Flanagan, Martin. 1998. "Global Car Mergers Will Put Best Six in Top Gear." The Scotsman (3 November): p. 25. Alex Trotman, the chairman and chief executive of Ford Motor Company, said a "global dogfight" under way in the car industry lead to only six global automotive giants in the next century in an address before the Confederation of British Industry in Birmingham on 3 November 1998. He said, "One recent study predicted that the 40 or so auto companies in existence today will shrink to about 20 in the next century. My personal prediction: we'll get down to six. Two with corporate headquarters in the United States, two in Europe, two in Japan." Mr Trotman said: "The world auto industry has overcapacity of about 40 per cent today. In 1997, the total industry sold about 50 million new vehicles around the world. There was capacity to build at least 19 million additional vehicles," he said. "Today's excess capacity is the equivalent of 80 modern, high-volume assembly plants sitting idle." Mr Trotman said it was expected this excess capacity would rise to 22 million vehicles a year by 2002. "Yet new players continue to enter the market," he added. "In this environment, the trend will be consolidation. There were 30,000 automotive suppliers worldwide ten years ago, Mr Trotman said. "That number will shrink to 8,000 by the end of the year. And there's more to come." The latest consolidation, however, differed from "the corporate raids of the Eighties," he said. "They are strategically driven partnerships between successful companies. They're intended to increase economy of scale and worldwide market coverage and to blend complementary skills -- all in search of long-term survival." Brauchli, Marcus W. 1998. "More Manufacturers Face Race to Survive As Cup Runs Over in the Industrial World." Wall Street Journal (30 November): p. A 17. "From cashmere to blue jeans, silver jewelry to aluminum cans, the world is in oversupply. True, some big industries, such as steel, autos and semiconductors, have been grappling with excess for years. But a remarkable range of others have been losing their leanness only lately, as crisis-battered nations ramp up manufacturing to try to earn more money, and as consumers in many lands, spooked by financial-markets gyrations, slow their spending and conserve savings." "In business-minded Europe, there are too many tank and armored-personnel-carrier plants, relics of the Cold War. In reformist China, textile factories spin out so many excess garments, the country could practically clothe its entire population out of inventory. Thailand has an embarrassment of idle golf courses, Hawaiian beaches are lined by underused hotel rooms and South African mines grind out more gold and diamonds than the bejeweled classes want (at current prices, anyway). There's even a surfeit of coffee shops -- not just in high-caff towns such as Seattle, but in tea towns like Seoul." "there are essentially two solutions to extreme excess that afflicts the world economy: either industrial downsizing, consolidation and layoffs; or faster growth, more consumer spending and improved industrial efficiency." Buyan Holding Co., the biggest cashmere producer in distant, landlocked Mongolia, hopes that adage doesn't hold. Facing a slump in the price of its main product, cashmere, Buyan's president, Jargalsaikhan, is building a $30 million factory that will increase output tenfold. His logic: raise his quality and lower prices, so he can outlast rivals in neighboring China. "They produce sweaters, but only a few types," says Mr. Jargalsaikhan, who uses only one name." "Decisions such as his escalate what might seem healthy competition into excess, in two virulent forms. Manufacturers and service companies not only build too much capacity, in which an industry has invested in the capability to produce goods or deliver services at a higher level than the market needs, but also create oversupply, in which industry is making or delivering more than the market needs." "Surplus goods tend to fall in price, which makes it less profitable to produce them. Producers try producing more to lower the cost-of-production-per-item price. Unbought goods clog the system. Prices shrink and, at some point, some producers are forced out of the business and supply diminishes. The economy slows. Demand shrinks. Equilibrium returns." "Companies should go bankrupt, companies should get taken over and inefficiencies should be taken out," [citing Christopher Clarke, managing director for Southeast Asia at consultancy A.T. Kearney.] "What former Chrysler Corp. Chairman Robert Eaton, justifying the virtues of Chrysler's recent merger with DaimlerBenz AG, estimated was excess capacity equal to 18 million cars world-wide -- more than annual U.S. demand of 15 million cars and light trucks." "There is too much of many things that not so long ago were scarce. The most striking: electricity, from privately built power plants. (For different reasons -- severe economic slumps, mainly -- Russia and Indonesia have similar surfeits of electrical power; more, anyway, than people can afford now to buy.)" "The answer is apparent at ground zero of the world's overcapacity time bomb: Japan. Always an export-centered dynamo, Japan built massive industrial capacity, both at home and abroad, throughout the 1980s. The secret to its overproduction was cheap money: low interest rates that make it easy for companies to raise capital and make the decisions to build factories or other investments. In the late 1980s, Japanese monetary authorities lowered real interest rates to nearly nothing to help Japanese exporters survive a drastic strengthening of the yen in 1986. That policy fueled a huge stock-market bubble and made bank loans look cheap." "The implosion of Japan's financial markets in 1990 didn't end the problem. The rest of Asia and later the U.S. soon enjoyed financial bubbles of their own, with soaring stock prices. That was a boon for new industries, which in more conservative times might have had trouble raising money." "The boom in Asia coincided with a progressive investment uptrend in the U.S.," says Giles Keating, Credit Suisse First Boston's chief strategist in London. "If you take a progressive investment boom and then you hit it with a demand downturn, you're heading for trouble." "The trouble took the form of bad investments in many traditionally cyclical industries -- which often build oversupply into their profitability equations -- as well as some new ones. Shipping lines fell into their habit of ordering too many vessels, and airlines bought too many planes. They were joined in the binge by newfangled industries such as semiconductors and, for the first time, service industries, the source of U.S. economic strength." "The phenomenon, known as deflation, has been around in Japan for nearly a decade. But it goes by a different and more ominous name there: "price destruction." The reason for negative connotation, as corporate Japan has discovered, is that falling prices eventually drop below producers' ability to stay profitable. Then the producers shut down, and layoffs ensue." ## Frank, Robert. 1999. "How Thailand Became the `Detroit of the East' --- Big Auto Makers, Facing Mature Markets in the U.S., Now Look to Asia for Growth." Wall Street Journal (8 December): p. B1. "On an old pineapple plantation here along the steamy Gulf of Thailand, the Big Three auto giants are building a piece of Detroit -- bowling alleys and all. Along the freshly clipped lawns of a new industrial park, names like TRW, GKN and Lear Corp. dot the corporate landscape. A phalanx of Ford Ranger pickup trucks roars off an assembly line at the company's new $500 million plant." "Across the street, General Motors Corp. is putting the final touches on its own $500 million factory, scheduled to open in a few months. The bowling alley is expected to arrive next year, right next to L'Opera Pizza and a giant sign that reads: "Welcome to the Detroit of the East." "With the U.S. and European markets maturing, the Big Three are counting on Asia for growth. Ford Motor Co.'s marching orders are "Asia 10%" -- a call to capture 10% of the market over the next few years. It already has spent over $1 billion since 1995 on new plants or joint ventures in Vietnam, the Philippines, Malaysia, Thailand and India." ##
Anthony D'Costa wrote: > On the question of contradictions; I am looking for some good > recent literature on excess capacity, which I interpret as one > kind of capitalist contadiction from a systemic point of view. Perhaps > some of you may have written on the dialectical relationship between > competition and monopoly. -- Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901
