand standardization nationwide in things like milk bottles and building materials.
January 7th, 2009 at 10:31 am
Under ordinary circumstances I would tend to agree–if Americans aren’t the most efficient producers of certain goods, then fine, let’s transition out of producing those things
I guess that begs the question. Are Americans good at producing anything, anymore?
January 7th, 2009 at 11:02 am
If the Big Three were capable of designing and building new cars that responded to the changing demands of the marketplace as well as the Japanese companies, then I’d consider them “efficient”.
Is this why Honda introduced their new, more truck-like Pilot this summer and Toyota has spent hundreds of millions on their new Tundra full-size truck this year, as well as their new Lexus SUV? Not to mention Honda’s embarrassing failure of a pickup, and taking the failed Accord hybrid off the market.
It did occur to me that you meant the companies as a whole, but that’s such a broad use of the term efficient that it means nothing more than profitable.
As for the link, it was 3 year old data; the other link was up-to-the-moment, and showed the most efficient auto plants in the US in 2008 were all run by US automakers. My point stands.
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