Keeping the Bubble Inflated?

MyLastFiver

Forgive me if this has been discussed before.

Does anyone else feel uncomfortable with the idea of the government propping up private supply-side institutions such as car plants?

The reason I'm uncomfortable is the assumption that the drop-off in consumer demand is only temporary and, some time next year or so, we'll all be consuming and getting ourselves into debt just as much as we ever did. Because I'm not sure that's the case at all, or even if it's desirable.

Generally speaking, we have gorged ourselves on consumer goods for the last decade or so. We do not need a new car every 3 years, nor do we need the finance packages that lock us into such patterns of consumption.

I realise that a lot of people's jobs are at stake, but continuing to pay people to make cars that nobody is going to buy is just not sustainable.

Anyone?

Thrugelmir

MyLastFiver wrote: »

Forgive me if this has been discussed before.

Does anyone else feel uncomfortable with the idea of the government propping up private supply-side institutions such as car plants?

The reason I'm uncomfortable is the assumption that the drop-off in consumer demand is only temporary and, some time next year or so, we'll all be consuming and getting ourselves into debt just as much as we ever did. Because I'm not sure that's the case at all, or even if it's desirable.

Generally speaking, we have gorged ourselves on consumer goods for the last decade or so. We do not need a new car every 3 years, nor do we need the finance packages that lock us into such patterns of consumption.

I realise that a lot of people's jobs are at stake, but continuing to pay people to make cars that nobody is going to buy is just not sustainable.

Anyone?

As far as I'm aware the Government has not said that it will prop up car manufacturer. The money proposed to be lent will be used to develope new technology.

MyLastFiver

Thrugelmir wrote: »

The money proposed to be lent will be used to develope new technology.

I'm not sure how that would work given that certain plants (apparently) won't have the money for next month's payroll...

Thrugelmir

MyLastFiver wrote: »

I'm not sure how that would work given that certain plants (apparently) won't have the money for next month's payroll...

There are lots of UK Companies struggling to pay their bills. So why should foreign owned companies receive bail outs?

Reaper

Thrugelmir wrote: »

There are lots of UK Companies struggling to pay their bills. So why should foreign owned companies receive bail outs?

I'm in compete agreement. If Tata want money for Land Rover or Jaguar (or any of the other car companies) they should hand them back to the UK first.

stevetodd

Its not about keeping the bubble inflated (which has already well and truly burst) it's about survival, avoiding total meltdown.

drc

If private companies go bust that means no tax revenue. Since the public sector is so bloated now and relies heavily on private monies coming into the system to fund it, then private companies are needed to stay afloat in the hope that in the not-too-distant future they will be solvent again and that means more money floating into the system in the way of taxes on private companies. It also means people don't lose their jobs, even if they have to take a pay cut in the meantime. More job losses means more pressure on the public purse because all those unemployed need to claim benefits to survive. This is the way I see it anyway.

Conrad

The drop-off in consumer demand is indeed temporary, so the Government are probably right to plug the gap for now.

Long term I think Humans might learn to cease being obsessive collectors of status tokens and wealth provers, but for at least the next few hundred years we are stuck with the consumption mentality.

Even in 'primitive' tribes, individuals seek to advertise thier place on the status ladder with status token collection, be it wives, cattle or head dresses.
This notion we have suddenly become stuff collectors I think is invalid. Nature is riddled with comparative status goaling. The best male Lion will collect the most females as he can secure the most productive real estate. Indeed I think some deep seated resentments amongst Humans stems from this very imperative - the alpha males prove thier dominace by thier ability to collect the most / best real estate.

Or does that sound like a pile of dung?

Wookster

Conrad wrote: »

The drop-off in consumer demand is indeed temporary, so the Government are probably right to plug the gap for now.

It is impossible to say that for certain. What is certain though is that vehicle production during the boom years was high, with buyers being able to pay as a result of cheap money. The overcapacity in vehicle production will have to be supported indefinitely or be allowed to fail. At the moment, any support/ bailout is a gamble.

Furthermore these sort of bailouts add yet more risk onto the taxpayers bill and the Government is no better placed to decide who gets and who doesn't (though no doubt the Mandelson/ Deripaska link might be at play here).

Thrugelmir

Wookster wrote: »

It is impossible to say that for certain. What is certain though is that vehicle production during the boom years was high, with buyers being able to pay as a result of cheap money. The overcapacity in vehicle production will have to be supported indefinitely or be allowed to fail. At the moment, any support/ bailout is a gamble.

Furthermore these sort of bailouts add yet more risk onto the taxpayers bill and the Government is no better placed to decide who gets and who doesn't (though no doubt the Mandelson/ Deripaska link might be at play here).

Current estimates are that there is around 20% to 30% over capacity in vehicle production around the world. So capacity has to be cut back somewhere.

Rochdale_Pioneers

Its a pretty simple debate. The catastrophic drop in demand for cars won't last long term. When the good people of Europe and America and elsewhere start buying cars again they will likely have a smaller choice of vehicles to choose from. We know there is some flab in the system which can be removed, but its a question of where.

We are lucky in that we have a lot of car manufacturing done in the UK. Nissan Sunderland may be the most efficient plant on earth, but with 78% of its production exported (currently parked on their test track) the drop across Europe has them screwed. Similar picture at Honda and Toyota. So, do we allow these factories to close because demand has temporarily gone?

We know that the French and Germans are subsidising their car industries. So we have a choice of propping ours up or handing all the future business to them. It may cost £10bn now, but how much do we lose in tax in having them close? What is the cost of 100% of vehicles driven in the UK suddently being imported?

There is NO free market solution here because its not a free market. You either subsidise the industry or you lose the industry to those countries who subsidise theirs. We lost so much heavy industrial manufacture abroad in the 80s by letting market forces close shipbuilding and steel, and look where that has got us. Subsidise and pay now, or let close and pay in perpetuity through import costs as they scalp poor desperate UK PLC.