Car makers take a further hammering
Car makers take a further hammering
Posted By:   |  04 Mar 2009   |  5:39 pm GMT  |  8 comments

Today’s Financial Times has some shocking information about the state of the motor industry. And as F1 is seen as an extension of that industry because of it’s reliance on, and domination by, the car companies, you need to know about this.

One story says that for most manufacturers, sales of new cars in the United States are down between 40-50%. That includes Toyota who have taken a 40% hit.

A little lower down on the page there’s a story from Tokyo about how Toyota is seeking a $2 billion bail out from the Japanese government. The company is facing its first net loss in 60 years.

Meanwhile the number of cars exported from Germany has halved. The bosses of BMW and Mercedes are arguing against government intervention in the car industry because they believe that it will lead to irrational consequences and the wrong businesses being propped up. They are talking about the mass market producers like Renault, which recently received a share of a £6 billion hand out from the French government. The BMW boss said, ‘If we go much further then there is a danger that we will have only one or two independent manufacturers and the rest will be state or semi-state owned. If governments did not get involved we would have a much stronger selection process. Because then only companies with high liquidity and no cash-burn would survive. Both BMW and Mercedes are in this position..

From Geneva comes word that one of Renault’s most senior managers has said that the company wants F1 to cost less and demands a fairer share of the commercial revenues and that if this is not forthcoming ‘there really are no taboos’ – ie Renault would be quite prepared to quit. This comes a day ahead of the Formula One Teams Association press conference where these subjects will be addressed. FOTA is engaged in discussions with Bernie Ecclestone about the commercial revenues from 2013 onwards, not the short term.

But there is a glimmer of hope for car makers in another FT story. Apparently the German government has stepped up the scrapping of old cars with an incentive scheme whereby owners of cars nine years old or more get a £2,500 subsidy against a new model. And as a result new car registrations of small cars in Germany have risen steeply. As you can imagine this too has upset the bosses of BMW and Mercedes, who have not seen any gain from the policy.

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I think BMW and Mercedes are bang on, it’s always better in the long term to let the free market decide on the fate of uncompetitive companies. Governments can prop up struggling firms for a while, but ultimately they are struggling because they are inefficient or their product inferior to their rivals and bailing them out just relieves any pressure to reform their processes and improve their product. Drastic situations call for drastic measures: widescale reform of manufacturing processes, taking the company in a new direction etc. Government bailouts allow companies like Renault to get away with half measures instead of decisive action, which is why they’ve been struggling for so long.

In some cases, particularly in America, I think the government would be better advised to take the money they’re proposing to use for bailouts and use it to re-train the employees of these failing car giants so they can get jobs in healthy industries and to stimulate the local economy with investment and development projects, allowing the company to fail in the process.

As much as faith as I have in free market economics, there are cases where a company only needs a little help to see them through the depths of a crisis and it can be worthwhile for a government to support them. Toyota are a good example of this, as they are fundamentally competitive and their current predicament is due to massive overproduction in a slowing market. If they Japanese government gives them a hand, and they make the necessary reforms to become competitive in a car market without such free and easy access to credit, then that would be a good investment, provided they pay all of that money back with interest in the future. We cannot allow firms to privatise their profits and nationalise their losses.


so if you and a rival were given 1mil to invest and live off for the rest of your life, you worked hard with your money and got yourself set up to weather the storm, and your rival planned poorly and lost it all. wouldn’t you see it as unjust that they get bailed out whilst you get nothing for being astute?

i think it’s disgusting that toyota have been making such insane profits year on year, and now from 18 months of poor sales or whatever, they are suddenly in a crisis and need the taxpayer to prop them up.


“Because then only companies with high liquidity and no cash-burn would survive.”

Then others? Do we let the others die? Social Darwinism prevails everywhere. If you are not fit enough, you’ll be discarded whoever you are and whatever you do.

BMW and Mercedes have no right to utter such a statement ’cause they’re not in such bad position, they have the power in their hands. They will survive one way or another but that that doesn’t mean they can make decisions on other’s right to live/survive. They want to play Nature’s role by deciding who has the right to live. Those neoliberalist approaches are disgusting.


“There may be some changes.”

Like cutting their F1 programmes, I fear.


I really do not understand how a company like Toyota that has been profitable for 60 odd years can suddenly need a government ‘bail-out’.
With the U.S. dinosaurs I can understand it – they’ve been running with obscene losses since the Japanese got involved.
So this is the face of post-modern capitalism – State funded mega-corporations? Smells a bit like old school socialism to me.
Has the mantra not always been dog eat dog, survive or die etc? So now it’s their turn to die they change the rules…
Not that I object to protecting thousands upon thousands of jobs. But I do object to the stinking fat cat salaries and bonuses these so called failed leaders of industry will still be getting. From the millions of tax-paying people who’s existence they don’t even know how to acknowledge unless it’s at the end of a sale!


The car industry will make it. There may be some changes. But it will survive.

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