More bad news for the auto industry, and this time it's not coming only from Detroit. Even the mighty Toyota is suffering from plummeting sales, as The World's Jason Margolis explains.
This text below is a phonetic transcript of a radio story broadcast by PRI's THE WORLD. It has been created on deadline by a contractor for PRI. The transcript is included here to facilitate internet searches for audio content. Please report any transcribing errors to firstname.lastname@example.org. This transcript may not be in its final form, and it may be updated. Please be aware that the authoritative record of material distributed by PRI's THE WORLD is the program audio.
MARCO WERMAN: There was more bad news for the auto industry, too, only this time it's not just from Detroit. Russia's largest carmaker halted production today because it's short of parts. Also, car sales in Britain reached a 35-year low. Even the vaunted Japanese automakers are having problems, as The World's Jason Margolis explains.
JASON MARGOLIS: When Detroit's Big Three automakers began to implode last fall, there was a lot of finger pointing in Washington. Many politicians said, â€œLet them fail.â€ They held up Japanese and Korean automakers as examples of how to run a good business. Well, today the Executive Vice-President of Toyota, Mitsuo Kinoshita, spoke in Tokyo. He said, â€œToyota's sales are down across the globe. Toyota is expecting its first net loss since the year 1950.â€ How did this happen? The first basic lesson of economics is supply and demand. Cornell economist Eswar Prasad says it's not hard to see why demand for cars is taking an especially big hit.
ESWAR PRASAD: Cars tend to be big-ticket, durable items. So when people are concerned about their jobs and their next paycheck, they tend to hang onto their clunkers, rather than go out and buy new cars.
MARGOLIS: Prasad says there's another reason for the worldwide slump in auto sales.
PRASAD: The second aspect of course is that cars tend to be bought on the basis of financing from banks and otherwise. And right now, credit is very tight around the world â€“ not just in the US, but even in markets such as China.
MARGOLIS: This one-two punch -- low demand and tight credit -- means that even the highly-regarded Toyota Motor Company is losing money. But it's not the end of the automotive world as we know it, says Dennis Derosier, President of Derosier Automotive Consultants in Toronto.
DENNIS DEROSIER: In the global auto sector, you got to very carefully distinguish between cyclical issues and structural issues.
MARGOLIS: Cyclical: that's the worldwide recession and tight access to credit. But Derosier says structurally?
DEROSIER: Structurally, there's many companies, though, doing very well. They're picking up the market share. Toyota is a very good example. The Japanese in general are good examples. There's some good Chinese companies picking up market share. Some of the European brands â€“ BMW has done a yeoman's job picking up market share.
MARGOLIS: Derosier says while everybody's sales are down, those with the best product still come out ahead in the long run. So even though Toyota is posting a $4 billion dollar loss for last year, its executives aren't sweating as much as their counterparts in Detroit. Here's Toyota's worry, though: protectionism. Last night, French President Nicolas Sarkozy criticized a joint venture between Peugot and Toyota. They're building cars in the Czech Republic. Sarkozy said it's not justified for a French company to sell those cars back in France. Sarkozy was just talking on French TV, but economists like Matt Slaughter, at Dartmouth's Tuck School of Business, are worried about creeping protectionism. We've seen that before.
MATT SLAUGHTER: In the United States and other countries in 1929 and 1930, when they were discussing and starting to implement protectionist policies, few people thought it would become as widespread and as severe as it did. So I think the concern that I have right now is though some of the actual policies being discussed or implemented â€“ â€œBuy Americanâ€ provisions in our stimulus bill â€“ some of the other things other countries are doing, while small today, could lead to much larger changes tomorrow.
MARGOLIS: Some countries are already making protectionist moves. Europe is restricting imports on US chicken and beef. The US is planning retaliatory tariffs on Italian water and French cheese. India is proposing tariffs on foreign steel, and Russia placed duties on imported cars. Matt Slaughter says protectionism should be a big concern for automakers everywhere.
SLAUGHTER: Even for the Big Three, in recent years and looking ahead to the future, their biggest growth opportunities are outside the United States. Already in 2007, General Motors produced more motor vehicles outside North America than in, and for a number of years now, they've been the most successful automobile producer in China.
MARGOLIS: President Barack Obama has voiced concerns over protectionist policies. But even if the US doesn't fire the first shot across the bow, there are many other countries facing increasingly difficult economic times. And the question is: will all nations hold their fire? For The World, I'm Jason Margolis.