Ford have announced
the closure of the Transit van factory in Southampton. The last 500 jobs will
be lost from a plant that has produced over two million vans since 1972.
This was not a
surprise. A Belgian Ford factory is also to close as the vehicle maker can produce
far more cheaply elsewhere.
The closure reflects
the continuing decline of Britain’s comparative advantage in basic
manufacturing. Turkey will benefit as all production is transferred there.
The move illustrates one
of the important effects of specialisation and exchange. We know that
specialising allows more goods and services to be produced overall and through
trade everyone can consume more and so be better off.
While overall welfare
rises somebody bears a cost during the 'adjustment period'. This must occur as an
industry grows in one trading partner through specialisation another, somewhere else, must
decline. Where an industry declines workers lose their jobs and must seek new
ones.
Those who lose their
jobs are structurally unemployed. They are in need of retraining and because so
many are losing their jobs at the same time it may be difficult to clear the local
labour market for some time. The costs will fall particularly heavily on the
over 40’s who will find it most difficult to find work.
A point to consider is
why BMW (the Mini) and Honda are growing in the UK. Is it because of their
product?
This would indicate a fall in demand for brand new versions of the bank robber's favourite vehicle. This may well be due to a potential surplus of second hand transit vans available on the market due to firms failing or cutting back in previous years. This large increase in the supply of second hand transits would cause a shift left in supply and a fall in the price. Thus any expanding firms looking for transit vans might be able to find a year old transit van for half the price of a new one. I obviously have no data to back this up but it must surely be a potential option. It would all mean that the demand for brand new transits is low and that supplying more to the market would be a waste as they will have excess stock and would have to find somewhere to put it. Ultimately they would then have to reduce the prices of their goods to get rid of them and they could make a significant loss.
ReplyDeleteThere may well be more demand in Turkey and the areas surrounding Turkey for the Transit van compared with the UK. Also the labour is probably cheaper out there than in the UK with less red tape than in the UK.
This whole move would contrast with BMW and Honda with families making the most of low interest rates for loans and "giving them away" style offers which will mean that they can look to get brand new cars for quite a cheap price. Also the push for families to get new cars to "go green" and reduce their fuel bills is definitely a reason why people will be trying to get new cars. In previous years the scrapage scheme was also a reason why people decided to get new cars. Mini and Honda also have electric and/or hybrid cars in their inventory which will appeal to post "Green Olympics" Green Britain.