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JON WALDEN COMMENT: Stop propping it up

Date: 21 April 2009

Jon Walden

It's government inaction that will hasten the car industry's recovery, argues Jon Walden, as the Lex boss departs after a decade heading the UK's top lease firm

The automotive industry faces an uncertain future in the light of a collapse in sales brought about by the financial crisis.

Rarely a day goes by without one car company or another in the headlines. What hope is there for the future and in particular for customers, suppliers and employees associated with our industry?

Much depends on the actions taken by governments.

In my view what we need is government inaction. It has been estimated that worldwide production capacity exceeds demand by 30 million units, or roughly 50%. This is a ludicrous situation that has been allowed to endure for years. Economic health will return to our industry when unproductive plants are shut, not propped up by government subsidy.

Do you remember Rover, a company created by meddling politicians that limped on for 20 years too long? It made products of indifferent quality few people wanted to buy. It ate up taxpayers' money and then the capital of well-meaning investors who found its problems too deep-seated to turn around.

Today we have Rover writ large in the UK and beyond. We see appeals daily for short-term loans, scrappage subsidies, credit-easing and every form of imaginable support. Such help will only prolong the taking of painful decisions to bring uneconomic activity to a close. Governments should hold firm and let companies sort themselves out.

What are the implications of this for the wide range of businesses associated with car manufacturing?

It's going to be a bumpy ride. So first and foremost, look after your good customers. Next, identify customers you shouldn't be dealing with and get shot of them. Eliminate bureaucracy; most companies are full of it. Cut your costs, but don't cut costs in areas like training, which is a false economy. And finally, look after the people that remain - they are your future.

If you are a customer, work out carefully what you really want and think about the supplier who can provide it. If all you want is a low price, don't be surprised if you get poor service. If you want a dependable supplier who is always there for you, make sure that supplier has the opportunity to earn a profit. After all, would you want your business to lose money? And then communicate your needs clearly and unambiguously to whoever you choose to do business with because that gives you the right to hold them to account.

My prediction is that this crisis, when it ends, will end rapidly. It spread like wildfire because the world is so inter-connected. It will end quickly for exactly the same reason. And when it does, you want to be strong enough to take advantage of a rising market.

In my view there is every reason to be optimistic about the future. The car industry is at the heart of our economy and our society, and it will continue to remain that way.