So Toyota (TM) finally admits that it’s going to lose money this year, in what’s been a horrendous year for all the automakers. As Matt Yglessias jokingly observes “the dastardly UAW has somehow conspired to cause Toyota to post its first loss in 70 years.”
Sure. But while the UAW doesn’t deserve blame for the current industry downturn, you’ll notice that Toyota can lose money without risking its corporate existence. The problem for GM isn’t that it’s currently losing a lot of money, it’s that in its decades of operations, it wasn’t able to sock away enough cash to survive a deep downturn — in large part, this was due to the billions in transferred to GM pensioners.
If this were an ordinary business, one or more automakers would fail, leaving the remainders in a stronger position, with the opportunity to capture more of the market at higher profit margins. That’s not going to happen, since none of the automakers will be allowed to fail. Instead we’ll be looking at industry like aviation — an infamous money loser filled with too many companies and too little pricing power.
We noted the same thing, this morning, with respect to the commercial property developers. There are clearly too many of them, and yet by propping them up, we risk the possibility that too many will persist, none of which are particularly profitable. Letting the strong consolidate their markets is how we come out of recessions, and to circumvent that gets us nowhere.
Of course, with the aviation sector its typically private money that keeps flooding the industry with new entrants and it works out to the benefit of consumers via lower prices and plenty of route options. When its taxpayers propping up businesses that aren’t connecting with consumers, we don’t quite get the same benefits.
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