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Volume 50 Number 38, October 10, 2020 ARCHIVE HOME JBCENTRE SUBSCRIBE

Problems of Supply and Demand in the Car Industry


Workers picketing at the Cowley, BMW owned Mini production plant.

When BMW announced its decision to change its shift patterns and make hundreds of agency staff redundant in August [1], the company's human resources director at Mini Plant Oxford, Bob Shankly, said: "The Covid-19 pandemic has resulted in a substantial impact on customer demand and, like other automotive manufacturers, our volume forecasts for 2020 have had to change accordingly."

The move "will give us the flexibility we need to adapt our production in the short to medium term, according to developments in global markets," he said. "We have sought to protect as many jobs as we can, while also taking the necessary steps to ensure the stability of our business in light of this current period of volatile and unpredictable market conditions." [2]

At the same time, the Society of Motor Manufacturers and Traders (SMMT) reported that, after a minimum in April when it was virtually zero at the height of the lockdown, car production had rebounded to nearly 80% of its normal levels by July [3].

The car industry was experiencing problems before the Covid crisis. Production levels had been falling year on year from a peak in 2016, when over 1.7 million vehicles were produced. This fell to below 1.7 million in 2017, 1.6 million in 2018, and less than 1.4 million in 2019. As a result, coming into 2020, production already was down nearly 20% from its 2016 level, even before the pandemic began to bite [4].

Britain's leading manufacturers, according to figures compiled by Statista in April this year, are Jaguar Land Rover followed by Nissan [5]. JLR reported a 42% fall in sales of Jaguar models between January and March, while sales of Range Rovers and Land Rovers declined 25%. The company's total 2019-20 sales were down 12% at just over 5 million vehicles [6]. Industry-wide, exports of passenger cars had falling from 1.35 million in 2016 to 1 million in 2020 [7].


Workers at the Nissan Sunderland plant demonstrate to protect their pension.

The drop in 2017 was the first decline in some eight years. SMMT said of that year: "A -9.8% fall in output for the domestic market drove the overall decline, as the market responded to declining business and economic confidence and confusion over government's policy on diesel. Exports also fell, though at a much lower rate, by -1.1%. Overseas demand continued to dominate production, accounting for 79.9% of all UK car output - the highest proportion for five years. The EU remained the UK's biggest trading partner, taking more than half (53.9%) of exports, while the appetite for British-built cars rose in several key markets, notably Japan (+25.4%), China (+19.7%), Canada (+19.5%) and the US, where demand increased 7.0%." [8]

Meanwhile, an article by Autocar, written as vehicle production began to restart, speculated that demand for new cars would outstrip supply in the short to medium term following lockdown, with people queuing up to buy cars and "inevitable price rises", citing various factors such as the prevalence of personal contract purchase deals, with renewal cycles that were extended over the shutdown, and a survey suggesting a backlog of demand.

"Manufacturers", they say, "are having to adjust to slower production rates due to social distancing and other new health and safety rules," and they estimate that "a typical 12-week waiting time for a factory-order car pre-crisis will now be around 26 weeks."

"Supply is therefore expected to fall short of demand initially," they argue. "As a result, it's widely expected that previously negotiable discounts will rapidly be reduced, and that the hard-hit manufacturers and sellers will look to recover some of their lost trading year by shoring up profit margins - at least until the balance shifts." [9]

Are workers to accept that such massive productive forces as those associated with the car industry are to be destroyed, or that they themselves are treated like a pool to grow or shrink at will, subject to the changing wind?

The assertion that these things are a matter of supply and demand is an anti-conscious rendering of things. It leaves out any conscious decision-making over what is produced and what happens to the product. It is just taken as read that, if demand is down, production will have to "adapt, according to developments in global markets": cut production, lay off workers, and force concessions on pay and conditions.

Commentators are well-practised in describing the ups and downs of the market, often in conflicting ways [10]. One day one thing is said, and a short time later, quite the opposite. What is constant is that there is allegedly no control over any of this. The whole issue is of control, control over how much is produced, the prices paid for the product, what happens to the product, what happens to the realised new value of what is produced. What determines what it is that is demanded and supplied, and how much?

The work done by those employed in the automotive industry creates a massive amount of value. In 2019, roughly £19 billion-worth of new value was created by workers in the industry and realised in sales, amounting to about 20% of turnover [11].

Car production is highly socialised. As well as the large plants owned by the major monopolies, there are all kinds of small to medium-sized firms along the supply chain, forming a network of many different businesses all integrated together in this industry. The large factories themselves are huge, and operate with the highest levels of sophistication.

The combined productive forces of this integrated system are immense, yet they cannot be rationally controlled, as what holds sway is something in contradiction with the nature of those forces: the private profit motive, and the division of the industry into competing parts. Buried in talk of supply and demand is the narrow interest of maximising the profits of these individual enterprises, especially of the monopolies such as JLR (itself owned by the giant Tata) and BMW. Monopolies do exercise power over supply and demand, either individually in their state of mutual competition, or combined, but all in narrow private interest.

To be of any good to the owners of capital, social product, such as cars, has to be sold for the new value it contains, and specifically the source of profit, added-value, to be released. Unsold cars are no good at all to the owners of capital who, as such, cannot use the product itself.

This unconcern with the product itself, the sole drive to produce in order to sell with the aim of maximising private profit, the fragmentation of the socialised economy into competing parts, are fundamental problems of the system giving rise at the present time to profound crisis. The disequilibrium between supply and demand, between production and consumption, is such that it cannot be glossed over as "the business cycle". Mass layoffs and closures will cause lasting economic damage. Unplanned anarchy in car production also brings an inability to seriously solve the environmental damage associated with cars.

These problems point to the need for conscious planning over production and distribution by the actual producers, those who do the work, who need a guaranteed livelihood, an income, a standard of living, all of which is dependent upon protecting and humanising the natural and social environment, including the socialised economy. Whether or not product is sold, the workers are people, human beings, not a pool of machines to be grown and shrunk, or switched on and off. It is not the workers who should suffer the consequences.

On the contrary, if the working class had control over the direction of the economy, motivated instead to produce things for their use, they would be able to realise the potentially unlimited demand for the kind of production that can be carried out in the car industry. Pursuing the general needs of society, these productive forces can be put to a useful purpose, eventually eliminating the need for sale. Despite this unlimited potential demand, productive capacity is being destroyed, is underutilised, or existing product is unsold.

The attempt to return to business as usual is the continuation of layoffs and economic damage presented as the only option. Workers are faced with the need to change the direction of the economy so that it is aimed at meeting the needs of all.


Notes
1. See "BMW Announces Hundreds of Agency Job Losses", Workers' Weekly, August 29, 2020
http://www.rcpbml.org.uk/wwie-20/ww20-33/ww20-33-02.htm
2. "BMW bosses at plant in Oxford explain reason behind job cuts", Oxford Mail, August 26, 2020
https://www.oxfordmail.co.uk/news/18677111.oxford-mini-plant-bosses-explain-job-losses/
3. UK Car Industry Back to 80% Production, Lighthouse FX economic bulletin, August 27, 2020
https://lighthousefx.co.uk/economic-bulletin/f/uk-car-industry-back-to-80%-production
4. Figures: Society of Motor Manufacturers and Traders (SMMT)
5. "The automotive industry in the United Kingdom - statistics & facts", Statista Research Department, June 30, 2020
https://www.statista.com/topics/1982/the-uk-automotive-industry/
6. "Tata Jaguar and Other Car Manufacturers to Restart Production", Workers' Weekly, April 25, 2020
http://www.rcpbml.org.uk/wwie-20/ww20-15/ww20-15-12.htm
7.“The automotive industry in the United Kingdom - statistics & facts”, Published by Statista Research Department, Jun 30, 2020 https://www.statista.com/topics/1982/the-uk-automotive-industry/
8. "Industry Topics: Economy", SMMT
https://www.smmt.co.uk/industry-topics/economy/
9. Jim Holder, "Demand for new cars set to outstrip supply", Autocar, May 14, 2020
https://www.autocar.co.uk/car-news/industry/analysis-demand-new-cars-set-outstrip-supply
10. Writing mainly on the state of the US car industry, where the situation has parallels, but is not the same, John Paul MacDuffie, a professor of management at the Wharton School said in February this year:
"The auto industry is very cyclical and we're in the middle of a downturn cycle in terms of sales. The cycles are always affected by many things, but there also seems always to be some built-in boom and bust periods in the industry's history.
"The global financial crisis was a huge and unusual and certainly unprecedented dent in sales - a 40 or 50% drop for most major automakers. And then there was a period, an unusually long period, surprising to many, of years that sales were way up. Basically, to compensate for the fact people were postponing their purchase decisions during the Great Recession.
"So, sales grew dramatically in the U.S. from 2010 (low of 10.4 million) to 2016 (high of 17.4 million). 2017 to 2018 was relatively flat, but 2019 is down somewhat to just under 17 million. Bear in mind that there are only two other years in U.S. history with sales higher than 2019-2000 and 2001. How much of the 2019 drop is because of tariffs and trade tensions, how much is the slowing of the Chinese economy - because China has been one of the high-growth bright spots in auto sales for many years - is a little hard to say. We're certainly seeing profit announcements from automakers reporting losses and drops in sales
"The other big thing to say is that the challenges the traditional auto industry faces are pretty huge. Some are exciting, too, but [it's a balancing act] to keep the legacy business going, which is still about 100 million cars sold per year worldwide, while also investing in all these new technologies and new products and services - electric, yes, but also connected, and autonomous, and mobility services, so they're not left entirely to tech startups."
Brandon Baker, "The state of the auto industry in the 2020s", Penn Today, February 13, 2020
https://penntoday.upenn.edu/news/state-auto-industry-2020s
11. An estimated £18.6 billion of so-called "value added" was contributed by the sector in 2019. Not to be confused with added-value, the portion of new value produced by workers above their reproduced-value, "value added" is a capital-centric term that roughly approximates in monetary equivalent the whole new value that has been realised through sale.
I. Wagner, "Motor industry economic contribution in the United Kingdom 2009-2019", Statista, September 1, 2020 https://www.statista.com/statistics/299342/motor-industry-contribution-to-the-economy-of-the-united-kingdom/


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