british motor industry

8/13/2019 British Motor Industry

1/64


2/64

of jobs in the region. The key is investing 250 million that the group destined to make their first

units in Europe Infiniti luxury model.

In March, Sunderland had launched production of its all-electric Leaf model, which involved the

investment of 420 million over the creation of 500 jobs at Nissan, and more than 2,000 between

suppliers.

It is a step backwards, because in 2009 Nissan fired a quarter of its 5,000 employees Sunderland.

Good health enjoyed by the high-end car has also benefited Rolls-Royce (BMW Group). In 2012, for

the third consecutive year of record-breaking sales since its creation, 108 years ago, with 3,575 copies

sold. The brand is expanding its factory in West Sussex (southern England).

While in most European markets the sale of new vehicles is stagnant, Britain again showed growth in

August insolent, uninterrupted for a year, with 11% more sales than the same month of

2012.Meanwhile, in Spain fell 18.3%, 10.9% in France, Italy and Germany, 6.56% to 5.5%.

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Toyota will end production in Australia in 2017

Tokyo / Sydney (Australia), February 10 (EFE). - The world's leading engine, Toyota, today

announced that it has decided to end production of vehicles and engines in Australia by the end of

2017, because of the difficulties of the local market and the rise in its currency.

The decision of the Japanese company, which has 3,900 employees in the country, comes after U.S.

General Motors (NYSE: GM -news ) and Ford already announced last year that ceased production in

Australia.

"Several negative factors such as their extremely competitive market and the strong Australian

dollar, coupled with the anticipation of a reduction in the scale of production in Australia, has forced

us to take this painful decision," said company president Akio Toyoda , in a statement.


3/64

Australian Prime Minister, the conservative Tony Abbott, said job creation is superior to layoffs, but

regretted the impact that the closure of Toyota, which marks the end of the automotive industry in

the country.

"Nothing you can say alleviates the impact of this devastation and disappointment today, there will

be better days ahead," said the president.

The closure of the Toyota plant, located in the state of Victoria, may cause the loss of about 30,000

indirect jobs and mean the end of the car industry in Australia.

"Tony Abbott has definitely missed Australia. This is a government that prides itself on its ability to

destroy industries," lamented Senator Kim Carr, the opposition Labor Party.

Carr criticized the Executive for failing to provide Toyota a plan for long-term competitiveness and

encourage investment described as "disastrous" implications of the closure of auto plants in the

country.

Toyota Motor Australia, who had established in the country for more than five decades, will become

a company exclusively selling "without changing the commitment to continue offering great cars and

services to Australians."

The manufacturer also announced it is considering reducing the operations of Toyota Technical

Center Asia Pacific Australia, based product development in the country.

Ford announced in May last year to stop producing cars in Australia from October 2016, which

means the loss of about 1,200 jobs at its assembly plants.

Holden, a subsidiary of generla Motors, announced last December that also stop producing cars in

Australia from 2017, which will affect about 3,000 employees, while Japan's Mitsubishi

(Dusseldorf:MBI.DU - News ) ended its operations in 2008.

Effects of the international financial crisis

The Dossier Crisis IIwas published in August 2010 by the Brazilian Keynesian Association

(AKB). This Dossier is seeks to assess the effects of the international financial crisis, the


4/64

world in general and in Brazil. We publish below some of the items mentioned Dossier (a

complete list of articles can be found on the Association

website: http://www.ppge.ufrgs.br/akb ).

Keynesians times

Luiz Fernando de Paula1and Fernando Ferrari Filho2

The process of financial globalization, in which financial markets are integrated in such a

way as to create a "single" world market of money and credit, before a picture in which

there are no monetary-financial and currency stabilizing rules and the traditional

instruments of macroeconomic policy become increasingly insufficient to contain thefinancial (and currency) collapses worldwide, has resulted in frequent bouts of effective

demand, determined primarily by "financial strength".

Indeed, the financial crisis that emerged in 2007-2008, whose consequences are still being

felt today, is primarily a crisis of financial globalization, understood as a tendency to create

a global financial market and intensifying the flow of capital between countries. This process

goes back to the crisis of the Bretton Woods system and the formation of the Eurodollar

market, which, by the way, ended up contributing to the deregulation of domestic financial

systems - with the end of segmentation between markets - and the liberalization of capital

flows.

As a result of financial deregulation, there was an intensification of competition between

banks and therefore declining margins of financial intermediation, with a trend in response

to the financial conglomeration and an increase in scale of operation, through mergers and

acquisitions . Thus, financial institutions began to explore different markets, including lower

income. In the bond market, have developed mechanisms for securitization, fueled by the

growth of institutional investors, companies and banks that fund themselves "packaging"

income receivable. In short, since the securitization allowed dilution risk in the market,

financial institutions began to increase their leverage, assuming that the mechanisms of

self-regulation of the market would be able to continue to evaluate properly the risks

inherent in financial activities.


5/64


6/64

The international financial crisis whose origin is in increasing losses caused by the default of

loans from subprime market subprimeU.S. and that, due to the fact that most of these

mortgages were securitized and distributed to investors in the global market, just becoming

global, leads us to two observations. First, it calls into question the practical benefits of

financial globalization, with deregulated financial markets, including in developedcountries.Secondly, it reminds us, as of the fiscal and monetary measures implemented by

developed countries and, to a lesser extent, by developing countries - such as injection of

liquidity and capital in the financial system by the economic authorities of these countries

and synchronized reduction of the basic interest rate of the major global central banks - to

prevent the recurrence of major depression, both to rethink the role of the State in the

economy, the need to re-regulate the domestic financial systems and restructuring the

system international monetary.

Recently, a paper by economists at the International Monetary Fund Article (Blanchard, O.

et al., " Rethinking macroeconomic policy", February 2010) argues, post-crisis times, a new

agenda for alternative economic policy to" macroeconomic consensus' prevailed until the

economic crisis of 20083. According to this work, the foundations of this consensus were

seriously shaken by the economic crisis. Firstly, the crisis showed the policy makers that

maintaining a stable inflation rate is not sufficient for macroeconomic stability

condition. This is because the behavior of asset prices, credit aggregates and even the

composition of output may create destabilizing forces within the economic system that lead,

in the medium and long term, the occurrence of a financial crisis of majorproportions.Secondly, setting a goal of very low inflation considerably reduces the scope for

reduction in the nominal interest rate when it is necessary to deal with the effects of a

financial crisis. Thus, the cost of lost flexibility of a target of very low inflation outweigh, by

far, the possible credibility gains that can generate. Thirdly, maintaining a "fiscal space" - as

a gross debt / GDP between low and moderate - proved crucial for prompt and decisive

fiscal policy response to the financial crisis. Finally, the limited scope of financial regulation

provided the necessary for banks to create "exotic" operations outside its balance incentives

in order to circumvent the leverage limits set by the Basel Accord, which eventually increase

the financial fragility of the system as a whole4.

Anyway, the very mainstreamor part, questions the foundations of conventional economic

policy and even the very foundations of orthodox economic theory, as blind faith in the

market mechanism, in which the action of rational agents would lead to "great" results ( or

near these) economically-socially. In fact, there are very Keynesian economists have


7/64

questioned such precepts, pointing out that the "neoliberal" model does not guarantee a

robust and financially stable economic growth, and generate growth incompatible with the

improvement in income distribution. To these economists, not only Keynes and his followers

have much to say about the "depression economics", as well as on possible ways to achieve

an "economic prosperity". Anyway, it is clear that we live "Keynesian times", although thecontours of economic policy that ensures the final out of the crisis and, above all, for a post-

crisis world are not very clear in the current economic debate. After all, the signs of global

economic recovery have been contrasted with worrying signs, such as the dollar and the

U.S. economy still fragile financial system and the euro-zone has serious instabilities, mainly

due to the fiscal crisis of so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain), and

the fact that the moderate economic recovery in the world has been accompanied by

hesitant decrease in unemployment.

In this context, the AKB prepared the dossier Crisis II, whose objective is to evaluate the

effects of the international financial crisis, the world in general and in Brazil as well as

present some alternative policies. In it, some key issues are addressed, such as the

international financial crisis results from a crisis of a liberal economic paradigm? What are

the reasons for the faltering global economic recovery? What is behind the crisis in

Europe? In the case of Brazil, which were the determining factors in overcoming the

crisis? After the scare, economic problems which must be faced and what should be the

solutions to them?

The exhaustion of the growth paradigm of the American economy5

Thomas I. Palley6

The U.S. economy is in recession and the problems related to the high indebtedness of

households raise fears that this recession could be longer and more severe than the

recessions of 1991 and 2000. The Federal Reserveand theTreasuryhave takenunprecedented measures in history to stimulate the economy through reductions in interest

rates, liquidity injections and tax cuts, all of which are fully justified, but they are just a

short-term palliative.

Certainly the United States must be concerned with the cyclical recovery of its economy, but

it is also necessary that we Americans, we worry about the fact that the growth paradigm


8/64

that drove our economy over the past decades is exhausted. This also has implications for

the world economy, given that this has been supported in the United States as a "buyer of

last resort." If the U.S. economy to grow more slowly, it is unclear how other countries have

the ability or the willingness to develop alternative engines of growth.

The recent economic expansion began in November 2001 and is characterized by a long

period of "jobless growth" in economic activity, and, along the greater part of the period of

expansion, employment growth remained close to zero . This led the Federal Reserveto

reduce interest rates despite the recovery in economic activity, keeping them low for an

extended period of time and increase them slowly and gradually thereafter. The actions of

the Federal Reserveprevented a relapse into recession, but also led to the emergence of a

bubble in the housing market. These actions also triggered a search for higher yields by

investors, causing them to ignore the risk, which just manifesting in the form of deflation in

house prices and massive losses in the credit markets.

Why was so weak despite expansion of the tax cuts occurred in 2001 and large increases in

military spending and national security? The answer to this question lies in the overvalued

dollar and trade deficit which drained spending, jobs and investment out of the economy. In

fact, the industry has lost 1.8 million jobs between late 2001 and late 2007. This is an

unprecedented event in American history since the industry had never lost jobs during an

expansion.

The U.S. strong dollar policy has a reasonable responsibility for the trade deficit. This policy

was initiated by the Clinton administration, under the advice of Treasury Secretary Robert

E. Rubin will be continued in the George Bush administration. The effect was to make

imports cheaper and exports more expensive, thus inducing an increase in imports, less

exports and encouraging the transfer of production abroad. This, in turn, led to job cuts in

the industry, reductions in production capacity and domestic investment in manufacturing

production.

Trade policy has also played a significant role in this process by encouraging Americancompanies to move their plants abroad. In conjunction with these trends we highlight the

policies of export-led growth adopted by China and other East Asian countries. These

policies promoted Asian exports and foreign direct investment in such economic, thus

hurting U.S. exports.


9/64

The trade deficit and contempt by the industry are part of a broader paradigm of economic

policy adopted since 1980, which created a new kind of business cycle. Cyclical fluctuations

during the administrations of Ronald Reagan, George HW Bush, Bill Clinton and George

W. Bush have great similarities to each other and are quite different from those observed

before 1980 cycles. The similarities refer to the mismatch between the growth of wageswith respect to productivity growth, large trade deficits, inflation, loss of industrial jobs and

increased property debt.

The post-1980 economic cycles have been based on boomsfinancial and cheap

imports. The boomsprovide financial collateral required to support the increased debt that

finances consumer spending. The increase in debt has also been supported by the reduction

of the criteria for granting credit and the financial innovations that allowed increased access

to credit. Meanwhile, cheap imports have mitigated the effects of wage stagnation.

This pattern contrasts with previous economic cycles which were based, not on the growth

of debt, but the salary increases linked to productivity growth and full employment. The

expenditure, combined with full employment, encouraged investment, which increased

productivity, thus fueling the growth of wages.

The change from the old to the new model of business cycle was the result of profound

political changes associated with the election of Ronald Reagan in 1980. She inaugurated a

period in which business and labor amounted been demoted. This change was rationalized

by economists like Milton Friedman. The old model of economic cycles was based on a

combination of the institutional innovations of the New Deal, which strengthened the

workers, and measures of aggregate demand management idealized by Keynesian

economics. The new model of economic cycle is based on policies that have eroded and

reshaped the institutions of the New Deal, while demand management has been redirected

to the reduction of inflation instead of ensuring full employment. Indeed, the language of

full employment was discarded.

The differences between the models prior to 1980 and subsequent economic cycle can beeasily illustrated by the policy. Prior to 1980, trade deficits were viewed as a serious

problem because they represented a leakage of expenditure in the economy which reduced

employment and output. Since 1980, the trade deficit has been seen as an important aid in

controlling inflation as well as attenuating the effects of wage stagnation.


10/64


11/64

workers bargaining power. This will encourage wage increases, which will fuel the spending,

productivity and investment. The attainment of full employment will require coordination

between monetary, fiscal and exchange rate policies to that end.

A change in the balance of power in labor markets will also be required. This will require

reforms and vigorous enforcement of labor laws to end the intimidation of employers over

employees to prevent the latter from joining unions, thus fair bargaining labor

contracts. The minimum wage should be connected with the prevailing average wage in

such a way that the first increase as the economy grows the economy. And unemployment

insurance should be expanded and extended.

The U.S. should also begin to reduce its trade deficit, which drains expenditure abroad and

strongly affect the industry. A new foreign exchange policy should prevent the overvaluation

of the dollar with respect to the currencies of major trading partners of the United

States. Only a clear and enduring commitment to this policy will again convince

businessmen to invest again in American industry.

Finally, developing countries must be persuaded to abandon their policy of export-led

growth and should be focused on developing their domestic markets. In the field of trade

policy, it means for an end to unfair international competition based on undervalued

exchange rates, export subsidies and unfair trade restrictions. This will require a new

international economic architecture that promotes fair and balanced trade - a task that will

require a highly enlightened American leadership.

The international economic crisis in 2010: a review halfway

Fernando J. cardim Oak7

Observing the world economy in June 2010, one can say that there is good and bad news,

and (anyone surprised by this?) Huge uncertainty with respect to mediate future.

The good news refer, of course, the success of macroeconomic policies implemented from

the end of 2008, almost everywhere in the world, had in curbing the more destructive

impacts of the financial crisis 2007-2008 on production and employment. The product fell in

virtually all the world (with the notable exception of all time, China and India and its


12/64


13/64

Cochrane, the very old and respectable University of Chicago, walked through sumed for

some time, but now spring up here and there in the public debate.

Unemployment is high because aggregate demand was supported by macroeconomic policy

enough to prevent collapses productive system, but the ambiguity of the governments of

countries like the United States in relation to their own decisions tends to reduce their

effectiveness. Certainly, the most worrying case is the United States. The caution and

duplicitous speech by President Obama and his aides about his economic policies are

certainly more uncertainty than generators incentives to vigorous reaction. At the same

time, for example, defends the extent of the necessary fiscal support for demand (as he did

recently in Congress, Larry Summers, more direct advisor to the President), the President

himself seems to intimidate opposition from conservatives waving the need to cut

unnecessary spending and control the deficit. In his historic inaugural address, President

Franklin Roosevelt stated boldly that "first of all, let me assert my firm belief que the only

thing we have to fear is fear itself." The phrase, and the actions which took her, went deep

in the American public and the audacity of President the American people responded to their

confidence and enthusiasm. The timidity and caution of the current government only

stimulate shyness and hesitation.

With this, the greatest uncertainties of the moment concerns the result of the policies

employed here. In the American case, and to a lesser extent also in Western Europe, the

biggest question is what will happen to these savings, since the exceptional measures tostimulate aggregate demand made in 2009 expire. The probability of renewal of such stimuli

does not seem very likely. Worse still, is that premature concern about public deficits and

the growth of domestic public debt in countries like the United States and Western Europe

could lead to a new economic contraction, with unpredictable impacts. Some countries, such

as Club Med mentioned before, are now being forced into this trail, and these policies only

tend to worsen the situation by introducing, in fact, new uncertainties, with respect now, in

the short and medium term stability politics of the region, and the long-term survival of the

single currency, which disappears if the price of your stay is poverty and unemployment in

the periphery of Europe.

In this scenario, the best approach seems to be the emerging countries, code name for

China, especially, and for those of us who run after, a good distance from the leader. It is

possible to discuss China's ability to maintain its strong growth, especially if it appears

necessary to replace the emphasis on exports by appeal to the domestic market, but the


14/64


15/64

previously focused on asset quality, systemic risk has much more to do with the fact of how

the assets are financed. If both institutions have the same type of assets, but one of them

is related to long-term debt and other resources originating from the overnight money

markets. This makes a substantial difference to the potential systemic risk. Thus, regulation

rules can make a slight distinction as the same assets are financed. The lack of distinctionmakes banks have an incentive to finance low-cost assets. This incentive is stronger when

the curve of the expected return of an asset has an upward slope in situations boom. This

fact explains why there was a collective confidence in short-term assets in institutional fund

to the extent the markets crashof 2007.

Does the maturity mismatch of assets is an unavoidable issue of the private banking

system? After all, is not the banking system borrowing short term and lending long-

term? Not necessarily! There are many exceptions to make a general analysis and this is

also a problem of degree of scale. Small businesses complain that, given the errors of

guarantees for bank loans, they do not realize they have borrowed long-term funding of

banks. Moreover, it is said that this situation is often observed among credit holders who

are more prone to "getting divorced" than to leave their seats. The reality is that the

reduction of demand deposits is not instantaneous as it seems. The rate of decline in

domestic deposits of the private sector in relation to total liabilities was a measure of

growth of liquidity risk of funds between banks. Indeed, "the mismatch of maturities of

banks worsened by financing Wholesales" (Ibid., p. 38-39).

Subsequently, Persaud (an author of the report from Geneva) expanded the analysis to an

article, aiming to show how this approach would work10.

According to the author, redistribute risk, rather than trying to eliminate it, is the key to

strengthening banks worldwide. Thus, Persaud (2009) argues that imposing higher capital

requirements is not a panacea for the problems that caused this crisis. This strategy, by

itself, very little reinforces the financial system because it does not take into account

differences between the institutions and the types of risk. Moreover, for the author, raising

capital requirements does not help equality between risk taking and risk capacity. For him,

the center of modern regulation is the mistaken view that risk is a measurable property of

the asset, ie, risk is not unique. There are, for example, credit risk, liquidity risk and market

risk and, moreover, different segments of the financial system have distinct coverage

capacity. Thus, risk is very much related with which agent is keeping active and what kind

of asset. Common in the U.S. Congress - - The notion is that instruments are "safe" to be


16/64

promoted and risky instruments to be disregarded.Alternatively, capital requirements should

be sensitive to the natural capacity of institutions regarding coverage and the types of risk

that it maintains. Ie, is considered the liquidity risk. Banks traditionally borrow from

depositors who can withdraw your funds from overnight. However, banks have limited

ability to hold assets that can not be sold quickly without a high discount rate. Therefore, itmakes sense to require extra to set aside any assets that carry liquidity risk capital. This

risk is safer to be held by pension funds and insurance companies, as they have funding

from both retirees of premiums as claims, which generally does not "evaporate" overnight.

Moreover, banks may have effectively hedged positions against credit risk by diversifying its

borrowings and use of all information they have about potential borrowers. Pension funds

are less able to offset credit risks. His long-term funding does not help, because the longer

the maturation period of the investment, the greater the period so there is a default.

The way to secure the financial system is to create mechanisms for different degrees of risk

that an institution be directed to a situation of coverage capacity. The modern "regulation"

did the opposite. By requiring banks to leave aside more capital for credit risk than non-

banking institutions, regulators began to unintentionally encourage banks to change their

credit risks for those seeking an extra income, but they had limited ability to cover this type

of risk.By failing to require banks to make available additional capital to cover the mismatch

of maturity of the investment, they encouraged banks to accept liquidity risk that could not

compensate. Moreover, bearing the valuations of assets "marked to market" (in whichinstitutions do maintain the values at their current prices) and the solvency requirements of

short-term, regulators discouraged issuers and pension funds to take liquidity risk which

until then were appropriate for them.

Why was this done? The objective of financial regulation would not pursue and eliminate

risk. Neither the goal would be to accumulate and protect capital, to "leave us alone with

the giant banks." Rather, it would be necessary to differentiate unless the institutions by

which they are called and more by which they are funded

This seems to be a reasonable proposal laMinsky, but the analysis of Minsky on financial

fragility and bank suggests that it may contain a greater obstacle. As Minsky (1977, p. 8-9

and 17)11:. "Financial institutions, business expectations, borrow and streamline financial

instruments In doing so, their obligations must be considered safer or more convenient for

the owners of wealth than its assets Usually, this signals that your assets. Long-term bonds


17/64

are higher than several margins and security provisions of the financial organizations [...] A

banker manipulates the resources of the population in accordance with their own

resources. The inverse relationship of assets / book value ratio book value / asset shows

how the bank's resources are being invested along with the resources of the general

population and how the bankers operationalize their business. The ratio book value / assetsis analogous to the margin requirement imposed on transactions in the stock

market [...] Commercial banks and other financial institutions are embedded in speculative

finance: the maturity of their debts are less than the maturity of its assets.They need to

continually attract deposits and sell bonds to be able to secure the withdrawal of

resources. Being your debts [ of banks and financial institutions ] short term, it means they

are vulnerable to operational development of the financial market. Moreover, even if the

assets of the banks long-term obligations are greater than their assets are more short-term

than the amount of capital and those belonging to units that are funding the bank financial

assets.Thus, the higher the weight of banks and financial intermediaries in the economy,

the greater the weight of speculative finance in the financing of firms and consumers. Not

only banks engage in speculative financing, but they induce hedge funds to others. "

Therefore, from the point of view minskiano the proposed Persaud (2009) that relates the

capital requirements of the degree of maturity mismatch of assets aims to induce banks to

adopt a hedge financing for its assets. However, this will reduce bank profitability as the

difference between the liquidity of their assets and debts. As Minsky argued, the equation of

profit can be P / B = {P / A} {A / B}, where P is profits, B is the contracted value of theshares of owners and A is the asset portfolio of the bank. Otherwise, ROE = POA that is

leverage. The limitation of leverage, in turn, would limit the ability of banks to finance its

assets with greater liquidity requirements. This reduction in liquidity would reduce the ROA

(return on assets) of banks. In a competitive environment, even with a strict limitation of

activities allowed, this would lead banks to seek higher leverage to preserve the ROE

(return on equity).

The proposal also has implications for decisions regarding preferences concerning targeted

banking systems and financial holding company or to universal banking structures of the

European type. According to the proposals contained in the Report of Geneva, the financial

institutions would be taxed and would be limited to maintain and negotiate financial assets

offering them natural advantages of adequate funding to its assets. This means that there

would be a segmentation of the system, with a variety of activity types and financial

institutions determined by the natural position of funding and encouraged by preferential


18/64

taxation on assets. Presumably, this would exclude the formation of financial holding

companies, unless they were created impenetrable Chinese barriers to separate units,

determined by their "natural" resources funding.

This proposal links to the Report from Geneva to mark asset values to sources of funding

and evaluating capital ratios according to the degree of natural hedge provided by natural

funding. However, this does not seem to provide an adequate understanding of how banks

and other financial institutions create value and make a profit. As mentioned earlier, the

point of view of Minsky, banks make profits from the difference between the liquidity of its

debts and assets, and not by the content or the maturity of such assets. The essential point

is how banks manage liquidity for its debts. Here, it is important the idea of Minsky on

safety margins, insured assets with high liquidity to ensure that they always meet its

obligations. Again, the level of assets is not as important as the market in which these

assets can be sold to provide liquidity. The markets have learned from the crises of Bear

Stearns and Lehman Borthers and and know that even short-term assets and risk-free may

be illiquid.

Moreover, some of the liquidity of the debts of financial institutions can be established

through the way the risks are covered, ie, through the efficiency of its hedging strategy,

more than if the coverage is natural. In short, it is important to note how the banks cover

their risks and how regulation can be seen as an imposition of coverage12.The capital

requirement is a very inefficient method to impose coverage to banks. In fact, they tend todo just the opposite. The regulation should encourage banks to implement appropriate

coverage in the best possible way. This generates an increase in ROA and reduces

incentives to increase leverage.

Greek debt: default or restructuring?

Luiz Carlos Bresser-Pereira13

After Greece, what? Hungary? Or prospects of low growth for Europe? Or disappointment

with the U.S. recovery? Or even Greece? International financial markets are always nervous

and shaky - at times sad, euphoric in others, but always in the midst of a dialectic of

rationality and irrationality. We economists albeit with a more "scientific" air, commit the

same sins. Therefore, politicians and businessmen - actors in the real economy -


19/64

bewildered, know not what they do. Invest or not to invest? Continue with expansionary

fiscal policy, or it's time to take care of the high public debt of each state and eventually

high external debt of each country? And ask: was the crisis in the form of W starting?

With the problem of Greece was indeed a threat of the crisis return with force. The delay of

Germany contributed to the problem. However, after the European Central Bank (ECB) and

the country did what was expected of them, guaranteed the debt of Greece and, more

broadly, the debt of other euro countries, and although it would not be resolved, the crisis

abated. Everyone knows that, structurally, the problem of Greece is not solved, because

even if faithfully fulfill its fiscal adjustment program and its GDP fell about 3% to 4% over

the next two years, at the end of those two years, public debt to GDP ratio will still be

150%.

Faced with such a framework, around the question of a possible Greek exit from the euro,

but this is very unlikely.The advantage of having a currency that would begin its history has

devalued against the euro does not outweigh the risks of staying outside the protection of

the euro system. There is, however, the possibility of restructuring the public debt within

the euro. It's the best thing that Greece would have to do since your situation is insolvency,

because even if the interest rate on its bonds again and reasonable levels to stabilize at this

level, it will not be able to meet its financial commitments and re- grow.

But a reader might ask: are you then proposing a "cap"? I'm not, my friend, suggesting that

Greece make a "restructuring" discount. Which is the same as a default and something very

different. Same thing for the lender because the result is the same: get only part of their

credit. It's very different, because the default expression exists a pejorative tone that

suggests an irresponsible borrower. The restructuring has a milder connotation because

allocating fault between the debtor and creditors, and especially because after all, or the

vast majority understand that it was the only rational solution to the problem given the

insolvency of the Greek State.

When a sovereign debt crisis is resolved by a "cap" it is generally poorly resolved because itmeans that there was insolvent, or that financial markets did not accept the diagnosis of

insolvency of the debtor country, and judge that he acted in bad faith. When we have a

restructuring, although it is unilateral or nearly unilateral principle, the problem is solved

much better because, after all, what it does is penalize a loss of creditors who reasonably

efficient financial markets should have already anticipated the pricing of loans to discount.


20/64


21/64

The sovereign debt crisis plaguing most countries of Europe just affecting

European demand for new cars. It is estimated a decline of 7.5% in demand

for new units, reaching the current level of 9.4 million vehicles *, since the

growth of individual income is lower than the increase in prices of cars.

Currently, a worker on average require sixteen months of work to get a new

car average. In the mid-'80s, only nine months of work were required.

The low demand has led European automakers to implement tough cuts in

their structures in order to protect some of their profits. Thus, factories began

to be closed and the index of layoffs reached new heights. The North

American Ford, after announcing a loss of 1.2 billion euros, closed three

plants in Europe (in Belgiumand "UK"), thereby affecting about six thousand

workers.

The Opel , the European arm of the U.S. also " General Motors", is close to

announcing the closure of one of its plants in Germany, Bochum , and, if it

occurs, will be the first time an automotive factory is closed in the country

from "World War II".

To prevent further losses, Opeland " PSA Peugeot Citroen of

France"announced the beginning of a partnership aimed at joint activities inresearch and development, saving about 1.5 billion euros for each

automaker. In this year, the PSA was forced to close one of its factories in

France, cutting about eight thousand jobs.


22/64

According to the specialist automotive University of Duisburg-Essen, the

GermanFerdinand Dudenhffer , the sector will face three to five years of low

sales in Europe.

Although the European market is declining, the Volkswagenwas no

significant loss in profits due to its success in sales in foreign markets. In the

European market, the automaker fell by 19% in the third quarter, however,

increased its sales abroad eventually balance the equation.

For the expert, the fact that one third of the sales of Volkswagenis destined

for the Chinese market makes the automaker less vulnerable to crisis,

compared to the others.

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Collapse in sales in the U.S. auto industry indicates deepening recession

By Jerry White

13 November 2008

Utilice versin to print this | Email | Communicate with

Originally published in English on November 5, 2008

Sales of new cars in the U.S. plunged in October to the extent that consumers - hit byrising unemployment, decreased wages and decreased credit - decreased buying cars

and trucks. Sales fell 31.9% in a year, as evident that the economy entered a deep and

long recession, threatening the jobs of millions of workers sign.


23/64

Sales fell more than a million for the second consecutive month, reaching its lowest

level since January 1991, according to Autodata Corp..According to current estimates,

automakers will sell only 10:56 million cars and trucks in 2008 - big drop compared

to 16 million in 2007 - the lowest number since 1983, when the U.S. economystruggled out of the start of the crisis 1980s.

According to the analyst said GM sales, Michael DiGiovanni, last month was the

worst, with a view to the adjustment of statistics on population growth in the U.S.

since World War II. "This is clearly a severe recession," he said.

General Motors - which is looking for a bailout from the government to avoid

bankruptcy and accelerate a merger with the third American automaker Chrysler -

suffered a 45% drop in sales. Chrysler sales fell around 35% and Ford 30%. The

slump has also hit the Japanese car producers, which are best sellers. Toyota suffered

a 23% drop in sales.Meanwhile, sales of Honda plummeted 28%.

Moreover, the reduction in production and the other 10,000 autoworkers

unemployment in the last two weeks have also contributed to the fall in production of

American factories. The Institute for Supply Management (ISM) reported that its

index of manufacturing activity fell the most of the past 26 years in

October. Meanwhile, the Commerce Department reported that industrial orders fell

2.5% between August and September, far more than the 0.7% forecast by analysts.

As a result of falling demand from steel producers - key supplier for all producers -

production in 17 of the 29 largest domestic steel is stopped."We deal with a situation

that may develop another Great Depression if we do not proceed properly," said

Daniel DiMicco, CEO of Charlotte, steel producer in North Carolina, the Wall Street

Journal.


24/64

The Detroit News reported that the auto industry executives expect the market gets

even weaker and walk slowly to the stoppage. The Ford economist Emily Morris,

said: "While we say that the third quarter was no basis for the economy, we can not

ignore that it was the worst for industrial sales."

With workers facing the growth of economic insecurity, consumer confidence fell in

October to the lowest level since 1967, when the Conference Board - a group of

statistics NY - began his research. After years of affordable loans, the disappearance

of credit nailed workers.GM's financial arm, GMAC, will offer loan only to trusted

clients. In many locations in the USA, only a third or less of the clients will receive

loans, according to the spokesperson of the company.

Certainly, one or more of the "Big Three" Detroit automakers will not survive this

crisis. Last week, the agency "rating" Moody's downgraded the points of GM and

Chysler for the second time in just three months, as well as the financial arm of GM,

citing "the progress and severity of erosion in the automotive sector in the U.S." and

suggesting that companies will have financial difficulty around the year 2009.

The decades long collapse of the U.S. automotive industry is one of the greatest

examples of the decline of American capitalism. In the '70s, American car

manufacturers controlled more than 80% of the U.S. market, with GM selling little

more than half the cars. In 2008, producers of Asian and European cars control 51%

of U.S. sales.

Given the downturn in the stock market, the executives of these companies conducted

a relentless attack on jobs and conduction of life of workers, which continues

today. GM, which employed 350,000 unionized workers in 1970, now has less than

70,000 workers (blue-collar). Entire cities such as Detroit, Flint and Dayton, Ohio,

have been devastated by plant closures and mass layoffs.


25/64

The merger between GM and Chrysler would result in the closure of dozens of

factories and the elimination of 50,000 workers in the two companies. Tens of

thousands lose their jobs at suppliers and related businesses. Face of these attacks, the

labor union, the United Auto workes (UAW), has collaborated with the bosses againstthe workers openly.

The slowdown has spread throughout the economy. On Tuesday, suppliers of timber

and building material of Louisiana-Pacific reported the biggest losses ever seen in the

third quarter. The Nashville-based company in the state of Tennessee, has closed its

sawmill, reduced production and cut hundreds of jobs.

For the fourth quarter, the company anticipates that most of its factories to be closed

longer than open. Its chief executive, Richard Frost, said: "The decline in activity in

the housing market, both in new construction, remodel and repair, caused a drop in

demand for our products, with levels very challenging prices. The business fell further

in September and remain largely paralyzed as a result of the banking and financial

"market crisis.

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Automotive Industry: The Revolution

of the recession?


26/64

Worldwide, automakers recorded sharp falls in sales and reduce the pace of

production.According to a survey by Deutsche Bank, the crisis may, however,

bring progress to the sector.

Car of the future: changes ahead

The automobile as we know it today is a hundred years and probably still remain in the

streets around the world also for another hundred years. The demand for cars will even

grow in the near future and automakers will certainly return to produce as before the

current crisis.

However, it is possible that the production of mats future cars leaving different from today:

maybe not in appearance, but in the interior. These are some of the predictions of a study by

Deutsche Bank.

"The auto industry is going through a time of transition. For the first time in its century-long

history, the real chances that besides the classic combustion engine, new forms of traction

are developed arises. Rely on an increasing electrification of vehicle traffic in the coming

years and decades. And companies who develop the right products from now on will have

good opportunities to get out of the crisis strengthened, "says Eric Heymann, who

conducted the study for the research department of Deutsche Bank.

Search ecological solutions
http://www.dw.de/ind%C3%BAstria-automobil%C3%ADstica-da-recess%C3%A3o-%C3%A0-revolu%C3%A7%C3%A3o/a-4036535


27/64

Racing car Mercedes Benz 1900

However, the classic combustion engine should still remain for many years as the primary

mechanism for operating a car, just as Karl Benz and Gottlieb Daimler invented, every manfor himself, for over 120 years.

Although more modern engines today continue releasing carbon dioxide through the

exhaust, even though the emissions have decreased and have to decline further because the

EU wants it and why European automakers have not fulfilled their obligations voluntarily.

Now, engineers are really trying to develop models with emission levels of pollutants as low

as ever.The problem, however, is that due to the crisis, the price of gasoline is considerably

low. In the future, drivers will surely still miss current prices. Oil is and will remain a scarce

issue.

As soon as the economic crisis is overcome, its price will probably rise again and with it the

price of petrol and diesel. This will accelerate the search for alternatives to engines

developed by Benz and Daimler.

Consumer Insight

Economist Eric Heymann has recently observed a similar reaction in the market: "In recent

years we have seen a considerable increase in sales of fuel-efficient vehicles believe that the

consumer has learned that the current phase, with lower gasoline prices will be transitory

For.. I think it is unquestionable the fact that oil prices will rise again, as soon as the

situation reheat and pass the crisis we are witnessing at the moment.'s medium and long

term, fuel consumption will continue to be an increasingly important criterion for the

consumer's decision when purchasing a car, "says the expert.


28/64

Consumers, at the time, prefer a Smart from Daimler, a Fiat 500, one of the Twingo Renault

or Volkswagen Fox. Vehicles that spend a lot of fuel shall be set aside in dealerships.

Hybrid technologies

Current vehicles: still compatible with the crisis and the environment?

After all, the German auto industry is even better than its reputation, according to the study

found. The delay of the auto companies as environmental protection parameters, especially

particulate filters and hybrid engines, is only real at first glance, according to Heymann.

For him, the significance of hybrid technology is being overestimated. In this context, it is

often ignored that automakers like Daimler, Volkswagen, BMW and others remain ahead in

the search field of alternative statements.

And these alternative forms of locomotion are precisely the technologies of the future to be

used by man when the last drop of oil is exhausted. At the time, automakers try to develop

electric point of making them viable for the consumer's pocket vehicles.

Today, according to the study by Deutsche Bank, a battery costs are simply too high:

thousand euros per kilowatt-hour, which quickly leads to spending 10 thousand euros or

more. There are other problems to be solved, such as weight, scope, duration and charge

cycles. This process requires time, Heymann recalls.

"This can not be done overnight. Structural change in the sector will be slow. In ten or 15

years, most vehicles must possess classic combustion engines.'ll Be a smooth transition with

the vehicle type or microhbridos mild hybrid, which will be embedded in certain

components of an electric motor. This is a growing trend in the coming years. The big

problem of the alternative statements, the current point of view, are the higher costs that the

combustion engine, but the trend toward greater electrification is clear, "says the expert.


29/64

Biofuels: unresolved issues

Electric Smart, presented in 2008

For biofuels, such as ethanol and biodiesel, Heymann notes that there are still some open

issues. Although they have a great potential, it is necessary to focus above all on second-

generation biofuels, primarily generated from organic waste. This is due to the limits of the

areas of cultivation and also the much publicized competition between "the dish on the table

and the gas tank."

To Heymann, vehicles powered by natural gas will become increasingly important, unlike

those powered by hydrogen, which, in spite of the prototypes in operation, are still

something for the future.

Anyway, according to Heymann, the auto industry is beginning a period of

transition. Insolvencies, mergers and acquisitions will revolve the sector in coming years: a

taste of what's to come can already be felt in the recent reports of cooperation between

Daimler and BMW, for example. For German automakers, however, the prospects do not

look so bad.

German and Japanese

"In our opinion, the German automakers are in a comfortable position, just as the Japanese

competitors. They developed the most efficient time technologies not only the electric motor

sector but also alternative fuels. And take advantage when compared to many other

competitors, especially when they turn their eyes to the U.S.. Given this, we expect that the

German and Japanese automakers can establish trends in the production and development

of new forms of traction, "said Heymann.


30/64

Just as steam locomotives are part of museum, one day the combustion engine developed by

Benz and Daimler will have the same fate. Merit in the global motorization process is,

however, undeniable. It will certainly have a place of honor in technology museums around

the world.

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Automotive Industry: The Revolution of the

recession?Share on facebookShare on twitterShare on emailShare on printMore Sharing

Services0

Worldwide, automakers recorded sharp falls in sales and reduce the pace of production.According to a survey by

Deutsche Bank, the crisis may, however, bring progress to the sector.

's automobile as we know it today is a hundred years and probably still remain in the streets around the world also for

another hundred years. The demand for cars will even grow in the near future and automakers will certainly return to

produce as before the current crisis.However, it is possible that the production of mats future cars leaving differentfrom today: maybe not in appearance, but in the interior. These are some of the predictions of a study by Deutsche

Bank. "The automobile industry is going through a time of transition. For the first time in its century-long history, the

real chances that besides the classic combustion engine are developed new surge forms of traction. rely on an

increasing electrification of the vehicle traffic in the coming years and decades. And companies who develop the right

products from now on will have good opportunities to get out of the crisis strengthened, "says Eric Heymann, who

conducted the study for the research department at Deutsche Bank.ECOLOGICAL SOLUTIONS SEARCH However,

the classic combustion engine should still remain for many years as the primary mechanism for operating a car, just

as Karl Benz and Gottlieb Daimler invented, each By itself, there are more than 120 years. Although more modern

engines today continue releasing carbon dioxide through the exhaust, even though the emissions have decreased

and have to decline further because the EU wants it and why European automakers have not fulfilled their obligations

voluntarily. Now, engineers are really trying to develop models with emission levels of pollutants as low as ever. The

problem, however, is that due to the crisis, the price of gasoline is considerably low. In the future, drivers will surely

still miss current prices. Oil is and will remain a scarce issue. As soon as the economic crisis is overcome, its price

will probably rise again and with it the price of petrol and diesel. This will accelerate the search for alternatives to

engines developed by Benz and Daimler. CONSUMER INSIGHT economist Eric Heymann has recently observed a

similar reaction in the market:. "In recent years we have seen a considerable increase in sales of fuel-efficient


31/64

vehicles that consumers believe has learned that the current phase, with lower gasoline prices, will be temporary.

Yeah I think it is unquestionable the fact that oil prices will rise again, as soon as the situation reheat and pass the

crisis we are witnessing right now. A medium and long term, fuel consumption will continue to be an ever more

important to the consumer's decision when purchasing a car criteria, "says the expert.Consumers, at the time, prefer

a Smart from Daimler, a Fiat 500, one of the Twingo Renault or Volkswagen Fox. Vehicles that spend a lot of fuel

shall be set aside in dealerships.HYBRID TECHNOLOGY After all, the German auto industry is even better than its

reputation second point the study. The delay of the auto companies as environmental protection parameters,

especially particulate filters and hybrid engines, is only real at first glance, according to Heymann. For him, the

significance of hybrid technology is being overestimated. In this context, it is often ignored that automakers like

Daimler, Volkswagen, BMW and others remain ahead in the search field of alternative statements. And these

alternative forms of locomotion are precisely the technologies of the future to be used by man when the last drop of

oil is exhausted. At the time, automakers try to develop electric vehicles about to make them viable for the

consumer's pocket. Nowadays, according to the study by Deutsche Bank, simply the high cost of a battery are too:

thousand euros per kilowatt-hour, which quickly leads to spending 10 thousand euros or more. There are other

problems to be solved, such as weight, scope, duration and charge cycles. This process requires time, Heymann

recalls. "This can not be done overnight. Structural change in the sector will be slow. In ten or 15 years, most vehicles

must possess classic combustion engines.'ll Be a smooth transition with the vehicle type or microhbridos mild hybrid,

which will be embedded in certain components of an electric motor. This will be a growing trend in the coming years.

The big problem of the alternative statements, the current point of view, are the higher costs that the combustion

engine, but the trend toward greater electrification is clear, "says the expert. BIOFUELS: Unresolved

Issues Regarding biofuels, such as ethanol and biodiesel, Heymann notes that there are still some open

issues. Although they have a great potential, it is necessary to focus above all on second-generation biofuels,

primarily generated from organic waste. This is due to the limits of the areas of cultivation and also the much

publicized competition between "the dish on the table and the gas tank."To Heymann, vehicles powered by natural

gas will become increasingly important, unlike those powered by hydrogen, that despite the prototypes in operation,

are still something for the future. Anyway, according to Heymann, the auto industry is beginning a period of

transition. Insolvencies, mergers and acquisitions will revolve the sector in coming years: a taste of what's to come

can already be felt in the recent reports of cooperation between Daimler and BMW, for example. For German

automakers, however, the prospects do not look so bad. GERMAN AND JAPANESE "In our opinion, the German

automakers are in a comfortable position, just as the Japanese competitors. they developed on time more efficient

technologies not only in electric motors, but also of alternative fuels industry. And take advantage when compared to

many other competitors, especially when they turn their eyes to the U.S.. Given this, we expect that the German and

Japanese automakers can establish trends in production and development of new forms of traction, "said

Heymann.Just as steam locomotives are part of museum, one day the combustion engine developed by Benz and

Daimler will have the same fate. Merit in the global motorization process is, however, undeniable. It will certainly have

a place of honor in the museums of technology worldwide (Deutsche Welle, 4/16/09)

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx


32/64

The automotive industry in Mexico. History, current situation

and perspectives 1

Vicencio Arturo Miranda *

*

Professor of the Universidad Iberoamericana in Mexico City. Email:arturo.vicenciomiranda@ gm.com

Abstract

In Mexico and other manufacturing nations, the automotive industry is considered an

economic strategic pillar under the different benefits that entails the generation of large-

scale jobs, tax revenues derived from the business operations of the industry, staff training,the development of local suppliers and related technological modernization. Although Mexico

traditionally has remained within the group of leading countries in global vehicle production

has been shifted gradually by the incursion of emerging nations to fill the number eleven

position since 2004, coupled with the local market marketing vehicle fails to rebound as

expected to do so with the coming of the new century.

The issue addressed in this paper based on a historical review of how it was giving shaping

this industry to arrive at a definition of the current situation, in which they intend to provide

a strategic profile of the direction to follow to ensure competitiveness in the international

market.

Keywords:automotive, strategy and competitiveness.


33/64

Introduction

The potential of the Mexican automotive industry is such that represents the country's

second most important economic sector, and that means the key element of modernization

and globalization strategies thereof. This industry is in a unique geographical area, is

located next to the largest consumer market in the world: the United States, in an

environment of commercial deregulation, skilled labor, transfer of proven technology and

considerable production infrastructure.

However, despite its importance, this industry is going through a period of crisis in which

the country is not responding in a timely manner to globalization that has arisen in recent

years to organizations lack an effective strategy and have failed to take advantage of

various opportunities that may encourage the growth of the same, from being a major area

of investment attraction to an observer of the global economic phenomenon. In a study

commissioned by the Economic Commission for Latin America and the Caribbean (ECLAC)

called "Foreign investment in Latin America and the Caribbean, Report 2003" is concluded,

inter alia, that despite the nearly 50 billion dollars foreign direct investment (FDI) in the

automotive sector throughout the region, signs of exhaustion in which he had been a

successful strategy for attracting FDI to Latin America, especially in Mexico and Brazil,

which are detected by the change of strategy regain the attraction becomes imminent.

This paper addresses this issue in four parts: the first one a historical review of how the

auto industry has evolved in Mexico, which traces its origins to the second quarter of the

last century, including the different automotive decrees which have been made industrial

development policy of the sector; developments in the second part becomes an analysis of

the growth of the automotive sector and the third includes a description of the economic

importance and current status in terms of infrastructure on two fronts: the terminal industry

and auto parts, and finally, a strategic profile on proposing to base the growth of this

industry, based on the current outlook in order to counteract the gradual loss of

competitiveness on the international level is set.

For the preparation of this work was checked different research addressing the issue from

different perspectives (Moreno Brid, 1996, Muller et al.1998; Brown, 1998; Vieyra

Medrano, 1999 and 2000; Jurez Nez, 2000 and Alvarez, 2002) . Information was

reviewed was concentrated by the Mexican Association of the Automotive Industry (AMIA)

and the National Autoparts Industry (INA), whose statistics are reported as strategic


34/64

analysis, also the main observations from the first, second here include and Third

International Congress of the Automotive Industry in Mexico (CIIAM), held in 2003, 2004

and 2005 respectively.

1. Development of the automotive industry in Mexico: definition and

transformation of its regulatory policy

The development of the automotive industry in Mexico is the result of a series of events and

changes that include the one hand the move towards globalization of the sector at the

international level as well as the alignment of industrial policy at the national level; aspects

have allowed him to maintain a process of constant evolution.

The automotive industry in Mexico has always been a cornerstone of the country's industrial

development and, therefore, from its origin has specific development programs over the

years to have been framed within what is known as "Automotive Decrees" ,which are

issued by the federal government and are intended to regulate the production and sales,

this includes limitations on the number of terminals companies, restrictions on the

participation of foreign investment in auto parts companies and certain prohibitions such as:

i) import of vehicles, ii) the importation of parts that were produced locally and iii) the

production of auto parts companies in terminals, in addition to local content quotas on

automobiles (Brown, 1998).

However, sometimes these decrees have not proven to be very consistent because they are

often a reflection of the industrial policy of each of the various governments that have been

released (Moreno Brid, 1996).

It is in the sixties, following the policy of import substitution model across different sectors

of the country when the first automotive decree is issued, it sought to strengthen the

automotive industry focused on the domestic market. By the mid eighties, the government

opened the border mainly for the purchase of auto parts, a situation that is reaching its

peak as a result of the Free Trade Agreement (NAFTA), which gradually from 1994 were

reduced tariff rates of some parts and components similarly has decreased the minimum

local content requirement for manufacturers of industrial terminal located in the country up

to the full liberalization of the sector in 2004, not only the auto parts but also the finished

vehicle, and with it ended the policy of protectionism towards the automotive industry. Here


35/64

we analyze in detail how it has been the strategic development of this industry over six

phases clearly identified.

First stage: Birth of the industry and start-up (1925-1960)

The history of the automotive industry in Mexico in 1925 with the installation of assembly

lines of Ford, whose development in the United States increased significantly, and then in

1935 comes that eventually would become the largest vehicle manufacturer in the world:

General Motors, while in 1938 started operations Automex later became Chrysler. They all

turned their operational activity in the assembly of vehicles for the local market demand

previously met by imports.

There were several reasons that American manufacturers moved initially and later to

Europeans and Asians to move its manufacturing facility to Mexico, Dombois

(1990) 2handles the following:

1) Reduction of production costs. Given that the costs of importing games CKD (Completely

Knocked Down) used for assembly were lower than those paid on the importation of

vehicles.

2) Low transportation costs.

3) Low wages. Mainly in the labor used in assembly tasks.

4) Expectations of a feasible market to monopolize.

The main feature in all auto plants was that they worked with a low level of productivity, the

result of minimal investment and lack of infrastructure. It is only after World War II when

the government directs its efforts towards industrialization of the country, and by 1950

Mexico takes a turn in its economic structure until then dependent on agriculture and

acquires a full approach to industrial development. This situation will be further

strengthened as much to the automotive sector.

Second phase: growth based on import substitution (1962-1976)


36/64

As noted above, in Mexico vehicles manufactured from 1925 to 1962 is when the first

automotive decree, with which begins on firmer ground automotive development in our

country is issued, the prevailing situation at that time was characterized by plants only

assembly in which less than 20% of the components were of domestic origin, while sales is

mainly covered with imported vehicles.

The first decree sector oriented towards satisfying the domestic market and in it the

following aspects are included:

vehicle imports were limited.

imports of major assemblies complete as engines and transmissions are limited.

Set a minimum 60% local content for vehicles manufactured in the country.

Limited to 40% foreign equity investment in auto manufacturing plants.

Established a price control in order to contain the utilities and encourage increased

productivity.

Among the most important movements mentioned by the terminal industry organizations

that were given at that time under the existing regulatory scheme, we have the following:

In 1964 Volkswagen, which a decade ago was engaged in the marketing of imported

vehicles, started its assembly operations in the State of Mexico and three years later moved

its production to the state of Puebla

Ford makes an expansion of its production in 1964 and installed two new plants in the

State of Mexico, while General Motors inaugurates engine and smelting complex in Toluca in

1965, principally to provide 6-cylinder engines and parts smelter located in the Mexico City

plant

Following the same path, opens a Chrysler engine plant in Toluca in 1964 and in 1968

opened its assembly plant

Finally, Nissan Mexicana was constituted since 1961 and marketed vehicles in Mexico

since 1959, started operations at the plant in the Industrial City of the Valley of Cuernavaca

(CIVAC), in the state of Morelos fabricating the Datsun Bluebird Sedan.


37/64

As expected before the protectionism of the domestic market, the auto industry grew

significantly and 96.781 vehicles were produced in 1965 was passed in 1970 to 250,000

units. Having achieved the goal of local content was reflected considerably in the activation

of the auto parts industry and this phenomenon spread to other sectors of the economy.

Already by the early seventies only seven vehicle manufacturers remained at home with

plants located near Mexico City, the vast majority had a technological infrastructure that

became outdated production each year.However, just as it is true that the production had a

considerable increase so is the quality levels were not very satisfactory and production costs

were above those given in other nations, but given the prevailing closing borders The lack of

international competitiveness was not a factor of concern for the leaders of that era.

Third phase: facing the international competitiveness through trade protection and

export promotion (1977-1989) Approach

With the issuance of the second automotive decree 1972, the government implemented new

regulatory policies aimed at improving the functioning of markets, of which highlighted the

following:

- The percentage of domestic content for vehicles intended for the export market was

reduced

- Manufacturers of terminal industry were forced to export an equivalent of 30% of the

value of imports

However, although in theory the model is acoplaba to new market needs, in reality and to

the obsolete infrastructure production very little progress had and by 1975 exports from the

automotive industry were below 16% what mattered the sector, so that the trade balance of

the year entered into crisis situation characteristic of the different industrial sectors given

the prevailing macroeconomic phenomenon.

The change in government strategy model of import substitution towards the concept of

export promotion, Brown (1998) attributes this to two main factors: Firstly Mexico as a

producer, he was struggling to cope with the effects of oil crisis and the subsequent and


38/64

growing deficit in the balance of payments. Furthermore, the peso devaluation in 1976 and

the recession that severely affected the automotive industry.

The crisis in the balance of payments, largely for the lack of competitiveness of various

industries run by the government, was the evidence that the industry in general should

increase their levels of productivity, and the automotive sector was the first not only to

understand but to implement it as part of a restructuring model (Moreno Brid, 1996).

Given the high expectations that the discovery of oil deposits brought to the country and

hence the expected benefit to the economy of the domestic market and to taking advantage

of the competitiveness that lived in the international automotive market, the government

published a new decree in 1977, whose main objective was to transform Mexico into a

highly competitive exporting country which opened the sector to foreign investments.

This decree established a strict control on the trade balance of the manufacturers of the

terminal industry, which measured their level of imports including the one that was

transferred to them by their direct suppliers. This decree included at least 50% of the

trading of the shipping lines had to come from the export of locally produced parts, while as

another measure of protection to the domestic industry of auto, not allowed to have foreign

capital most share of investments.

Given the need to increase competitiveness to meet international markets, technological

infrastructure sector had to modernize, a situation that was adapted in parallel to the

structural adjustments that U.S. companies made in their country in order to address the

increasingly smaller, more efficient and economical Japanese cars, which by the end of the

seventies began to penetrate the U.S. market, manufactured in plants that were installed

throughout its territory. In response, U.S. companies began to increase their investment in

the northern part of Mexico to where considerable amounts of millions of dollars converted

at production came; example of this was the launch of assembly plants and engines that

General Motors installed in the complex of Ramos Arizpe, Coahuila in 1981, which at the

time represented the largest investment of this corporation throughout Latin America. TheChrysler engine plant in Ramos Arizpe Also in 1981, the Ford engine plant in Chihuahua

(1983) and the assembly in Hermosillo, Sonora (1986) in conjunction with Mazda dedicated

to the export market, same as at the time represented the assembly plant with the highest

level of technology in Mexico.


39/64

Making a comparison of how they were accelerating exports for 1977 is that they have

reached the equivalent of $ 181 million (of which 83.7% were autoparts) amount. For that

year automotive exports accounted for only 4.3% of the country's total and 10.9% of the

manufacturing sector. The proportion of auto exports kept a considerably greater share until

1987, when somehow activated largely vehicle exports for 1989 of 3,900 million dollarswere collected by way of exports , auto parts accounted for only 57% of the total

(see Figure 1 ).

The transfer of technology played a major role in this process of industrial restructuring

reflected in the implementation of different production plants where the equipment,

machinery and new working condition contrasted greatly with old plants located mainly

sixties near the City of Mexico (Moreno Brid, 1996). Another significant difference that

characterized the new plants was that the vast majority of the workers were young, most

qualified and best trained to perform a wide range of tasks that made up the workforce of

existing plants.Promotions and special assignments began to be based on individual

performance and skills of workers, rather than just taking into account the age of the same

in business, and while the salaries and benefits were not equal to those of the other plants-

were still above the average of what was paid in the manufacturing sector.

Such restructuring could not immediately comply with the central objective: reversing the

deficit of the trade balance in the sector, a situation that continued to persist during the five

years following the signing of the decree, mainly due to the appreciation of the peso against

the dollar, the increased domestic demand and pressure from other countries to have more


40/64


41/64

situation led to more than 15% of the vehicles sold in Mexico between 1991 and 1992 were

imported, a figure that has reached a level of 20% in 1993.

The companies received tax concessions by the equivalent to 30% of their investments,

while he strengthened equally to the auto parts industry to be set to at least the vehicles

produced in national territory had to include at least 36% of its components manufactured

locally, allowing exceptions in export vehicles (Moreno Brid, 1996).

Fifth stage: The FTA and the gradual liberalization of the automotive industry

Even if it is true that before NAFTA the U.S. auto market was open to imports from Mexico,

with very low tariff rates: 2.5% on average in cars and 3% in auto-, is the entry into force

of that treaty the first day of January 1994 when the sector begins to have a process

completely out of protectionism that had characterized to suit the consumer needs of an

expanding market major transformation; agreements on the automotive sector played a

very important role during the negotiations of the comprehensive agreement, under which it

accounted for both Mexico and the United States and Canada's largest in terms of economic

exchange sector. As quoted Moreno Brid (1996) with data from the Commerce Department

of the United States in 1993: in 1992 65% of U.S. exports of vehicles and parts went to

Mexico (6.8 billion) and Canada (23.7 billion dollars).

Among the most important issues that the treaty brought, are the following:

The tariff rates on imports were halved

The price of imported cars and light trucks fell from 20 to 10%, agreeing completely

eliminated from the year 2004

16% of fractions auto reduction suffered the same rates immediately, 54% in the period

of the first five years later, being exempt from taxes in full at the end of ten years

Specifically, the tariff rate on auto parts increased from 14% in 1993 to 10% in 1994 and

3% in 1998

was reduced from 1.75 to 0.8 the compensation factor in the trade balance, which

manufacturing companies located in Mexico could accelerate the pace of imports


42/64

The range of local content for vehicles produced in Mexico is defined under the following

scheme: 34 - 36% in 1993, 29% in 1998 and 0% in 2004

Undoubtedly with NAFTA automotive sector has been one of the most active, Gross (GDP) in

Mexico Specific Domestic Product rose by an average 8.8% between 1998 and 1999. The

gradual deregulation of the sector from 1994 to take the total from 2004 has created

business opportunities for foreign companies and this is forcing auto manufacturers installed

in the country to improve the quality and reduce production costs of their products in order

to maintain and / or increase their business after 2003 for which they must meet the

requirements of export markets.

It can be said that the terminal industry initially and auto then went from assembly process

and low production integration to a phase of greater integration and technological

developments. Along with this process of industrialization of the sector a number of changes

were triggered from the geographical reconfiguration of production to the adoption of new

technologies that impacted the productive organization of work and the entire system of

suppliers that supply this industry (Vieyra Medrano, 1999 and 2000).

In an investigation ordered by the Ministry of Economic Development of Ontario in Canada,

in order to compare the factors of competitiveness of the automotive industry between this

country and Mexico, concluded as follows: 4

The return on investment is higher in Mexico than in Canada and the United States.

In the case of the terminal industry the two main reasons to invest in Mexico are: low cost

of labor and expectations of growth in domestic demand for automobiles.

In the case of auto parts, the main reason to invest in Mexico is the high cost of

transportation involving supply the assembly plants with products from abroad.

While the overall labor productivity is lower in Mex ico than in Canada because of the level

of technology involved, taking stock of capital invested, the Mexican labor is as productive

as the Canadian.

In certain cases, the high level of productivity in the Mexican labor is attributed to a more

flexible workforce that of Canada.


43/64

NAFTA has been important to simplify the investment process, but has not been a factor

for increased investment.

The free trade agreement with the European Economic Community (EEC), which became

effective from the first of July 2000, will have a significant impact on investment in the

automobile sector in the long term.

Mexico has a competitive disadvantage in the production of certain raw materials,

particularly steel plates, plastic resins and generally parts that require high technology.

In Mexico, increased industrial expansion potential sites is hampered by lack of water

supply and inadequate infrastructure with respect to transportation facilities and systems.

In the case of the terminal industry, we believe that investment will grow over the long

term.

In the case of the auto parts industry, investments are directly related to the investment

decisions of the terminal industry, given the high number of parts that are imported to the

country and the preference of the assembly companies to use manufactured locally parties,

generally thought that investments in this area will grow considerably.

In the case of the terminal industry, it is estimated that investments will grow

considerably in the long run, while in the short term excess current installed capacity largelydetermines investments in new production facilities.

Sixth stage: A modern approach to strengthening the competitiveness and

development of the domestic market

In December 2003, the administration of President Fox issued the "Decree to support the

competitiveness of the automotive industry and the terminal impetus to the development of

the domestic car market", in which the federal government being aware of the opening and

entry into force of deregulation applicable in this industry contracted by Mexico in the

international context, which include those contained in the free trade agreement with the

EEC, in addition to those discussed framed within NAFTA, recognizes the need to create new


44/64

mechanisms conducive to increasing the competitiveness of the automotive industry,

seeking among other things, strengthening the domestic market.

This order provides:

Continue to stimulate the flow of investment for construction and / or expansion of

production facilities in Mexico.

Reduced costs of imports through tariff reduction.

Authorization of registration of new production companies in the country terminal industry

(as long as its fixed asset investment is at least $ 100 million) and considering the

manufacture of 50,000 vehicles a year at least, with a deadline for fulfillment of three years

from the start of operations.

Benefits to the importation of certain vehicles with zero tariff rate, reaching volumes of up

to the equivalent of 10% of the production of the previous year.

Authorization to companies to import larger quantities of vehicles, as long as there are

concrete commitments to increase investment to expand its production facilities in Mexico,

continue training and developing local suppliers to develop and transfer technology to

providers first and second level.

The answer to this industrial policy for the sector has not been slow to materialize mainly in

the terminal industry, which is proven with the launch of the new Toyota plant in the

northwest of the country, investments in Nissan Aguascalientes plant , Volkswagen plant in

Puebla and ads expansion and investment General Motors (including the construction of a

test track in the state of Michoacn), Daimler Chrysler and Ford plants located in northern

Mexico.

In July 2004 took place the second CIIAM under the theme of "Competitiveness" unlike

"Trade liberalization of 2004," the first congress in 2003. The findings of this secondcongress agree on the need to strengthen the domestic market, increasing participation in

the global market and increased productivity and competitive environment.

Two. Analysis of the development of the sector


45/64


46/64

The growth of the Mexican automotive industry was made without a preset order of

development, ie, they did not know the right way to stratify each of the elements involved

in the production chain of the automotive industry.Allowing manufacturers appear

everywhere common auto parts for all automakers, which in most cases lack of expertise

given the diversity of products still on the market and gives rise to low productivity, causedinter alia by as complicated relations of exchange between suppliers and assemblers.

british motor industry

Documents