Commentary

Automakers need to face new reality

Marketplace Staff Jan 13, 2010
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Commentary

Automakers need to face new reality

Marketplace Staff Jan 13, 2010
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TEXT OF STORY

Kai Ryssdal: For all the excitement about the Detroit Auto Show yesterday, today was a bit of a let down. All the opening day buzz is gone and yet the problems of the American car industry are still with us. Today the head of one of Detroit’s biggest parts suppliers said he is expecting only moderate sales this year. And that a new Cash for Clunkers program would be a good thing. Commentator Robert Reich says there is no easy fix.


ROBERT REICH: Automakers are trying to be upbeat. 2009 was a disaster, but December sales were up and the auto execs are hopeful this means strong momentum into 2010.

Never underestimate the power of wishful thinking in Detroit.

Auto executives need to face two realities. First, there’s no longer an “American” auto industry. The Big Three are selling cars all over the world, foreign automakers are selling them here, parts are coming from everywhere.

That may be good news considering all the Chinese and Indians who want cars. Last year, Chinese consumers bought more cars than Americans did. Three years ago, the tables were reversed. Americans bought twice as many as the Chinese.

But the second reality is there’s a giant glut of auto-making capacity. Right now, the world auto industry can produce almost 90 million cars and light trucks a year. 90 million. You know how many were actually sold worldwide last year? 60 million. The worldwide auto industry, in other words, has a third more capacity than it needs to satisfy worldwide demand.

Now sure, demand is growing in China and India. But China and India are busily building new plants to produce even more cars. So even as global sales grow, the glut is growing, too.

All this means the world auto industry — including GM, Ford, and Chrysler — will have to rationalize, consolidate, reduce capacity. Bailing out GM and Chrysler, bailing out GM’s finance division, giving cash for clunkers, hoping the American auto industry will bounce back, throwing another big auto show in Detroit. All this is irrelevant to the real challenge.

And that challenge is getting new, good-paying jobs for all the auto and auto-parts workers who will continue to be laid off, even when the U.S. economy is fully recovered. And helping Detroit and other auto communities create new industries that move people from place to place at minimum cost, with minimum carbon.

This is what the Detroit Auto Show ought to be about. Not more cars.

RYSSDAL: Robert Reich is a professor of public policy at the University of California, Berkeley.

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