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Published: August 26, 2009
Toyota (NYSE: TM) plans to cut its global
capacity to manufacture vehicles by as much as one million units
per year. It now has the ability to build 10 million autos, but
will only make 6.7 million during 2009.
Toyota’s move should increase the efficiency of existing plants,
but it raises the question of whether other global car companies
have too many plants in operation.
While the capacity question might be put to large Asian and
European firms such as VW and Honda (NYSE: HMC), it is
particularly acute for the three American companies. Sales at
Chrysler are still down more than -45% this year. GM’s are off
about a third. Ford (NYSE: F) is faring better, but its
sales are still running behind 2008.
The “cash for clunkers” program
has given the domestic car firms a
temporary but artificial bump in
sales. These same operations now
have to face the last third of the
year, a period in which they will
roll-out new models. Sales could
move quickly back to their early 2009 levels which
would mean that
manufacturing capacity remains too
high. Plant closures and more
layoffs may be the only means that
The Big Three have to keep any
improvement in margins that have
come from the government’s stimulus
program.
It is not clear that the auto
industry will ever get back to the
level where 16 million cars and
light trucks are sold in America as
they were four years ago. Car owners
in the U.S. may keep their vehicles
longer to save money, a by-product,
in part, of the higher quality of
most new vehicles produced by the
large global manufacturers.
Toyota has become the largest car
company in the world for a reason.
It is usually well ahead of its
rivals in making critical strategic
decisions. Its move in cutting
capacity could put it ahead of its
competition again.
-- Douglas A. McIntyre
Editor
247WallSt.com |
