Excess capacity in the car industry
Source Seth Sandronsky
Date 01/01/06/11:37

January 6, 2001
Excess capacity in the car industry: the capitalist crisis continues
by Seth Sandronsky
972 words

As the year 2000 closed, crises rocked the capitalist system. One crisis
was the deregulation of electricity in California. It was supposed to bring
consumers “choice” and lower prices. It brought neither—just the threats of
blackouts and bankruptcies. Another was the swoon of the stock market. Its
climb had been a sign of the so-called “New Economy,” featuring digital
technology and high worker productivity. But Wall Street's rise was a
triumph of myth over reality, of share prices out of ratio to corporate
earnings. In the meantime, the car industry was unable to sell all its new
cars due to excess capacity, the business press reported. What it covered
and covered up speaks volumes about this particular crisis.

According to the Financial Times: “The problem dogging the industry—already
handicapped by flat volume growth and falling prices—is excess capacity. In
Europe, there is enough factory capacity to make about 18m [million] cars a
year. But the industry will be lucky if sales exceed 15m in 2000. In the US,
the market is expected to shrink from 18m vehicles this year to 16.5m-17m in
2001. Manufacturers fear being left with thousands of unsold models and
plants churning out vehicles with no buyers” (12-13-00).

General Motors Corp., the world’s leading auto producer, is eliminating the
Oldsmobile brand in America. GM will also layoff 10% of its US salaried
staff, the London Economist reports (12-14-00). Some 2,000 workers will
lose their jobs when the company closes its Luton car factory in England. In
all, GM will cut 10,000 jobs.

In America, “DaimlerChrysler has been affected by widespread over-capacity.”
System-wide, Chrysler is cutting prices and spending and closing plants”
(Bloomberg News, 12-31-00). Ford is“ cutting capacity in Europe, most
notably by ending car assembly at its Dagenham plant near London. There are
too many carmakers in both Europe and the US and too many factories for a
shrinking market” (Financial Times, 12-13-00).

Why the car “market” is losing size is ignored. And the view that job
losses cut workers' buying power? This is also an overlooked factor in the
shrinking of the market for cars.

On one hand, the car “market” is too large. There are far too many cars
locally and globally. I don’t want workers to earn more money to be able to
buy all the cars that are produced. As an American, I criticize our use of
cars. It’s a catastrophe speeding up world climate change. America has 770
cars per 1,000 people versus 10 in China, 30 in Egypt, 148 in Mexico and
552 in Japan (New York Times, 12-24-00).

On the other hand, the car industry is an example of how capitalism creates
business crises. The business press is not exactly known for faulting the
market under capitalism. Effects, yes. Causes, no.

To get at the causes of capitalist crises, we turn to Marx. He focuses on
relations between classes, or groups of people, and capitalist competition.

Concerning classes, one class works to produce goods and services. The
other class does no work but makes money from workers’ labor. Yet these two
classes have one thing in common—they depend on the capitalist market to

The capitalist market takes no prisoners. It's imperative for employers to
pay their employees less than other employers. The business press calls
this a "competitive advantage." Take the auto industry. Carmakers
worldwide produce cars by holding down employee costs to take profits and
market share from carmakers whose employee costs are higher. That's not a
conspiracy theory, just capitalist reality.

Along with private employers, public services—Medicare, schools and Social
Security—are also subject to the capitalist mode of production. Capitalist
competition and class relations reinforce each other society-wide, Ellen
Wood notes (Monthly Review, 9/99).

When factory workers made goods they couldn’t afford to buy, Marx and Engels
called it a crisis of overproduction. This was and is a crisis unique to
capitalism. They write: “In these crises, there breaks out an epidemic
that, in all earlier epochs, would have seemed an absurdity—the epidemic of

Marx saw the buying power of workers falling relative to the prices of the
goods and services their labor produced. Under market capitalism, money
flows away from employees to employers. Political elections don’t threaten
this class relation. Not when the super rich and corporations control the
Democratic and Republican parties.

Excess capacity in the car industry is one example of a capitalist business
crisis. Another is the industrial agriculture crisis that thrashed
California’s Tri Valley Growers in 2000. This cooperative owned by farmers
attempted to survive market competition and lost about $200 million in three

Unsold tomatoes rotted in the field because Tri Valley couldn’t buy them
from farmers. There were also too many peaches in the Golden State. “Faced
with a sizable over-supply, the peach industry in California plans to
bulldoze more than 100,000 trees loaded with ripening fruit that would have
been destined for the canneries” (Sacramento Bee, 7-30-00).

Andrew Caughey writes: “In the agricultural sector unfettered competition
leads to excess production which drives prices below cost. In an attempt to
maintain profits, or lower costs, the stronger producers expand their output
while weaker ones give up the business. This process goes through numerous
price cycles until production becomes concentrated in a handful of
producers. Although consolidation has been slow in American agriculture for
a number of reasons, we are now at a point where we can envision its
completion." (“The Pulse of Capitalism,” October 2000. The Farm Economy).

Meanwhile, the United States Conference of Mayors reported that 83% of 25
cities surveyed had increased requests for emergency food assistance in 2000
versus 1999. Most of those requesting the emergency food had low-wage jobs.

Hunger isn’t a natural condition of human beings. Likewise, there’s
nothing natural about excess capacity or the capitalist system.


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