Too Many Cars
In America, Japan, and Western Europe car sales are basically static as new cars are purchased mainly to replace junked vehicles. The world's automakers have been looking to the emerging markets of Asia and Latin America for their growth, and have made huge investments in production facilities in those areas. The US producers have invested heavily in Asia and Latin America, Japanese automakers in Asia, Western European automakers in Asia, and the North Korean automakers in Latin America and Eastern Europe. Asian production facilities are scheduled to add 6 million cars to capacity in the next five years. While worldwide supply is scheduled to increase to 80 million autos over the next five years, it's estimated that demand will only rise to 75% of that total, and that estimate was made before the Asian meltdown.
Before the crisis, South Korean auto production capacity was scheduled to reach 5.2 million in 2002. This would have been 1.9 million above domestic demand, so 1.9 million would have been destined for export. Now financial straits have forced Samsung Group and other South Korean auto makers to scale back capacity additions, but domestic demand has dropped even faster. It looks like capacity will exceed domestic sales by 2 million even earlier, in 1999. Japan produced 10.4 million vehicles last year, 3.3 million below capacity. India also has more capacity than is needed domestically. Toyota recently cut auto production in Thailand when local demand fell, but has since resumed operations with more locally made parts to avoid costly imports, and re-aimed output at exports. Other Japanese auto companies are doing the same elsewhere in Asia.
Excess capacity is, of course, a powerful deflationary force, and even more so when so much of it is in countries with devalued currencies. Where will all the goods and services that these developing countries desperately want to export end up? Obviously, not in their fellow sufferers. In 1996, the nine developing East Asian countries sold 40% of their exports among themselves. As that source of export demand drops, the pressure increases further to sell to the only remaining buyers -- Western developed countries, especially the US.
Furthermore, Japan remains part of the Asia problem, not the solution. Her domestic demand is lousy. Her instinct is to grow by exports, but her Asian markets are collapsing. Where do you think her export guns are trained?
gold-eagle.com |
