Automakers Have To Lose A Lot Of Fat, Or Die

One of the first things you learn in the auto industry is that if you run your plant at less than 80 percent of capacity, your plant and your career are in deep trouble. If that adage holds true, then the world is in for a world of hurt.

At the moment, most automakers are believed to be running their plants at less than half capacity in an effort to reduce inventories, which have been piling up since last fall, says the Nikkei [sub]. They either get used to it; or close a lot of plants.

U.S. research firm CSM Worldwide sees worldwide automobile sales falling 12.5 percent to 53.8 million units this year. According to CSM’s report which was released today, global automobile output is expected to drop 18 percent to 53 million units in 2009, but production capacity will grow about 5 percent to 94.32 million units through past investments. Capacity utilization will plunge from around 80 percent over the past few years to 56 percent this year.

What’s worse, CSM believes that global production will not surpass the 2007 level and that the operating rate will not reach 70 percent until 2012 or later. Despite robust demand in China and other emerging economies, the U.S. and European markets are not expected to return to 2007 levels until around 2015.

Other industries are also facing excess production capacity. The operating rate of global steel mills is likely to drop to around 70 percent in 2009 from roughly 85 percent over the past few years. Operating rates at chipmaking facilities have declined considerably. According to data on thirty-two key chipmakers across the world, the operating rate for the October-December quarter was 69.3 percent, down sharply from 87.1 percent in the previous quarter. These facilities have been running at around 90 percent capacity over the past few years, and the last time the figure dipped below 70 percent was seven years ago.