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Imports Piling Up Signal Trouble for Japan

The automaker woes in America are not limited to America. Americans are not switching to Toyotas. They are simply not buying cars as fast as last year. Toyota has just anounced that they will close their factories for two days in December to slow down the number of cars being built and to reduce inventory. It is no wonder that Japan is now officially in a recession, and China is not far behind (believe it or not).

In Long Beach, California, where 20 percent of our imports arrive, Toyotas a piling up faster than a crash on the LA freeway in the fog.

"Long Beach is an important port, particularly for the West. It is where imported products arrive and filter through the tributary of trucks, trains and retailers into the hands of consumers. But now, products are just sitting.

“We’re supposed to move things, not store them,” Mr. Wong said.

Roughly 20 percent of the nation’s container imports last year came through Long Beach, putting it close behind the largest container port, Los Angeles. This year, shipping volume at Long Beach is down 10 percent from 2007, and nearly all major ports around the country have seen similar declines. Veteran port workers say the slowdown since mid-October is like nothing they have ever seen. And it is having a cascading impact on other businesses and workers.

In the 150-acre terminal where Toyotas are unloaded, there is a sea of Corollas, Camrys and RAV4s. The mere presence of so many cars is not unusual, given that Toyota brings in 250,000 cars a year in biweekly shipments. But in a sign that something is amiss, dozens of tractor-trailers that transport new cars to dealers sat empty last week amid the rows of Toyotas.

Kurt Golledge, 48, was one of just two truckers loading his green, 75-foot-long hauler with cars last week. Mr. Golledge said eight of his colleagues were laid off this month because Toyota dealers did not want more deliveries.

“I was dropping cars in Henderson, Nev., about a month ago and the dealer told me: ‘Take ’em somewhere else and dump ’em,’ ” said Mr. Golledge, who works for a company called Allied Systems. “All the dealers are telling us the same thing.” . . .

“The ships keep coming, but there’s nowhere for the cars to go,” Mr. Golledge said. He said he believed the vehicles he was loading would be his last before he was laid off, and he was already considering where he might find a new job."

http://www.nytimes.com/2008/11/19/business/economy/19ports.html?_r=1&partner=rss&emc=rss

A pointed question was asked of the automakers yesterday. A congressman asked if the auto execs would be back in six months for another bailout. In other words, would the $25 billion be used to continue paying employees $71/hour to build cars that no one will buy?

I think everyone should earn a good living, but the problem is that high wages are viable only if people are willing to buy cars that are more expensive, due to the higher labor cost. Everything is fine as long as the cars keep selling. But when people stop buying, it makes high wages unrealistic. Worse yet, it does not really work well to pay people according to the profits of the company. Companies can't pay people more in good times and then give them pay cuts during down times.

So the automakers are paying $71/hour salaries (I presume that's an average figure.) when their employers are facing bankruptcy. They are locked in by union contracts unless the company files for bankruptcy. Bankruptcy does not mean they stop making cars. It means that they are given opportunity to reorganize the company in a way that ensures profitability. Such a scenario might be the only viable option, in which case the workers would probably have to take a sizable cut in wages. The workers would be unhappy about it, but the alternative would be to go on unemployment.

The Congress can throw money at the auto companies, but this may simply postpone the inevitable bankruptcy. It may be better to do it now, rather than later.