Life & Style | Motoring
Never mind Detroit, it's grim out East too
News from Asia suggests cars are going the way of horse-drawn carriages. Toyota, the world's biggest automaker by sales, is to shut down production at its Japanese plants for 11 days in February and March.
- Financial Times
- Published: 23:38 January 7, 2009
News from Asia suggests cars are going the way of horse-drawn carriages. Toyota, the world's biggest automaker by sales, is to shut down production at its Japanese plants for 11 days in February and March.
South Korea's Hyundai is so desperate to rack up US sales, it has promised to take cars back if the buyer loses their jobs - a bundled option that could prove expensive.
Japanese and Korean carmakers are partly responding to the US pain: Toyota's sales fell 37 per cent year-on-year in December in the US, while Hyundai Motor's sales almost halved.
Japan, also in recession, is fallow ground too. Passenger car sales fell 3.3 per cent last year, according to the Japan Automobile Manufacturers' Association, which is predicting a 5 per cent fall this year.
General Motors, meantime, unveiled its slowest growth rate in China in at least six years last year, further evidence that the world's second biggest car market is slamming on the brakes.
Chinese passenger car sales fell 12 per cent year-on-year in November. Some forecasters reckon sales in China could actually drop after registering a 7 per cent increase last year.
Carmakers, increasingly forced to rely on emerging markets, hope this will not come to pass.
Optimists take heart from China's fiscal stimulus and other measures under consideration, among them a cut in purchase taxes, which now make up 10 per cent of the cost price. Bulls also point to cheaper petrol.
Even so, enthusiasm should be tempered. China's car industry is still in a glut and prices of mid-and larger-sized cars will continue to fall this year.
Competition is strong, and - as in other markets - protectionist measures have their allure. Beijing is already considering plans to oblige government bodies to buy fleets of cars made by Chinese groups.
Never mind Detroit. It's grim out east too.
The investment debate bounces back and forth like an endless ping pong match. Inflation; no, deflation. Deflation; no, inflation. In the meantime, all that investors have got from this to-and-fro is a crick in the neck.
Last year, asset prices collapsed - with the exception of government bonds. Then asset prices rose - and government bonds were creamed. Equities on both sides of the Atlantic, and commodity currencies such as the Australian dollar, have risen by a quarter since their November lows.
One of the best performers has been crude oil, up almost a half since December. Yet, does this mark a decisive turn in the market?
The inflationary camp says yes. The cheap money policies, tax cuts and increased spending that governments have thrown at the crisis are, as the research outfit Gavekal puts it, irresistible forces that will eventually prevail. Inflation will return. Therefore, sell government bonds.
Deflationists say no, recent gains are just a bear rally in oversold markets. Sustained rises are a pipe dream due to the crippled financial system.
Meanwhile, inflation remains impossible while demand continues to collapse and unemployment to grow. These are immovable objects. Therefore, stick with ultra-safe investments, like government bonds.
Investors need not side with either view, yet. They can take out inflation insurance instead. Dipping a toe into equities is one possibility.
But stocks are only fairly priced rather than cheap. In addition, absolute returns from stocks are usually poor in an inflationary environment. A better hedge may be commodity-linked assets, including currencies such as the rand and companies with strong balance sheets, such as the oil majors.
Of course, solving the paradox of what happens when an irresistible force meets an immovable object is impossible. That is why the result of the collision has only been confusion - and volatility.
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