Toyota Cutting Capacity

Here’s a textbook example of why the climb out of the recession is going to be long, hard and probably result in a bit of an altered environment.

From Reuters:

Toyota Motor Corp, the world’s biggest automaker, will cut its global production capacity by 10 percent, or 1 million vehicles, the Nikkei business daily reported.

The production cut will come as early as this fiscal year to raise utilization at underused plants, the paper said.

The automaker plans to initiate the cuts by first shutting down New United Motor Manufacturing Inc (NUMMI), a joint venture with General Motors Co, and halting production lines at plants in Japan and the U.K., the Nikkei said.

Toyota will slash its production capacity to 9 million, in a bid to raise the operation level at its plants above the break-even point of 70 percent and return to operating profit in fiscal 2010, the paper said.

As I’ve said before, we have way too many plants making things all around the globe. Either they all compete with each other to see who the last man standing might be or they go the Toyota way and cut capacity. The bottom line is lost jobs, lots of them, and probably a goodly portion gone for good.

The process to get to some sort of equilibrium is going to be filled with nationalism and bruising fights between countries and politically within countries. It would be far better and probably result in a quicker solution if individual companies made these decisions, but, things being what they are, the decisions will be made mostly by politicians — at least initially. In that case, we’ll bleed to death slowly.

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