Europe, Japan Must Restructure, Too - Lexus IS Forum
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post #1 of 8 (permalink) Old 09-22-2009, 03:59 PM Thread Starter
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Europe, Japan Must Restructure, Too

A thought-provoking article by Autoline Detroit's John McElroy:

Europe, Japan Must Restructure, Too
By John McElroy - WardsAuto.com

Detroit's automotive community has gone through a most brutal restructuring over the past three years.

Tens of thousands of jobs have been slashed. Several million units of capacity have been cut. But as bad as that is, it was necessary. Now, Europe and Japan are going to face their day of reckoning.

For the last two decades, auto makers and suppliers have complained about the excess capacity in the global industry. The general rule of thumb is the industry is capable of building 20 million more vehicles than there are customers to buy them.

This is a key reason why so many auto makers and suppliers have been barely scraping along on unacceptable margins. A surfeit of supply drives prices down, which drags down profits with them.

The brutal restructuring in the American market has cleaned up a lot of problems. Not only have the Detroit Three eliminated almost all their excess capacity, they also have gotten rid of the Jobs Bank, slashed union wage rates, pared paid days off and eliminated inefficient work rules.

General Motors, Ford and Chrysler now claim they can be profitable even if the American market only reaches an annual sales rate of 10 million units. If the market hits 13 million or 14 million units, they could really rake in the dough.

Meanwhile, in Europe, none of this happened. Despite the biggest drop in car sales since the Great Depression, not one European assembly plant has closed, leaving the industry to continue shouldering the crippling burden of carrying excessive capacity.

I don't blame the Europeans for not wanting to go through the kind of bloodbath that Detroit has seen. A lot of innocent people have been burned in the process. But the longer the European industry puts off the tough decisions it has to confront, the harder those decisions will become.

The same applies to Japan. Not only does it have excess capacity, but despite being the world's largest vehicle-producing country, not one foreign auto maker builds cars in Japan.

Even a mild bout of protectionism in Japan's key markets will leave the country with a lot of idle plants.

China still is building automotive assembly plants as if its market will grow forever. While there is plenty of growth left, it too is on a trajectory to have more capacity than customers.

China, Japan and Europe seem to believe they can export excess capacity to other markets, especially the U.S.

But if the Detroit Three are able to use restructuring to gain a competitive advantage, they may be able to defend their home market better than they have at any point during the last 40 years.

Indeed, if the dollar continues to weaken against foreign currencies, it wouldn't surprise me to see the U.S. become a strong export base.

The bottom line is that American-style capitalism is as brutal as it gets. But brutality is what it took to undo a half-century of entrenched bad habits and inefficiencies.

If I'm right, and Detroit's auto makers enjoy a sudden and vigorous recovery, there will be enormous pressure on others to swallow the same bitter medicine.

Europe, Japan Must Restructure, Too

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post #2 of 8 (permalink) Old 09-22-2009, 04:34 PM
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Sounds like the 'cash for clunkers' deal, this yet maybe a sign, the current administration does know a thing or two about turning a business (or debt ridden business) around.
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post #3 of 8 (permalink) Old 09-22-2009, 04:57 PM
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We've already been hearing a bit about this from the new management at Lexus. (can't think of his name at the moment) There has been talk of how Toyota and Lexus loosing focus and getting to many vehicle lines, dangerously following the path American company's took just years before. I believe we will hear about and see many changes in Japan's automotive empire very soon.

The irrational part of me loves to think that my favorite vices (mnt dew, red meat and beer) have helped me build a super brain.
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post #4 of 8 (permalink) Old 09-22-2009, 05:03 PM
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^^I completely agree...Prius brand???? wtf?

https://my.is/forums/f104/toyota-conf...-brand-398259/
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post #5 of 8 (permalink) Old 09-23-2009, 07:39 AM
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Doesn't Chevron loose their patent rights to the NiMH battery soon?
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post #6 of 8 (permalink) Old 09-23-2009, 07:58 AM
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Europe has seen LOTS of restructuring over the last 40 years:

- decline of the British car industry
- consolidation in France (Peugeot bought Citroen then Simca)
- delocalization of manufacturing plants (from France/England/Germany to Spain/Portugal/Eastern Europe)
- Porsche bought by VW
- Opel ans SAAB are for sale
- Renault bought Volvo then sold it to Ford which is selling it
- Renault bought Nissan
- Fiat bought Ferrari, VW bought Lamborghini

They definitely have too much capacity and labor dead weight, but they have a propensity for corporate restructuring that neither the North American nor Japanese industries have.
They also have a common currency which makes consolidations and delocalization easier.

So I think the European industry will adapt faster than the Japanese.
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post #7 of 8 (permalink) Old 09-23-2009, 12:48 PM Thread Starter
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Quote:
Originally Posted by cdeslandes View Post
Europe has seen LOTS of restructuring over the last 40 years:

- decline of the British car industry
- consolidation in France (Peugeot bought Citroen then Simca)
- delocalization of manufacturing plants (from France/England/Germany to Spain/Portugal/Eastern Europe)
- Porsche bought by VW
- Opel and SAAB are for sale
- Renault bought Volvo then sold it to Ford which is selling it
- Renault bought Nissan
- Fiat bought Ferrari, VW bought Lamborghini

They definitely have too much capacity and labor dead weight, but they have a propensity for corporate restructuring that neither the North American nor Japanese industries have.
They also have a common currency which makes consolidations and delocalization easier.

So I think the European industry will adapt faster than the Japanese.
Great summary, but let me throw in a couple more plus a correction:

- consolidation in Italy (Fiat, Alfa Romeo and Lancia were once rivals, as were Ferrari and Maserati, but they're all now Fiat-owned)
- VW's buying spree of Auto Union (Audi's former parent), ex-Fiat-affiliated SEAT and Skoda, plus Bentley and, as you mentioned, Lamborghini.
- Renault never actually owned Volvo. They collaborated on a couple of drivetrains and attempted to merge but France and/or Sweden (I forget which) ultimately killed it.

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post #8 of 8 (permalink) Old 09-23-2009, 12:49 PM Thread Starter
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Quote:
Originally Posted by Ivormiric View Post
Doesn't Chevron loose their patent rights to the NiMH battery soon?
Good question. I'm not sure when that happens.

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