The Unions are right to be worried about the future of British car manufacturing capacity. They are not necessarily right to say we need to preserve the capacity and the model ranges we currently have. We need to export more vehicles.
Even at the height of the over borrowing in 2007 the world had too much car capacity. Many of the west’s factories were geared to selling expensive and complex vehicles to the successful and to the affluent in the west. Some manufacturers concentrated on selling second and third cars to the very rich. Volume manufacturers often specialised in company car products to middle managers or ever more sophisticated vehicles to discerning individuals who could get access to large car loans. These markets are badly damaged by the end of easy credit, and may not return to their former levels for a long time.
The car market is a good illustration of the imbalances that bedevil the world economy. In the east are millions of people who have never owned a car. Many of them work very hard for low wages. A sophisticated and expensive vehicle is way beyond their dreams and current capacity. They would like the chance to buy a simpler, cheaper more rugged vehicle suitable for their pockets and local conditions. The Indian industry is now experimenting with just such a product.
In the west are millions of workers with cars, who are now finding it difficult to take out the loans to buy more modern and better specified replacements. When people fear for their jobs they rein in spending on cars. When banks are stretched, cutting down the car loans is an easy option for them.
The industrial renaissance of post war Germany in part revolved around production of the Beetle. A simple relatively cheap car became a popular icon, because it was affordable and reliable. Asia needs several such products to lead the expansion of domestic demand for cars. Is the west’s industry going to come up with something, or is it going to ignore that opportunity, watching the switch of leadership from western to eastern car companies?
Come to think of it, some smaller more fuel efficient cheaper products could go down well in the West as well. Many retired people, unhappy with the attack on their savings, might be persuaded to buy a realistically priced run about from some of their savings before government policy destroys more of its value.
The industry has to rethink its strategy. The Western regulators also have to take on board that their many requirements have been adding cost and weight to Western vehicles, putting them out of reach of many people round the world who would like to buy a car.
UK government policy is to cut private sector living standards for many, by increasing taxes, increasing borrowing from private sector savers, and slashing interest rates on money saved. That means we will not be able to buy so many cars.