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Why the carmaker in front is cutting back

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Good news: global car capacity is being cut by 700,000 vehicles. Bad news: the company doing the cutting is the world’s most efficient manufacturer, Toyota.

Across the world, governments are pledging money to keep local plants open, mostly plants which have no long-term future, and which are far less efficient than the production line in Japan that Toyota is closing.

Welcome to the crazy economics of carmaking. According to CSM Worldwide, a consultancy, the world is capable of making about 94 million cars and trucks a year. In 2008, calculates OICA, an international carmaking trade body, global sales of vehicles were just over 70 million. This year may not reach 60 million, after the end of borrow-and-spend in the economies of the west.

In essence, the world is capable of making three cars for every two buyers. No wonder so few manufacturers can make money. Sergio Marchionne, responsible for the “near miraculous” revival of Fiat, believes that 5.5 million cars is the minimum output needed to make money, since it costs 500 million euros to develop a new model.

Driving a hard bargain on GM’s Opel

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OPEL-RHJ/John Smith, General Motors’ chief negotiator on the sale of Opel, deserves a medal. But he certainly won’t be getting one from German Chancellor Angela Merkel.

Magna says it has reached an agreement in principle to buy a controlling stake in GM’s European unit. However, GM says it is going to think about the revised offer from the Canadian auto parts maker. It wants more details of the government financing package on offer before it can make up its mind.

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