Wednesday, December 17, 2008

Externally Imposed Business Models

Remember that externally imposed business model that some people and politicians, including Thomas Friedman, want to impose on the Big 3? Greener, more fuel efficient cars, with hybrid engines? Here's a bit of market reality to remind us that the Prius isn't quite the same as Friedman's "iPod of luxury SUV's", the Lexus RX400h.
No, potentially the worst piece of [U.S. economic] news passed by almost without notice: the decision by the Japanese carmaker Toyota to hit the brakes on its construction of a new factory in Mississippi. That decision wrapped up the past and future prospects for the US into one unhappy package. If Toyota cancels its plant, the US economy won't collapse, of course. But it is more than just a bad omen. It's a warning of what is to come for the Federal Reserve and the incoming Obama administration.

Toyota's new car plant wasn't just any assembly line. It was to be the first US factory to make the famous Prius hybrid. Toyota had already invested $300m in it – but it may prefer to kiss that money goodbye than commit the extra $1bn needed to open it.
Prius sales are way down - "in November 2007 Toyota sold more than 16,000 Prius models. Last month it sold just 8,000." But that's not just because gas prices have dipped; it's also a symptom of the bad consumer credit market.

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