Toyota cuts capacity, a sign of things to come

Toyota (TM) will cut its manufacturing capacity around the world by one million vehicles a year, a sign that the largest auto company does not see a full recovery of the industry on the horizon. The decision is a smart financial one. It will allow the Japanese firm to increase the productivity of the plants it does keep open.

The Wall Street Journal reports that Toyota has the ability to make 10 million cars, but will only build 6.68 million in 2009. Toyota's decision could improve margins, but it may also mean a large number of lay-offs.

Have U.S. car companies cut production capacity by enough? Ford (F), GM, and Chrysler closed factories and laid off tens of thousands of workers in the restructuring of the American industry; this restructuring has gone on for over a year and culminated in the Chapter 11 filings of two of the companies. The "cash for clunkers" program has temporarily increased sales, but those sales could drop back to the levels of the first half of the year without the help of a government stimulus package.That would leave the U.S. auto firms facing more losses in the last four months of 2009.

Toyota's move is an acknowledgment of the slow recovery from the global recession, but it may mean far more. Consumers have discovered that they can save money by keeping their cars longer and making sure they are in good repair, no matter what the economic climate. That sea change could alter the dynamics of the car industry permanently.

Douglas A. McIntyre is an editor at 24/7 Wall St.


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