The Tide of Economic History

Yesterday Toyota announced the closure of their car plant in California. They have cheaper, more efficient plants in the developing world. Adam Smith wrote about this phenomenon in "The Wealth of Nations" 200 years ago. It is an economic tide which cannot be resisted but I can assure you the EU, Like King Canute, will try!

Our two children are medical students and need a car to get them around various hospitals and GP practices for their training. As we were unhappy about them driving long distances in an old banger this year we decided to buy them both new cars as a sort of 21st birthday present. My wife took a fancy to a Primrose yellow diesel Fiat Panda. I could see why. It has a distinctive appearance and is very economical to run, tax and insure. So we bought one and it was made in Italy.

Being of a more pragmatic, mean, Scottish nature I researched the market a bit more and bought for child 2 a Hyundai i10. As cheap to run tax and insure as the Panda but with a petrol engine. I thought these were made in Korea but as the salesman pointed out they are made in India.

Both cars ended up costing around £6800 each, with scrappage on the Hyundai but not the Fiat so we shelled out a total of £13.6k which was roughly the cost of a VW Golf with go faster stripes beloved of our daughters Oxford contemporaries.

So there you have it. Two cars for the price of one. Having driven both cars I found an assembly flaw on the Fiat, the 12 Volt accessory socket point for SatNavs etc is too shallow and the device plugs fall out. The Hyundai is slightly bigger,no faults and has many more features as standard eg aircon and is in my view a superior product but does look like every other small car on the road. You can see from this Jeremy Clarkson has nothing to fear from competition from me in motor journalism.

Hyundai was reported as the car manufacturer that had done best out of the scrappage scheme. I am not surprised but. Clearly the writing is on the wall for mass car manufacture in developed countries. Luxury and niche brands, Mercedes, Range Rover certainly, BMW and Audi will survive but I am less certain about Fiat, Renault, Peugeot, Citroen. I opine a clear Franco German split here. The British built Honda Jazz, a nice car was I felt expensive at £10k plus and of course Toyota and Nissan also have UK assembly plants.

Now I have zero interest in cars and will happily defer to anyone on the pros and cons of different models but cost plays a huge part in most car buying decisions. In the early 70s when I worked for HMG I had to talk to UK car manufacturers trade associations about the perrenial idea of increasing petrol tax and doing away with road tax thus charging people pro rata for their road use. This was always greated with horror by the manufacturers who said it would destroy the UK car industry as it would encourage people to buy smaller, possibly diesel cars and the UK car manufacturers could not make money out of making small cars. I replied the French, Italians and Germans seemed to make money in this market. This was always met with the cry of cheap labour, government subsidy etc and lack of government support. Car design, plant management practices etc were ignored as irrelevant.

Well its deja vu all over again as Dubya would say. Despite the terrific improvements in UK productivity brought about by Nissan, Honda and Toyota they cannot hold back the economic tide. The French dominated EU will attempt to set up a car version of the CAP to keep the third world cars out. But will the French etc consumers be as supine in paying the price for this mistaken policy as the UK consumers were in paying for the extravgancies of the CAP.

I think not. Civil unrest seems certain even here in the UK. What happened in California can easily happen in Swindon, Derby or Sunderland. Its not the tide caused by global warming we should worry about its the economic tide of the rise of the third world.