Sunday, January 16, 2011

Issues in Auto Market

The current Economist has an article on problems in the global auto industry. The estimate that global demand is for 64 million cars and the industry capacity is 94 million. Europe has 30% excess capacity and Fiat, Ford and GM are losing money in Europe.

Moreover the trend is toward smaller less profitable cars. This is due to aging population which prefers less powerful cars and because of rising gas prices and environmental concerns.

Growth in China will fall from 30% to 10% because of government policy to restrict use in cities. This will lead China to move to export focus. Geely's purchase of Volvo will provide platform for growth in US and Europe.

The industry will have to cut capacity and increase productiviity to remain profitable. Since this is one of the largest markets in the world, the needed changes will put more pressure on job growth.

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