Jeremy Warner: We don’t need this many car-makers. Get used to it

Outlook If there was no future for Saab under General Motors’ ownership, there certainly won’t be as an independent entity. It’s still possible that a reluctant Swedish government might be persuaded to add the company to Sweden’s growing list of publicly owned enterprises, but absent of nationalisation, it is hard to see how else Saab can stagger on, even as a much-reduced, restructured organisation. Saab owners swear by them, but the company that makes these distinctively styled marques has always been sub-scale and struggled to make a profit even in the good times.

The market may be a brutal and uncaring arbiter of survival, yet it also has an unfailing ability to deliver outcomes that everybody knows to be right, even if socially and politically distasteful. The European and American car industries are a case in point. Both are characterised by extreme overcapacity and massive sunk capital in technologies and models which are becoming increasingly obsolete.

Manufacturers and politicians are still largely in a state of denial about this uncomfortable truth and are therefore incapable of reconciling themselves to the necessary cull. Most see the present downturn as a temporary demand shock and look forward to the time when everything returns to the way it was.

Ergo, manufacturers should be supported through these abnormal times with subsidy and soft loans. Skills lost through closures will be lost for ever, never to return. Vital, strategic industries must be nurtured through the bad times. Looking at the massive subsidies being doled out to support the banking system, most people would think they’ve got a point.

Why should pin stripe-suited bankers and traders be supported, but not the horny-handed men of toil who man the production lines at Saab, Fiat, Vauxhall, Nissan, Jaguar and so on? It doesn’t seem to have occurred to them that the over-production of the European and American car industries was as much a symptom of the credit bubble as City bonuses and soaraway house prices.

Even with demand at the credit-fuelled extremes of a couple of years back, sales could never keep pace with the car industry’s extraordinary propensity to produce. What’s more, they were increasingly the wrong sort of car, particularly in the US, where failure to grasp the urgency with which economies must move to a low-carbon future has left a number of manufacturers looking positively Stone Age in approach.

Tooling up for the next generation of auto-manufacturing is an extraordinarily expensive business. Investment in past technologies is already so large, many manufacturers have had a vested interest in maintaining them.

The difficulty in the present shakeout is, as ever, deciding which should live and which should die. So deep has the downturn become that the good are in serious danger of dying alongside the bad. Yet this is what makes the present rush to subsidy and soft loans so dangerous.

Each nation is as determined as the next one to keep its car industry alive, even though there may be no sustainable future for large parts of them. Those who stay out of the game of beggar-thy-neighbour subsidy risk seeing perfectly viable companies and industries destroyed.

Perhaps Saab doesn’t deserve to have a future. But what about Jaguar? Should this pride of the British car industry be allowed to go down too? Whatever the answer, markets left to their own devices stand a better chance of delivering an equitable outcome than the politicians. Businesses with viable, long-term futures tend to survive, however bad the downturn, albeit sometimes under different ownership and capital structures. Regrettably, it is the politicians who are now firmly back in the driving seat. Don’t trust them to get it right.