Re: Big 3 life supports???

Posted by JeffM On 2009/1/14 10:31:33

For some reason, there is only talk in the media about the pain the American makers are suffering. What is not said very much is that all of them, Toyota included, are hurting pretty bad.

The issue for American makers, to some degree, is the cost of labor, because it is higher for them.

The bigger issues, however, are that credit is tight and consumers are scared of committing to debt even if they could get a loan. It was a fun ride during our last bubble. You either adjusted your standards upward in the bubble and are suffering for it, or you managed to live well below your means and are suffering less.

The demand for cars was too high. Production capacities were increased. These capacities become fixed costs to a large extent. The variable costs are increased labor. It is easier, but not easy, to shake labor costs by lay-offs, but when it comes to shutting down plants, that process does not come as painless. The debt incurred to build/acquire/re-tool the plants is fixed and still must be repaid.

This is a new era - at least for a while. Demand was too high. Demand has come back down, and so, he we are....