Finance and Industry
What of the Future
After a period in the doldrums the motor industry is booming again. To judge solely by the British press one would imagine the boom was confined to these shores. In fact, the U.K. industry is doing no better than most of its competitors and in some cases is not doing as well. Production, for example, is up by 15 per cent, in Britain so far this year compared with 1962; this is higher than the increase in Germany (14 per cent.). but less than in France (17 per cent.) and in Italy (28 per cent.). Even the recently stagnant U.S. industry has managed to show a rise of about 12 per cent.
The export comparison is even less flattering. U.K. exports in the first six months of this year are up 6 per cent, over 1962; but for France the rise is 18 per cent, and for Germany 21 per cent. Italy, on the other hand, has shown virtually no rise in exports at all and has had to contend in addition with a tremendous increase in imports.
All the big national producers in fact are turning out cars faster than they have ever done before. Total U.S. production is reckoned at over 8 millions for the whole of this year whilst Germany will probably produce about 2j millions, Britain and France 14 millions each, and Italy near enough a million. The automobile is fast becoming as crucial to the Western European economies as it has long been to the American. “When Detroit sneezes,” it has been said, “America catches a cold “; the same can now be said of Dagenham, Wolfsburg, Billiancourt, Turin.
The urge towards more production and bigger sales has become hectic. Every firm in every country strives to keep ahead of its rivals; every national group tries to beat its competitors. New model follows new model with bewildering rapidity; there is new styling; engines go from the back to the front, and from the front to the back; gimmickry of one kind or another has free rein. To keep sales buoyant, it is essential to put something new before the buyers. Once a model like the old Ford 8 or Austin 7, or the Volkswagen, or long Citroen, went on for 15 or 20 years; now it is the exception if a model lasts a third of that time.
Having overwhelmed the small car sector with a vast range of differing models, the car manufacturers of the world are now switching their attention to the medium bracket. British Ford has currently no less than 17 different types in its Consul/Corsair complex in an attempt to cater for every idiosyncrasy on the part of buyers: other firms, such as Renault, Simca, and Volkswagen, are only just coming into the field with perhaps one or two models, but are geared up nevertheless to turn them off the assembly lines at 500 a day.
Apart from the rivalry between individual firms inside their own countries, competition has spilled over national boundaries. To get a foothold in the French market, British Ford and B.M.C. are selling cars at prices that must be bringing them little if any profit. Renault and Simca are doing the same in the U.K. Since the removal of certain tariff restrictions by Italy, the market there has been invaded by cars from Britain, France, and Germany (Volkswagen alone has taken up 5 per cent, of the market). Germany itself will import about 160,000 cars this year, 12 per cent, of new licences.
But in spite of all this frenzied activity, many firms are worried. Although they are turning out cars in large numbers, the profits are not coming so easily. Competition is intense, and the outlay on new plant, factory extensions, and more and more research, is a heavy burden. Most of the new production has been in small cars and the profit on these is low. The firms with the vast capital resources to cope with this mass production will have the best chance of survival, the others will either be taken over or will amalgamate.
The chief threat will come from American capital; from Ford with its holdings in Britain and Germany, General Motors again in Britain and Germany, and Chrysler in France. Volkswagen is already said to be feeling the pinch from Ford and Opel (General Motors), and Rootes has long suffered the same uncomfortable position in this country. Rumours continue to flourish in Europe about amalgamations of various “family”‘ concerns to counteract American pressure —Fiat in Italy, Mercedes—Auto Union in Germany, Citroen and Peugeot in France. That they all have reason to be afraid is emphasised by a recent calculation made in a European trade paper: General Motors in the U.S. would apparently still have made a profit of almost £300 million if they had given away free the whole of the production from their Opel plant in Germany.
It will be interesting to see for how long the independent European car producers can continue to stand up to the might of the American colossi. In the meantime, they carry on the frenzied struggle to sell their cars with one eye fixed anxiously on their European rivals and the other looking apprehensively at the United States. No wonder they cannot see where they are going—perhaps its just as well for them.
It’s all as planned
When trade booms the politicians dispute with the business men about the responsibility, both claiming the credit. When trade slumps the business men blame the government and the government blames the greedy workers or the wicked foreigners. The truth is that neither business men nor Cabinet Ministers can have much certain knowledge of the future ups and downs of home and foreign trade, or do much to control it: but some are luckier than others.
One widely held belief of our age is that governments can manipulate trade expansion and therefore can know what the future will brine because they control it. Sometimes they appear to be right not because they made it happen but because it was going to happen anyway and in spite of their efforts. An example of this was recently commented on by Paul Bareau in the Daily Mail on September 9th. He recalled that earlier in the year the Chancellor of the Exchequer undertook to promote an improvement in trade by running a budgetary deficit. Trade did improve between April and September but without the deficit having happened.
“The Chancellor of the Exchequer, therefore, budgeted for a current deficit of £90 million, a capital deficit of £597 million, and an overall deficit of £687 million—or ten times the modest and mean figure for 1962-63.
So far, virtually nothing of this worthy intention has been translated into fact. In the first five months of this financial year the current deficit was £28 million larger than in the corresponding period last year, but the capital deficit was £3 million smaller, leaving an almost negligible £25 million change in the overall deficit.
The recovery which has taken place in the economy, therefore, owes virtually nothing to the stimulus that was to be applied through the Budget.”
Business men may say that this just shows the limitations of politicians and their theories. But a recent book on the American Ford Company (The Fate of Edsel, by John Brooks) recalls a colossal blunder of that company. They went to great expense to give the public just the car they wanted. It was a flop and lost £100 million.
S. H. & H.