Blog: Dave LeggettSelf-fulfilling prophesies

Dave Leggett | 29 January 2009

I did a radio interview earlier with a presenter called Shane on BBC Radio Derby's breakfast show. Toyota's Burnaston car plant (makes the Auris and Avensis) is local to them and they wanted me on for a bit of background to Toyota's confirmation that it is considering introducing a three-day week there, on top of what it is already doing to cut production. He asked some very good questions actually, not unexpected ones, but good ones about the nature of the problems that companies like Toyota are currently experiencing. I pictured the radio listeners trying to get their heads around the global economic downturn and how it's impacting them.

We talked about the global downturn that is affecting everyone in the auto industry and I made the point that Toyota in Britain - just like other Japanese car plants here - exports most of its output to continental Europe and that's the big problem, which is not specific to Toyota or the UK: the European car market - like others around the world - has suddenly collapsed and no-one knows when it's coming back. Sergio Marchionne recently refused to give a forecast for the European car market because of the uncertainties involved.

So where does that leave manufacturers' planning? They are still looking for straws in the wind in terms of where this year's (and 2010's) market is going, but they have to make planning assumptions. Just as Bob Lutz recently said that GM is working on the conservative (realistic?) assumption that this year's US light vehicle market will be 10.5m, although that's not actually a forecast because he noted that it could be anywhere between 10m and 12.5m, so European OEMs will be doing the same.

What will get us all (and I don't just mean the auto industry) out of this increasingly deep hole? Confidence. Someone, somewhere has to come up with something that leads people to really believe that the worst is well and truly over, that things are going to get better and that the underlying problems are sorted. And also that the banks can be trusted again. Confidence is key.

Trouble is, all the bad economic news circulating at the moment compounds the downturn as people retrench their spending still further. And asset values keep going down, making the bad debts for banks even badder, stock prices go lower over worries about the financial system and economic growth, confidence is sapped still further, and people spend even less, the IMF says its never been as bad since 1945 and so it goes on. It's a vicious circle. Talking about how bad it is makes it even badder.

It's going to take something a bit more creative than government loan gurantees for companies struggling to stay afloat. And the lack of consensus over the US stimulus isn't good news either. At heart, this a global problem and we still don't really have a sense of it being tackled as such. Or perhaps it has been, but hasn't been properly communicated.

And the meeting of the great and the good in Davos for the World Economic Forum? Don't hold your breath. These are the very people who sailed the ship into this mess and appear to be in a state of shock that it could all turn to custard so quickly. May as well stick Angelina Jolie in charge. 

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