Monday, June 09, 2003

So much to blog today!

Let's start with a pay-only article in the Financial Times today about overproduction in the automobile industry. Titled "Unsold Cars and a Price War" (thanks Lexis-Nexis for free access!), the punch line summed up is
"Detroit's problems are threefold: unsold cars, a price war and ragged balance sheets. But the root cause is its inability to compete with Japanese vehicles.Taken together, says Gary Lapidus, analyst at Goldman Sachs in New York, these factors point to one thing: 'Motown breakdown'."
This overproduction combined with intense competition has been going on for at least twenty years. Funny how the auto industry, as nearly all industries under monopoly (rather than competitive) capital conditions, don't exactly respond to market signals like the economic models suggest. Rather than cut production, the name of the game is to overproduce and stick the other guy with the costs of adjusting to a glutted market, hoping to drive him out of business if possible. With the dollar weakening against the yen, Japanese cars get ever cheaper, and as the FT observes, "costs cannot be cut fast enough to cover falling prices".

As Naomi Klein so ably demonstrates in her book No Logo, the solution always comes down to branding. Don't compete on quality or price, compete on image and brand. "says J.T. Battenberg, chairman and chief executive of Delphi, the world's largest car parts supplier. 'Look at the amount of new product introductions each car company has over the next three years and you're going to see some startling data. Historically, there's been a good correlation between new products and market share and success in the industry.'" Bill Grieder points out in his 1997 book One World, Ready or Not that in 1985, global auto production capacity 25% over actual production; in 1995, 30% over actual production; by 2000, 36% over actual production (estimated).Cutting production is always the last resort -- which makes General Glut always in play.

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