Cars and inventories

Chrysler has shut down production for a month, while Ford and GM have cut back substantially.  Some people feel that this is a disaster – and that it indicates we need government intervention, and fast!

But I’m confused.  Car inventories are at record high levels, and demand for cars is very poor – as a result, doesn’t it make sense to reduce the number of cars we produce?  Why should the government intervene to get industry to keep producing something people don’t want – I am very confused about this.

If anything, the decision to cut back production tells me that these firms are reacting sensibly to a drop in demand – why would we want to spoil their reaction to market signals?

4 replies
  1. rauparaha
    rauparaha says:

    I presume they’re concerned about the structural unemployment it will create. I’m sure, if we subsidise cars enough, people will keep on buying them 🙂

  2. DG
    DG says:

    Agree with all this…but it also ilustrates the cashflow pressures these companies are under – they can’t afford to carry inventories – which I guess is why people are calling for some short-term intervention at least.

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