The surprising revival of the British motor industry

While the rest of the fight desperately to recover European automotive sector, the British car industry is experiencing a genuine renaissance and its sales have grown steadily over the past 18 months. The industry has taken hundreds of millions of pounds to regions affected by the recession. The latest announcement came Tuesday: Jaguar Land Rover (JLR) said it will invest 1.500 billion pounds (2.350 billion) more in the UK and will create 1,700 direct jobs at its Solihull factory in central England, in an area that has suffered a sharp deindustrialization. Investment responds to manufacture its latest innovation, a structure (the skeleton of the vehicle) to equip all-aluminum models of the two brands from 2015. "Jaguar Land Rover is a company driven by design, technology and innovation, and this investment and number of jobs created are further proof of our commitment to promote the ability of the British car industry and its supply chain" said Ralf Speth, JLR CEO. Since 2011, this company belongs to the Indian group Tata Motors announced the creation of about 11,000 direct jobs in the UK and 24,000 indirect jobs among its suppliers. The investment will represent "a useful boost to the British economy and contribute to the positive sentiment surrounding the country's economic prospects," Joe Rundle estimated, trader at ETX Capital. "The British motor industry was regarded as a dying industry because factories manufactured with little effective machinery, but government efforts to revive industrial activity is transforming the automotive building the country in a segment of high-end production," he said. Other manufacturers, such as Nissan, Toyota and BMW (Xetra: 519000 - news ), "still inject more money into high-tech innovations for high-end cars," continued Rundle. The British government announced in March that it would spend 500 million to finance sectors such as automobiles. The Japanese Nissan, Renault is the largest shareholder, last week received permission to build an extension of 25,000 m2 at its plant in Sunderland (northeast), which is already the biggest generator

of jobs in the region. The key is investing 250 million that the group destined to make their first units in Europe Infiniti luxury model. In March, Sunderland had launched production of its all-electric Leaf model, which involved the investment of 420 million over the creation of 500 jobs at Nissan, and more than 2,000 between suppliers. It is a step backwards, because in 2009 Nissan fired a quarter of its 5,000 employees Sunderland. Good health enjoyed by the high-end car has also benefited Rolls-Royce (BMW Group). In 2012, for the third consecutive year of record-breaking sales since its creation, 108 years ago, with 3,575 copies sold. The brand is expanding its factory in West Sussex (southern England). While in most European markets the sale of new vehicles is stagnant, Britain again showed growth in August insolent, uninterrupted for a year, with 11% more sales than the same month of 2012.Meanwhile, in Spain fell 18.3%, 10.9% in France, Italy and Germany, 6.56% to 5.5%.

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Toyota will end production in Australia in 2017

Tokyo / Sydney (Australia), February 10 (EFE). - The world's leading engine, Toyota, today announced that it has decided to end production of vehicles and engines in Australia by the end of 2017, because of the difficulties of the local market and the rise in its currency. The decision of the Japanese company, which has 3,900 employees in the country, comes after U.S. General Motors (NYSE: GM -news ) and Ford already announced last year that ceased production in Australia. "Several negative factors such as their extremely competitive market and the strong Australian dollar, coupled with the anticipation of a reduction in the scale of production in Australia, has forced us to take this painful decision," said company president Akio Toyoda , in a statement.

Australian Prime Minister, the conservative Tony Abbott, said job creation is superior to layoffs, but regretted the impact that the closure of Toyota, which marks the end of the automotive industry in the country. "Nothing you can say alleviates the impact of this devastation and disappointment today, there will be better days ahead," said the president. The closure of the Toyota plant, located in the state of Victoria, may cause the loss of about 30,000 indirect jobs and mean the end of the car industry in Australia. "Tony Abbott has definitely missed Australia. This is a government that prides itself on its ability to destroy industries," lamented Senator Kim Carr, the opposition Labor Party. Carr criticized the Executive for failing to provide Toyota a plan for long-term competitiveness and encourage investment described as "disastrous" implications of the closure of auto plants in the country. Toyota Motor Australia, who had established in the country for more than five decades, will become a company exclusively selling "without changing the commitment to continue offering great cars and services to Australians." The manufacturer also announced it is considering reducing the operations of Toyota Technical Center Asia Pacific Australia, based product development in the country. Ford announced in May last year to stop producing cars in Australia from October 2016, which means the loss of about 1,200 jobs at its assembly plants. Holden, a subsidiary of generla Motors, announced last December that also stop producing cars in Australia from 2017, which will affect about 3,000 employees, while Japan's Mitsubishi (Dusseldorf:MBI.DU - News ) ended its operations in 2008.

Effects of the international financial crisis

The Dossier Crisis II was published in August 2010 by the Brazilian Keynesian Association (AKB). This Dossier is seeks to assess the effects of the international financial crisis, the

world in general and in Brazil. We publish below some of the items mentioned Dossier (a complete list of articles can be found on the Association website: http://www.ppge.ufrgs.br/akb ).

Keynesians times
Luiz Fernando de Paula1 and Fernando Ferrari Filho2 The process of financial globalization, in which financial markets are integrated in such a way as to create a "single" world market of money and credit, before a picture in which there are no monetary-financial and currency stabilizing rules and the traditional instruments of macroeconomic policy become increasingly insufficient to contain the financial (and currency) collapses worldwide, has resulted in frequent bouts of effective demand, determined primarily by "financial strength". Indeed, the financial crisis that emerged in 2007-2008, whose consequences are still being felt today, is primarily a crisis of financial globalization, understood as a tendency to create a global financial market and intensifying the flow of capital between countries. This process goes back to the crisis of the Bretton Woods system and the formation of the Eurodollar market, which, by the way, ended up contributing to the deregulation of domestic financial systems - with the end of segmentation between markets - and the liberalization of capital flows. As a result of financial deregulation, there was an intensification of competition between banks and therefore declining margins of financial intermediation, with a trend in response to the financial conglomeration and an increase in scale of operation, through mergers and acquisitions . Thus, financial institutions began to explore different markets, including lower income. In the bond market, have developed mechanisms for securitization, fueled by the growth of institutional investors, companies and banks that fund themselves "packaging" income receivable. In short, since the securitization allowed dilution risk in the market, financial institutions began to increase their leverage, assuming that the mechanisms of self-regulation of the market would be able to continue to evaluate properly the risks inherent in financial activities.

The crisis in subprime - housing finance market riskier - finally express all the contradictions of this process. The need for scaling-led financial institutions to incorporate low-income segments in terms of "financial exploitation" - in the case of subprime , with variable interest rates (lower in early and rising over time) - which eventually resulted in a process of financial strangulation of the borrower's credit. Securitization, which would serve to dilute risks in practice served to hide risk - mortgage-backed securities were issued by large financial institutions, and such assets classified as investment grade by an agency rating . Such assets as a result of financial globalization, have, in turn, being bought by investors of different nationalities. Thus were created new financial instruments that were not properly regulated by the authorities. Mechanisms of self-regulation proved to be flawed due to the pro-cyclicality of risk taking: projects that were considered bad on deceleration began to be seen as good in boom cyclical. John Maynard Keynes in his General Theory of Employment, Interest and Money (TG), 1936, drew attention to the fact that, in monetary economies of production, the organization of financial markets faces a trade-off between liquidity and investment: on the one hand, they stimulate the development of productive activities to make the most liquid assets, thus freeing the investor of the irreversibility of investment and on the other, increases the possibilities for speculative gains. Thus, to establish a connection between financial markets and real economy, Keynes in TG (1964, p. 159) writes that "the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the development of Activity of a country becomes the by-product of a casino activities will probably be sloppy work. " Going to meet Keynes, these days, the action of the global players in a more liberalized and integrated market, makes the financial markets converted into a kind of great global casino. Speculation in a global economy, have disruptive character not only in domestic markets but on countries as a whole, creating a sort of expanded financial casino.Keynesian perspective, financial instability is not seen as "anomaly", but as a result of the very form of operation of financial markets in a system in which there is no safeguard structure which carries the role of a market markeroverall. Thus, the specific institutional format of financial markets determines the possibilities of having an environment where speculation can flourish. Financial crises are not only results of "irrational" behavior of the agents, but derive from the very modus operandi of global financial markets liberalized without an adequate system of regulation.

The international financial crisis whose origin is in increasing losses caused by the default of loans from subprime market subprime U.S. and that, due to the fact that most of these mortgages were securitized and distributed to investors in the global market, just becoming global, leads us to two observations. First, it calls into question the practical benefits of financial globalization, with deregulated financial markets, including in developed countries.Secondly, it reminds us, as of the fiscal and monetary measures implemented by developed countries and, to a lesser extent, by developing countries - such as injection of liquidity and capital in the financial system by the economic authorities of these countries and synchronized reduction of the basic interest rate of the major global central banks - to prevent the recurrence of major depression, both to rethink the role of the State in the economy, the need to re-regulate the domestic financial systems and restructuring the system international monetary. Recently, a paper by economists at the International Monetary Fund Article (Blanchard, O. et al., " Rethinking macroeconomic policy ", February 2010) argues, post-crisis times, a new agenda for alternative economic policy to" macroeconomic consensus' prevailed until the economic crisis of 20083 . According to this work, the foundations of this consensus were seriously shaken by the economic crisis. Firstly, the crisis showed the policy makers that maintaining a stable inflation rate is not sufficient for macroeconomic stability condition. This is because the behavior of asset prices, credit aggregates and even the composition of output may create destabilizing forces within the economic system that lead, in the medium and long term, the occurrence of a financial crisis of major proportions.Secondly, setting a goal of very low inflation considerably reduces the scope for reduction in the nominal interest rate when it is necessary to deal with the effects of a financial crisis. Thus, the cost of lost flexibility of a target of very low inflation outweigh, by far, the possible credibility gains that can generate. Thirdly, maintaining a "fiscal space" - as a gross debt / GDP between low and moderate - proved crucial for prompt and decisive fiscal policy response to the financial crisis. Finally, the limited scope of financial regulation provided the necessary for banks to create "exotic" operations outside its balance incentives in order to circumvent the leverage limits set by the Basel Accord, which eventually increase the financial fragility of the system as a whole4 . Anyway, the very mainstream or part, questions the foundations of conventional economic policy and even the very foundations of orthodox economic theory, as blind faith in the market mechanism, in which the action of rational agents would lead to "great" results ( or near these) economically-socially. In fact, there are very Keynesian economists have

questioned such precepts, pointing out that the "neoliberal" model does not guarantee a robust and financially stable economic growth, and generate growth incompatible with the improvement in income distribution. To these economists, not only Keynes and his followers have much to say about the "depression economics", as well as on possible ways to achieve an "economic prosperity". Anyway, it is clear that we live "Keynesian times", although the contours of economic policy that ensures the final out of the crisis and, above all, for a postcrisis world are not very clear in the current economic debate. After all, the signs of global economic recovery have been contrasted with worrying signs, such as the dollar and the U.S. economy still fragile financial system and the euro-zone has serious instabilities, mainly due to the fiscal crisis of so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain), and the fact that the moderate economic recovery in the world has been accompanied by hesitant decrease in unemployment. In this context, the AKB prepared the dossier Crisis II , whose objective is to evaluate the effects of the international financial crisis, the world in general and in Brazil as well as present some alternative policies. In it, some key issues are addressed, such as the international financial crisis results from a crisis of a liberal economic paradigm? What are the reasons for the faltering global economic recovery? What is behind the crisis in Europe? In the case of Brazil, which were the determining factors in overcoming the crisis? After the scare, economic problems which must be faced and what should be the solutions to them?

The exhaustion of the growth paradigm of the American economy5

Thomas I. Palley6 The U.S. economy is in recession and the problems related to the high indebtedness of households raise fears that this recession could be longer and more severe than the recessions of 1991 and 2000. The Federal Reserve and theTreasury have taken unprecedented measures in history to stimulate the economy through reductions in interest rates, liquidity injections and tax cuts, all of which are fully justified, but they are just a short-term palliative. Certainly the United States must be concerned with the cyclical recovery of its economy, but it is also necessary that we Americans, we worry about the fact that the growth paradigm

that drove our economy over the past decades is exhausted. This also has implications for the world economy, given that this has been supported in the United States as a "buyer of last resort." If the U.S. economy to grow more slowly, it is unclear how other countries have the ability or the willingness to develop alternative engines of growth. The recent economic expansion began in November 2001 and is characterized by a long period of "jobless growth" in economic activity, and, along the greater part of the period of expansion, employment growth remained close to zero . This led the Federal Reserve to reduce interest rates despite the recovery in economic activity, keeping them low for an extended period of time and increase them slowly and gradually thereafter. The actions of the Federal Reserveprevented a relapse into recession, but also led to the emergence of a bubble in the housing market. These actions also triggered a search for higher yields by investors, causing them to ignore the risk, which just manifesting in the form of deflation in house prices and massive losses in the credit markets. Why was so weak despite expansion of the tax cuts occurred in 2001 and large increases in military spending and national security? The answer to this question lies in the overvalued dollar and trade deficit which drained spending, jobs and investment out of the economy. In fact, the industry has lost 1.8 million jobs between late 2001 and late 2007. This is an unprecedented event in American history since the industry had never lost jobs during an expansion. The U.S. strong dollar policy has a reasonable responsibility for the trade deficit. This policy was initiated by the Clinton administration, under the advice of Treasury Secretary Robert E. Rubin will be continued in the George Bush administration. The effect was to make imports cheaper and exports more expensive, thus inducing an increase in imports, less exports and encouraging the transfer of production abroad. This, in turn, led to job cuts in the industry, reductions in production capacity and domestic investment in manufacturing production. Trade policy has also played a significant role in this process by encouraging American companies to move their plants abroad. In conjunction with these trends we highlight the policies of export-led growth adopted by China and other East Asian countries. These policies promoted Asian exports and foreign direct investment in such economic, thus hurting U.S. exports.

The trade deficit and contempt by the industry are part of a broader paradigm of economic policy adopted since 1980, which created a new kind of business cycle. Cyclical fluctuations during the administrations of Ronald Reagan, George HW Bush, Bill Clinton and George W. Bush have great similarities to each other and are quite different from those observed before 1980 cycles. The similarities refer to the mismatch between the growth of wages with respect to productivity growth, large trade deficits, inflation, loss of industrial jobs and increased property debt. The post-1980 economic cycles have been based on booms financial and cheap imports. The booms provide financial collateral required to support the increased debt that finances consumer spending. The increase in debt has also been supported by the reduction of the criteria for granting credit and the financial innovations that allowed increased access to credit. Meanwhile, cheap imports have mitigated the effects of wage stagnation. This pattern contrasts with previous economic cycles which were based, not on the growth of debt, but the salary increases linked to productivity growth and full employment. The expenditure, combined with full employment, encouraged investment, which increased productivity, thus fueling the growth of wages. The change from the old to the new model of business cycle was the result of profound political changes associated with the election of Ronald Reagan in 1980. She inaugurated a period in which business and labor amounted been demoted. This change was rationalized by economists like Milton Friedman. The old model of economic cycles was based on a combination of the institutional innovations of the New Deal , which strengthened the workers, and measures of aggregate demand management idealized by Keynesian economics. The new model of economic cycle is based on policies that have eroded and reshaped the institutions of the New Deal , while demand management has been redirected to the reduction of inflation instead of ensuring full employment. Indeed, the language of full employment was discarded. The differences between the models prior to 1980 and subsequent economic cycle can be easily illustrated by the policy. Prior to 1980, trade deficits were viewed as a serious problem because they represented a leakage of expenditure in the economy which reduced employment and output. Since 1980, the trade deficit has been seen as an important aid in controlling inflation as well as attenuating the effects of wage stagnation.

The new model of economic cycle also changed monetary policy. Prior to 1980, monetary policy was guided to support labor markets, maintaining full employment and wage growth, encouraging spending that induced investment and productivity growth. Now monetary policy to support asset prices to encourage borrowing, while wage growth is seen as a threat to the stability of the inflation rate. The problem is that the post-1980 paradigm is exhausted. After a quarter century taking credit at a frantic pace, many families have reached their debt limits. Additionally, the asset price (especially boxes) are at high levels and risk of falling, in some cases quite pronounced. In other words, this economic cycle needs of asset inflation coupled with increasing debt to boost spending. More fundamentally, it is unclear so far how growth can be resumed on a sustainable basis. Consumers will not be able to borrow money the same way they did in the past. The low interest rates are likely to be less effective than before, and its effect on the like to push a boulder with a string expenditure. Families had not previously used access to credit, which provided a "launching pad" for the recovery of the economy. Currently many of these families have reached the debt limit, as well as more banks are afraid to lend to risky borrowers. The refinancing of mortgages should have weaker effects than in previous recessions. Firstly, the set of mortgages with high interest rates was refinanced, largely in past recessions, leaving little room for the advantageous mortgage refinancing. Secondly, the continuing fall in house prices will make banks less willing to refinance existing mortgages, many of which may exceed the market value of homes. The key point is that the model of economic cycles post-1980 which was based on a combination of asset inflation and persistent increases in household debt is exhausted. The problem is not limited to loss of economic dynamism that this process provided, but also refers to the possibility of falling into a deflationary spiral if asset prices continue to fall and households to borrow even more. In these circumstances, the Federal Reserve will be unable to do anything to stimulate growth. We need a new economic paradigm that restores the link between wage growth and productivity growth, as well as causes, again, salaries are the main turbine demand growth. Remedy the disruption of long-term wage-productivity link will require the restoration of policies aimed at achieving full employment. The full employment will provide

workers bargaining power. This will encourage wage increases, which will fuel the spending, productivity and investment. The attainment of full employment will require coordination between monetary, fiscal and exchange rate policies to that end. A change in the balance of power in labor markets will also be required. This will require reforms and vigorous enforcement of labor laws to end the intimidation of employers over employees to prevent the latter from joining unions, thus fair bargaining labor contracts. The minimum wage should be connected with the prevailing average wage in such a way that the first increase as the economy grows the economy. And unemployment insurance should be expanded and extended. The U.S. should also begin to reduce its trade deficit, which drains expenditure abroad and strongly affect the industry. A new foreign exchange policy should prevent the overvaluation of the dollar with respect to the currencies of major trading partners of the United States. Only a clear and enduring commitment to this policy will again convince businessmen to invest again in American industry. Finally, developing countries must be persuaded to abandon their policy of export-led growth and should be focused on developing their domestic markets. In the field of trade policy, it means for an end to unfair international competition based on undervalued exchange rates, export subsidies and unfair trade restrictions. This will require a new international economic architecture that promotes fair and balanced trade - a task that will require a highly enlightened American leadership.

The international economic crisis in 2010: a review halfway

Fernando J. cardim Oak7 Observing the world economy in June 2010, one can say that there is good and bad news, and (anyone surprised by this?) Huge uncertainty with respect to mediate future. The good news refer, of course, the success of macroeconomic policies implemented from the end of 2008, almost everywhere in the world, had in curbing the more destructive impacts of the financial crisis 2007-2008 on production and employment. The product fell in virtually all the world (with the notable exception of all time, China and India and its

neighbor who suffered only deceleration of growth, very high to high). In several developed countries, the decline was significant, as in the case of the United States and Germany. But significant as it was, it was still much lower than it could have been, since our benchmarks would be given by the Great Depression of the 1930s. The recovery that followed, on the other hand, was not so surprising, since supported and nurtured by the same macroeconomic policy which contained the contraction of the product. Expansionary fiscal policies in many countries (with the notable exception German), monetary liquidity support, microeconomic policies to encourage specific industries, but of great impact, such as the automobile industry and construction, all contributed to revive aggregate demand and mitigate the impact of the natural tendencies of businesses and consumers to flinch against unemployment, the uncertainties of the future, excessive debt in some sectors etc.. In some cases, the most favorable environment for hiding dangerous imbalances continued recovery. Certainly the most threatening is the case here in Germany, who chose to recover its economy on the path of beggar thy neighbor, which caused so much damage in the 1930s. The German strategy was to cheapen its exports (especially the wage contraction as it comes, for some time, passing even nominally social democratic governments, like Gerhard Schroeder) instead of increasing its aggregate demand. With that, we will return a little later, the German recovery just relying at least in part, to generate current account surpluses which are reflected in the deficits observed in the periphery of the euro area, the so-called Club Med, composed of Greece, Portugal, Spain and Italy. Without the ability to take advantage of the exchange rate and monetary policy (lost to the European Central Bank, with the creation of the euro), it only remains for these countries to fiscal contraction. The German virtue is paid to the impoverishment of the periphery of the euro area, which inevitably end up turning against Germany itself at some point. The good news of product recovery is tempered by the inability of these economies to reduce unemployment significantly. Liberal economists, that after the initial shock, begin to reappear on the scene, trying to explain this phenomenon revive notions such as flexibility of labor markets, need to reduce social protection to workers that would take you the incentive to accept employment, trying to resurrect ideas such as that employment does not grow not because they lack demand for workers, but because these are better options than working, especially to "fatten up the sun", protected by social insurance. These ideas, which are based on the concept of exotic natural rate of unemployment, which distracts both the right-wing economists, led by the likes of Robert Lucas, and his most recent clones, as John

Cochrane, the very old and respectable University of Chicago, walked through sumed for some time, but now spring up here and there in the public debate. Unemployment is high because aggregate demand was supported by macroeconomic policy enough to prevent collapses productive system, but the ambiguity of the governments of countries like the United States in relation to their own decisions tends to reduce their effectiveness. Certainly, the most worrying case is the United States. The caution and duplicitous speech by President Obama and his aides about his economic policies are certainly more uncertainty than generators incentives to vigorous reaction. At the same time, for example, defends the extent of the necessary fiscal support for demand (as he did recently in Congress, Larry Summers, more direct advisor to the President), the President himself seems to intimidate opposition from conservatives waving the need to cut unnecessary spending and control the deficit. In his historic inaugural address, President Franklin Roosevelt stated boldly that "first of all, let me assert my firm belief que the only thing we have to fear is fear itself." The phrase, and the actions which took her, went deep in the American public and the audacity of President the American people responded to their confidence and enthusiasm. The timidity and caution of the current government only stimulate shyness and hesitation. With this, the greatest uncertainties of the moment concerns the result of the policies employed here. In the American case, and to a lesser extent also in Western Europe, the biggest question is what will happen to these savings, since the exceptional measures to stimulate aggregate demand made in 2009 expire. The probability of renewal of such stimuli does not seem very likely. Worse still, is that premature concern about public deficits and the growth of domestic public debt in countries like the United States and Western Europe could lead to a new economic contraction, with unpredictable impacts. Some countries, such as Club Med mentioned before, are now being forced into this trail, and these policies only tend to worsen the situation by introducing, in fact, new uncertainties, with respect now, in the short and medium term stability politics of the region, and the long-term survival of the single currency, which disappears if the price of your stay is poverty and unemployment in the periphery of Europe. In this scenario, the best approach seems to be the emerging countries, code name for China, especially, and for those of us who run after, a good distance from the leader. It is possible to discuss China's ability to maintain its strong growth, especially if it appears necessary to replace the emphasis on exports by appeal to the domestic market, but the

assumption that China could take the lead in the global economy and regain its lost momentum is not serious. With all this, it reinforces the hypothesis that follows a pattern, in the 2010s, similar to that followed in the 1930s. It began with a financial collapse that not only gave great drama to events, but also generated a huge contractionary impact on the productive system of the affected economies. This time, these impacts were contained before they reproduce the catastrophe of the 1930s, but since then, the world economy remained fragile and volatile, with the expansion starts and stops, always on the verge of complete stoppage of function in the event more varied. In the 1930s, this situation was only surpassed by the monumental clash of aggregate demand represented by the Second World War. The possibility remains that we find a smaller solution, yet, as a hope rather than an expectation.

Natural protection and regulation of nancial institutions post-Basel II8

Jan Kregel9 A recent Geneva Report on the World Economy, entitled The Fundamental Principles of Financial Regulation(Brunnermeier et al., 2009), proposed a series of steps to become less frequent and severe systemic liquidity. More specifically, the authors of the report propose two measures: 1. Accounting rules for expansion of funding : The "consortia" of resources and assets targeted forfunding long-term must be ensured by maintainers, whose accounting measurement is transparent and is not "marked by the market"; 2. Explicit charge of capital for liquidity risk: Financial institutions with positions of nonliquid assets and long-maturity assets and funds with short maturity should incur higher coefficient on capital. Furthermore, the report argues that "confidence in the financial system over the resources of funding short-term assets with long-term potential of low market liquidity has been the fundamental cause of financial instability. " One of the most critical lessons is that while we

previously focused on asset quality, systemic risk has much more to do with the fact of how the assets are financed. If both institutions have the same type of assets, but one of them is related to long-term debt and other resources originating from the overnight money markets. This makes a substantial difference to the potential systemic risk. Thus, regulation rules can make a slight distinction as the same assets are financed. The lack of distinction makes banks have an incentive to finance low-cost assets. This incentive is stronger when the curve of the expected return of an asset has an upward slope in situations boom. This fact explains why there was a collective confidence in short-term assets in institutional fund to the extent the markets crash of 2007. Does the maturity mismatch of assets is an unavoidable issue of the private banking system? After all, is not the banking system borrowing short term and lending longterm? Not necessarily! There are many exceptions to make a general analysis and this is also a problem of degree of scale. Small businesses complain that, given the errors of guarantees for bank loans, they do not realize they have borrowed long-term funding of banks. Moreover, it is said that this situation is often observed among credit holders who are more prone to "getting divorced" than to leave their seats. The reality is that the reduction of demand deposits is not instantaneous as it seems. The rate of decline in domestic deposits of the private sector in relation to total liabilities was a measure of growth of liquidity risk of funds between banks. Indeed, "the mismatch of maturities of banks worsened by financing Wholesales" (Ibid., p. 38-39). Subsequently, Persaud (an author of the report from Geneva) expanded the analysis to an article, aiming to show how this approach would work10 . According to the author, redistribute risk, rather than trying to eliminate it, is the key to strengthening banks worldwide. Thus, Persaud (2009) argues that imposing higher capital requirements is not a panacea for the problems that caused this crisis. This strategy, by itself, very little reinforces the financial system because it does not take into account differences between the institutions and the types of risk. Moreover, for the author, raising capital requirements does not help equality between risk taking and risk capacity. For him, the center of modern regulation is the mistaken view that risk is a measurable property of the asset, ie, risk is not unique. There are, for example, credit risk, liquidity risk and market risk and, moreover, different segments of the financial system have distinct coverage capacity. Thus, risk is very much related with which agent is keeping active and what kind of asset. Common in the U.S. Congress - - The notion is that instruments are "safe" to be

promoted and risky instruments to be disregarded.Alternatively, capital requirements should be sensitive to the natural capacity of institutions regarding coverage and the types of risk that it maintains. Ie, is considered the liquidity risk. Banks traditionally borrow from depositors who can withdraw your funds from overnight. However, banks have limited ability to hold assets that can not be sold quickly without a high discount rate. Therefore, it makes sense to require extra to set aside any assets that carry liquidity risk capital. This risk is safer to be held by pension funds and insurance companies, as they have funding from both retirees of premiums as claims, which generally does not "evaporate" overnight. Moreover, banks may have effectively hedged positions against credit risk by diversifying its borrowings and use of all information they have about potential borrowers. Pension funds are less able to offset credit risks. His long-term funding does not help, because the longer the maturation period of the investment, the greater the period so there is a default. The way to secure the financial system is to create mechanisms for different degrees of risk that an institution be directed to a situation of coverage capacity. The modern "regulation" did the opposite. By requiring banks to leave aside more capital for credit risk than nonbanking institutions, regulators began to unintentionally encourage banks to change their credit risks for those seeking an extra income, but they had limited ability to cover this type of risk.By failing to require banks to make available additional capital to cover the mismatch of maturity of the investment, they encouraged banks to accept liquidity risk that could not compensate. Moreover, bearing the valuations of assets "marked to market" (in which institutions do maintain the values at their current prices) and the solvency requirements of short-term, regulators discouraged issuers and pension funds to take liquidity risk which until then were appropriate for them. Why was this done? The objective of financial regulation would not pursue and eliminate risk. Neither the goal would be to accumulate and protect capital, to "leave us alone with the giant banks." Rather, it would be necessary to differentiate unless the institutions by which they are called and more by which they are funded This seems to be a reasonable proposal la Minsky, but the analysis of Minsky on financial fragility and bank suggests that it may contain a greater obstacle. As Minsky (1977, p. 8-9 and 17)11 :. "Financial institutions, business expectations, borrow and streamline financial instruments In doing so, their obligations must be considered safer or more convenient for the owners of wealth than its assets Usually, this signals that your assets. Long-term bonds

are higher than several margins and security provisions of the financial organizations [...] A banker manipulates the resources of the population in accordance with their own resources. The inverse relationship of assets / book value ratio book value / asset shows how the bank's resources are being invested along with the resources of the general population and how the bankers operationalize their business. The ratio book value / assets is analogous to the margin requirement imposed on transactions in the stock market [...] Commercial banks and other financial institutions are embedded in speculative finance: the maturity of their debts are less than the maturity of its assets.They need to continually attract deposits and sell bonds to be able to secure the withdrawal of resources. Being your debts [ of banks and financial institutions ] short term, it means they are vulnerable to operational development of the financial market. Moreover, even if the assets of the banks long-term obligations are greater than their assets are more short-term than the amount of capital and those belonging to units that are funding the bank financial assets.Thus, the higher the weight of banks and financial intermediaries in the economy, the greater the weight of speculative finance in the financing of firms and consumers. Not only banks engage in speculative financing, but they induce hedge funds to others. " Therefore, from the point of view minskiano the proposed Persaud (2009) that relates the capital requirements of the degree of maturity mismatch of assets aims to induce banks to adopt a hedge financing for its assets. However, this will reduce bank profitability as the difference between the liquidity of their assets and debts. As Minsky argued, the equation of profit can be P / B = {P / A} {A / B}, where P is profits, B is the contracted value of the shares of owners and A is the asset portfolio of the bank. Otherwise, ROE = POA that is leverage. The limitation of leverage, in turn, would limit the ability of banks to finance its assets with greater liquidity requirements. This reduction in liquidity would reduce the ROA (return on assets) of banks. In a competitive environment, even with a strict limitation of activities allowed, this would lead banks to seek higher leverage to preserve the ROE (return on equity). The proposal also has implications for decisions regarding preferences concerning targeted banking systems and financial holding company or to universal banking structures of the European type. According to the proposals contained in the Report of Geneva, the financial institutions would be taxed and would be limited to maintain and negotiate financial assets offering them natural advantages of adequate funding to its assets. This means that there would be a segmentation of the system, with a variety of activity types and financial institutions determined by the natural position of funding and encouraged by preferential

taxation on assets. Presumably, this would exclude the formation of financial holding companies, unless they were created impenetrable Chinese barriers to separate units, determined by their "natural" resources funding. This proposal links to the Report from Geneva to mark asset values to sources of funding and evaluating capital ratios according to the degree of natural hedge provided by natural funding. However, this does not seem to provide an adequate understanding of how banks and other financial institutions create value and make a profit. As mentioned earlier, the point of view of Minsky, banks make profits from the difference between the liquidity of its debts and assets, and not by the content or the maturity of such assets. The essential point is how banks manage liquidity for its debts. Here, it is important the idea of Minsky on safety margins, insured assets with high liquidity to ensure that they always meet its obligations. Again, the level of assets is not as important as the market in which these assets can be sold to provide liquidity. The markets have learned from the crises of Bear Stearns and Lehman Borthers and and know that even short-term assets and risk-free may be illiquid. Moreover, some of the liquidity of the debts of financial institutions can be established through the way the risks are covered, ie, through the efficiency of its hedging strategy, more than if the coverage is natural. In short, it is important to note how the banks cover their risks and how regulation can be seen as an imposition of coverage12 .The capital requirement is a very inefficient method to impose coverage to banks. In fact, they tend to do just the opposite. The regulation should encourage banks to implement appropriate coverage in the best possible way. This generates an increase in ROA and reduces incentives to increase leverage.

Greek debt: default or restructuring?

Luiz Carlos Bresser-Pereira13 After Greece, what? Hungary? Or prospects of low growth for Europe? Or disappointment with the U.S. recovery? Or even Greece? International financial markets are always nervous and shaky - at times sad, euphoric in others, but always in the midst of a dialectic of rationality and irrationality. We economists albeit with a more "scientific" air, commit the same sins. Therefore, politicians and businessmen - actors in the real economy -

bewildered, know not what they do. Invest or not to invest? Continue with expansionary fiscal policy, or it's time to take care of the high public debt of each state and eventually high external debt of each country? And ask: was the crisis in the form of W starting? With the problem of Greece was indeed a threat of the crisis return with force. The delay of Germany contributed to the problem. However, after the European Central Bank (ECB) and the country did what was expected of them, guaranteed the debt of Greece and, more broadly, the debt of other euro countries, and although it would not be resolved, the crisis abated. Everyone knows that, structurally, the problem of Greece is not solved, because even if faithfully fulfill its fiscal adjustment program and its GDP fell about 3% to 4% over the next two years, at the end of those two years, public debt to GDP ratio will still be 150%. Faced with such a framework, around the question of a possible Greek exit from the euro, but this is very unlikely.The advantage of having a currency that would begin its history has devalued against the euro does not outweigh the risks of staying outside the protection of the euro system. There is, however, the possibility of restructuring the public debt within the euro. It's the best thing that Greece would have to do since your situation is insolvency, because even if the interest rate on its bonds again and reasonable levels to stabilize at this level, it will not be able to meet its financial commitments and re- grow. But a reader might ask: are you then proposing a "cap"? I'm not, my friend, suggesting that Greece make a "restructuring" discount. Which is the same as a default and something very different. Same thing for the lender because the result is the same: get only part of their credit. It's very different, because the default expression exists a pejorative tone that suggests an irresponsible borrower. The restructuring has a milder connotation because allocating fault between the debtor and creditors, and especially because after all, or the vast majority understand that it was the only rational solution to the problem given the insolvency of the Greek State. When a sovereign debt crisis is resolved by a "cap" it is generally poorly resolved because it means that there was insolvent, or that financial markets did not accept the diagnosis of insolvency of the debtor country, and judge that he acted in bad faith. When we have a restructuring, although it is unilateral or nearly unilateral principle, the problem is solved much better because, after all, what it does is penalize a loss of creditors who reasonably efficient financial markets should have already anticipated the pricing of loans to discount.

The governments of countries whose state became insolvent afraid to make a restructuring because they fear being seen as default. I understand that fear. Financial markets, governments of rich countries and the International Monetary Fund will always do what is expected of the " establishment ": pushing for the country to make adjustment rather than restructure debt. And always threaten that action will be considered a default and that, after all, the country will be forced to bow given the strength of the creditors or of international law. If the box is not insolvency but liquidity - a mere imbalance between salaries and revenues - these threats may be worth. In case, however, such as that of Greece today in the framework of insolvency is unclear, these threats are rather rhetorical than real. Financial markets know that the restructuring is necessary. Know why their economists and their operators saw the numbers and know what they mean. They also know why economists like Martin Wolf, and economic publications they relate, for example, The Economist , said that this will probably be the most appropriate solution to the Greek crisis. These economists and these publications constitute a kind of financial "public opinion" which, like all public opinion may be wrong, but it is not what matters, what matters is that actions taken in accordance with it gain immediate legitimacy. No reason to plunge the world back into crisis. It still costs too much to the rich countries, but was well tackled by their governments and their economies are on the way to recovery. Along the way, as the crisis in Greece may occur, but if your government has the courage and the determination to do what needs to be done, other governments and the financial market itself will understand, such that this crisis will focus briefly neutralized, rather than become festering for a long time.

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

European automotive industry is facing severe recession

The sovereign debt crisis plaguing most countries of Europe just affecting European demand for new cars. It is estimated a decline of 7.5% in demand for new units, reaching the current level of 9.4 million vehicles *, since the growth of individual income is lower than the increase in prices of cars.

Currently, a worker on average require sixteen months of work to get a new car average. In the mid-'80s, only nine months of work were required. The low demand has led European automakers to implement tough cuts in their structures in order to protect some of their profits. Thus, factories began to be closed and the index of layoffs reached new heights. The North American Ford , after announcing a loss of 1.2 billion euros, closed three plants in Europe (in Belgium and "UK "), thereby affecting about six thousand workers. The Opel , the European arm of the U.S. also " General Motors ", is close to announcing the closure of one of its plants in Germany, Bochum , and, if it occurs, will be the first time an automotive factory is closed in the country from " World War II ". To prevent further losses, Opel and " PSA Peugeot Citroen of

France "announced the beginning of a partnership aimed at joint activities in research and development, saving about 1.5 billion euros for each automaker. In this year, the PSA was forced to close one of its factories in France, cutting about eight thousand jobs.

According to the specialist automotive University of Duisburg-Essen, the GermanFerdinand Dudenhffer , the sector will face three to five years of low sales in Europe. Although the European market is declining, the Volkswagen was no significant loss in profits due to its success in sales in foreign markets. In the European market, the automaker fell by 19% in the third quarter, however, increased its sales abroad eventually balance the equation. For the expert, the fact that one third of the sales of Volkswagen is destined for the Chinese market makes the automaker less vulnerable to crisis, compared to the others.

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Collapse in sales in the U.S. auto industry indicates deepening recession

By Jerry White 13 November 2008
Utilice versin to print this | Email | Communicate with

Originally published in English on November 5, 2008 Sales of new cars in the U.S. plunged in October to the extent that consumers - hit by rising unemployment, decreased wages and decreased credit - decreased buying cars and trucks. Sales fell 31.9% in a year, as evident that the economy entered a deep and long recession, threatening the jobs of millions of workers sign.

Sales fell more than a million for the second consecutive month, reaching its lowest level since January 1991, according to Autodata Corp..According to current estimates, automakers will sell only 10:56 million cars and trucks in 2008 - big drop compared to 16 million in 2007 - the lowest number since 1983, when the U.S. economy struggled out of the start of the crisis 1980s. According to the analyst said GM sales, Michael DiGiovanni, last month was the worst, with a view to the adjustment of statistics on population growth in the U.S. since World War II. "This is clearly a severe recession," he said. General Motors - which is looking for a bailout from the government to avoid bankruptcy and accelerate a merger with the third American automaker Chrysler suffered a 45% drop in sales. Chrysler sales fell around 35% and Ford 30%. The slump has also hit the Japanese car producers, which are best sellers. Toyota suffered a 23% drop in sales.Meanwhile, sales of Honda plummeted 28%. Moreover, the reduction in production and the other 10,000 autoworkers unemployment in the last two weeks have also contributed to the fall in production of American factories. The Institute for Supply Management (ISM) reported that its index of manufacturing activity fell the most of the past 26 years in October. Meanwhile, the Commerce Department reported that industrial orders fell 2.5% between August and September, far more than the 0.7% forecast by analysts. As a result of falling demand from steel producers - key supplier for all producers production in 17 of the 29 largest domestic steel is stopped."We deal with a situation that may develop another Great Depression if we do not proceed properly," said Daniel DiMicco, CEO of Charlotte, steel producer in North Carolina, the Wall Street Journal .

The Detroit News reported that the auto industry executives expect the market gets even weaker and walk slowly to the stoppage. The Ford economist Emily Morris, said: "While we say that the third quarter was no basis for the economy, we can not ignore that it was the worst for industrial sales." With workers facing the growth of economic insecurity, consumer confidence fell in October to the lowest level since 1967, when the Conference Board - a group of statistics NY - began his research. After years of affordable loans, the disappearance of credit nailed workers.GM's financial arm, GMAC, will offer loan only to trusted clients. In many locations in the USA, only a third or less of the clients will receive loans, according to the spokesperson of the company. Certainly, one or more of the "Big Three" Detroit automakers will not survive this crisis. Last week, the agency "rating" Moody's downgraded the points of GM and Chysler for the second time in just three months, as well as the financial arm of GM, citing "the progress and severity of erosion in the automotive sector in the U.S." and suggesting that companies will have financial difficulty around the year 2009. The decades long collapse of the U.S. automotive industry is one of the greatest examples of the decline of American capitalism. In the '70s, American car manufacturers controlled more than 80% of the U.S. market, with GM selling little more than half the cars. In 2008, producers of Asian and European cars control 51% of U.S. sales. Given the downturn in the stock market, the executives of these companies conducted a relentless attack on jobs and conduction of life of workers, which continues today. GM, which employed 350,000 unionized workers in 1970, now has less than 70,000 workers (blue-collar). Entire cities such as Detroit, Flint and Dayton, Ohio, have been devastated by plant closures and mass layoffs.

The merger between GM and Chrysler would result in the closure of dozens of factories and the elimination of 50,000 workers in the two companies. Tens of thousands lose their jobs at suppliers and related businesses. Face of these attacks, the labor union, the United Auto workes (UAW), has collaborated with the bosses against the workers openly. The slowdown has spread throughout the economy. On Tuesday, suppliers of timber and building material of Louisiana-Pacific reported the biggest losses ever seen in the third quarter. The Nashville-based company in the state of Tennessee, has closed its sawmill, reduced production and cut hundreds of jobs. For the fourth quarter, the company anticipates that most of its factories to be closed longer than open. Its chief executive, Richard Frost, said: "The decline in activity in the housing market, both in new construction, remodel and repair, caused a drop in demand for our products, with levels very challenging prices. The business fell further in September and remain largely paralyzed as a result of the banking and financial "market crisis.

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Automotive Industry: The Revolution of the recession?

Worldwide, automakers recorded sharp falls in sales and reduce the pace of production.According to a survey by Deutsche Bank, the crisis may, however, bring progress to the sector.

Car of the future: changes ahead

The automobile as we know it today is a hundred years and probably still remain in the streets around the world also for another hundred years. The demand for cars will even grow in the near future and automakers will certainly return to produce as before the current crisis. However, it is possible that the production of mats future cars leaving different from today: maybe not in appearance, but in the interior. These are some of the predictions of a study by Deutsche Bank. "The auto industry is going through a time of transition. For the first time in its century-long history, the real chances that besides the classic combustion engine, new forms of traction are developed arises. Rely on an increasing electrification of vehicle traffic in the coming years and decades. And companies who develop the right products from now on will have good opportunities to get out of the crisis strengthened, "says Eric Heymann, who conducted the study for the research department of Deutsche Bank.

Search ecological solutions

Racing car Mercedes Benz 1900

However, the classic combustion engine should still remain for many years as the primary mechanism for operating a car, just as Karl Benz and Gottlieb Daimler invented, every man for himself, for over 120 years. Although more modern engines today continue releasing carbon dioxide through the exhaust, even though the emissions have decreased and have to decline further because the EU wants it and why European automakers have not fulfilled their obligations voluntarily. Now, engineers are really trying to develop models with emission levels of pollutants as low as ever.The problem, however, is that due to the crisis, the price of gasoline is considerably low. In the future, drivers will surely still miss current prices. Oil is and will remain a scarce issue. As soon as the economic crisis is overcome, its price will probably rise again and with it the price of petrol and diesel. This will accelerate the search for alternatives to engines developed by Benz and Daimler.

Consumer Insight
Economist Eric Heymann has recently observed a similar reaction in the market: "In recent years we have seen a considerable increase in sales of fuel-efficient vehicles believe that the consumer has learned that the current phase, with lower gasoline prices will be transitory For.. I think it is unquestionable the fact that oil prices will rise again, as soon as the situation reheat and pass the crisis we are witnessing at the moment.'s medium and long term, fuel consumption will continue to be an increasingly important criterion for the consumer's decision when purchasing a car, "says the expert.

Consumers, at the time, prefer a Smart from Daimler, a Fiat 500, one of the Twingo Renault or Volkswagen Fox. Vehicles that spend a lot of fuel shall be set aside in dealerships.

Hybrid technologies

Current vehicles: still compatible with the crisis and the environment?

After all, the German auto industry is even better than its reputation, according to the study found. The delay of the auto companies as environmental protection parameters, especially particulate filters and hybrid engines, is only real at first glance, according to Heymann. For him, the significance of hybrid technology is being overestimated. In this context, it is often ignored that automakers like Daimler, Volkswagen, BMW and others remain ahead in the search field of alternative statements. And these alternative forms of locomotion are precisely the technologies of the future to be used by man when the last drop of oil is exhausted. At the time, automakers try to develop electric point of making them viable for the consumer's pocket vehicles. Today, according to the study by Deutsche Bank, a battery costs are simply too high: thousand euros per kilowatt-hour, which quickly leads to spending 10 thousand euros or more. There are other problems to be solved, such as weight, scope, duration and charge cycles. This process requires time, Heymann recalls. "This can not be done overnight. Structural change in the sector will be slow. In ten or 15 years, most vehicles must possess classic combustion engines.'ll Be a smooth transition with the vehicle type or microhbridos mild hybrid, which will be embedded in certain components of an electric motor. This is a growing trend in the coming years. The big problem of the alternative statements, the current point of view, are the higher costs that the combustion engine, but the trend toward greater electrification is clear, "says the expert.

Biofuels: unresolved issues

Electric Smart, presented in 2008

For biofuels, such as ethanol and biodiesel, Heymann notes that there are still some open issues. Although they have a great potential, it is necessary to focus above all on secondgeneration biofuels, primarily generated from organic waste. This is due to the limits of the areas of cultivation and also the much publicized competition between "the dish on the table and the gas tank." To Heymann, vehicles powered by natural gas will become increasingly important, unlike those powered by hydrogen, which, in spite of the prototypes in operation, are still something for the future. Anyway, according to Heymann, the auto industry is beginning a period of transition. Insolvencies, mergers and acquisitions will revolve the sector in coming years: a taste of what's to come can already be felt in the recent reports of cooperation between Daimler and BMW, for example. For German automakers, however, the prospects do not look so bad.

German and Japanese

"In our opinion, the German automakers are in a comfortable position, just as the Japanese competitors. They developed the most efficient time technologies not only the electric motor sector but also alternative fuels. And take advantage when compared to many other competitors, especially when they turn their eyes to the U.S.. Given this, we expect that the German and Japanese automakers can establish trends in the production and development of new forms of traction, "said Heymann.

Just as steam locomotives are part of museum, one day the combustion engine developed by Benz and Daimler will have the same fate. Merit in the global motorization process is, however, undeniable. It will certainly have a place of honor in technology museums around the world.

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Automotive Industry: The Revolution of the recession?

Share on facebookShare on twitterShare on emailShare on printMore Sharing Services0

Worldwide, automakers recorded sharp falls in sales and reduce the pace of production.According to a survey by Deutsche Bank, the crisis may, however, bring progress to the sector.

's automobile as we know it today is a hundred years and probably still remain in the streets around the world also for another hundred years. The demand for cars will even grow in the near future and automakers will certainly return to produce as before the current crisis.However, it is possible that the production of mats future cars leaving different from today: maybe not in appearance, but in the interior. These are some of the predictions of a study by Deutsche Bank. "The automobile industry is going through a time of transition. For the first time in its century-long history, the real chances that besides the classic combustion engine are developed new surge forms of traction. rely on an increasing electrification of the vehicle traffic in the coming years and decades. And companies who develop the right products from now on will have good opportunities to get out of the crisis strengthened, "says Eric Heymann, who conducted the study for the research department at Deutsche Bank.ECOLOGICAL SOLUTIONS SEARCH However, the classic combustion engine should still remain for many years as the primary mechanism for operating a car, just as Karl Benz and Gottlieb Daimler invented, each By itself, there are more than 120 years. Although more modern engines today continue releasing carbon dioxide through the exhaust, even though the emissions have decreased and have to decline further because the EU wants it and why European automakers have not fulfilled their obligations voluntarily. Now, engineers are really trying to develop models with emission levels of pollutants as low as ever. The problem, however, is that due to the crisis, the price of gasoline is considerably low. In the future, drivers will surely still miss current prices. Oil is and will remain a scarce issue. As soon as the economic crisis is overcome, its price will probably rise again and with it the price of petrol and diesel. This will accelerate the search for alternatives to engines developed by Benz and Daimler. CONSUMER INSIGHT economist Eric Heymann has recently observed a similar reaction in the market:. "In recent years we have seen a considerable increase in sales of fuel-efficient

vehicles that consumers believe has learned that the current phase, with lower gasoline prices, will be temporary. Yeah I think it is unquestionable the fact that oil prices will rise again, as soon as the situation reheat and pass the crisis we are witnessing right now. A medium and long term, fuel consumption will continue to be an ever more important to the consumer's decision when purchasing a car criteria, "says the expert.Consumers, at the time, prefer a Smart from Daimler, a Fiat 500, one of the Twingo Renault or Volkswagen Fox. Vehicles that spend a lot of fuel shall be set aside in dealerships.HYBRID TECHNOLOGY After all, the German auto industry is even better than its reputation second point the study. The delay of the auto companies as environmental protection parameters, especially particulate filters and hybrid engines, is only real at first glance, according to Heymann. For him, the significance of hybrid technology is being overestimated. In this context, it is often ignored that automakers like Daimler, Volkswagen, BMW and others remain ahead in the search field of alternative statements. And these alternative forms of locomotion are precisely the technologies of the future to be used by man when the last drop of oil is exhausted. At the time, automakers try to develop electric vehicles about to make them viable for the consumer's pocket. Nowadays, according to the study by Deutsche Bank, simply the high cost of a battery are too: thousand euros per kilowatt-hour, which quickly leads to spending 10 thousand euros or more. There are other problems to be solved, such as weight, scope, duration and charge cycles. This process requires time, Heymann recalls. "This can not be done overnight. Structural change in the sector will be slow. In ten or 15 years, most vehicles must possess classic combustion engines.'ll Be a smooth transition with the vehicle type or microhbridos mild hybrid, which will be embedded in certain components of an electric motor. This will be a growing trend in the coming years. The big problem of the alternative statements, the current point of view, are the higher costs that the combustion engine, but the trend toward greater electrification is clear, "says the expert. BIOFUELS: Unresolved Issues Regarding biofuels, such as ethanol and biodiesel, Heymann notes that there are still some open issues. Although they have a great potential, it is necessary to focus above all on second-generation biofuels, primarily generated from organic waste. This is due to the limits of the areas of cultivation and also the much publicized competition between "the dish on the table and the gas tank."To Heymann, vehicles powered by natural gas will become increasingly important, unlike those powered by hydrogen, that despite the prototypes in operation, are still something for the future. Anyway, according to Heymann, the auto industry is beginning a period of transition. Insolvencies, mergers and acquisitions will revolve the sector in coming years: a taste of what's to come can already be felt in the recent reports of cooperation between Daimler and BMW, for example. For German automakers, however, the prospects do not look so bad. GERMAN AND JAPANESE "In our opinion, the German automakers are in a comfortable position, just as the Japanese competitors. they developed on time more efficient technologies not only in electric motors, but also of alternative fuels industry. And take advantage when compared to many other competitors, especially when they turn their eyes to the U.S.. Given this, we expect that the German and Japanese automakers can establish trends in production and development of new forms of traction, "said Heymann.Just as steam locomotives are part of museum, one day the combustion engine developed by Benz and Daimler will have the same fate. Merit in the global motorization process is, however, undeniable. It will certainly have a place of honor in the museums of technology worldwide (Deutsche Welle, 4/16/09)

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

The automotive industry in Mexico. History, current situation and perspectives

1

Vicencio Arturo Miranda *

Professor of the Universidad Iberoamericana in Mexico City. Email:arturo.vicenciomiranda

@ gm.com

Abstract In Mexico and other manufacturing nations, the automotive industry is considered an economic strategic pillar under the different benefits that entails the generation of largescale jobs, tax revenues derived from the business operations of the industry, staff training, the development of local suppliers and related technological modernization. Although Mexico traditionally has remained within the group of leading countries in global vehicle production has been shifted gradually by the incursion of emerging nations to fill the number eleven position since 2004, coupled with the local market marketing vehicle fails to rebound as expected to do so with the coming of the new century. The issue addressed in this paper based on a historical review of how it was giving shaping this industry to arrive at a definition of the current situation, in which they intend to provide a strategic profile of the direction to follow to ensure competitiveness in the international market. Keywords: automotive, strategy and competitiveness.

Introduction The potential of the Mexican automotive industry is such that represents the country's second most important economic sector, and that means the key element of modernization and globalization strategies thereof. This industry is in a unique geographical area, is located next to the largest consumer market in the world: the United States, in an environment of commercial deregulation, skilled labor, transfer of proven technology and considerable production infrastructure. However, despite its importance, this industry is going through a period of crisis in which the country is not responding in a timely manner to globalization that has arisen in recent years to organizations lack an effective strategy and have failed to take advantage of various opportunities that may encourage the growth of the same, from being a major area of investment attraction to an observer of the global economic phenomenon. In a study commissioned by the Economic Commission for Latin America and the Caribbean (ECLAC) called "Foreign investment in Latin America and the Caribbean, Report 2003" is concluded, inter alia, that despite the nearly 50 billion dollars foreign direct investment (FDI) in the automotive sector throughout the region, signs of exhaustion in which he had been a successful strategy for attracting FDI to Latin America, especially in Mexico and Brazil, which are detected by the change of strategy regain the attraction becomes imminent. This paper addresses this issue in four parts: the first one a historical review of how the auto industry has evolved in Mexico, which traces its origins to the second quarter of the last century, including the different automotive decrees which have been made industrial development policy of the sector; developments in the second part becomes an analysis of the growth of the automotive sector and the third includes a description of the economic importance and current status in terms of infrastructure on two fronts: the terminal industry and auto parts, and finally, a strategic profile on proposing to base the growth of this industry, based on the current outlook in order to counteract the gradual loss of competitiveness on the international level is set. For the preparation of this work was checked different research addressing the issue from different perspectives (Moreno Brid, 1996, Muller et al. 1998; Brown, 1998; Vieyra Medrano, 1999 and 2000; Jurez Nez, 2000 and Alvarez, 2002) . Information was reviewed was concentrated by the Mexican Association of the Automotive Industry (AMIA) and the National Autoparts Industry (INA), whose statistics are reported as strategic

analysis, also the main observations from the first, second here include and Third International Congress of the Automotive Industry in Mexico (CIIAM), held in 2003, 2004 and 2005 respectively.

1. Development of the automotive industry in Mexico: definition and transformation of its regulatory policy The development of the automotive industry in Mexico is the result of a series of events and changes that include the one hand the move towards globalization of the sector at the international level as well as the alignment of industrial policy at the national level; aspects have allowed him to maintain a process of constant evolution. The automotive industry in Mexico has always been a cornerstone of the country's industrial development and, therefore, from its origin has specific development programs over the years to have been framed within what is known as "Automotive Decrees" , which are issued by the federal government and are intended to regulate the production and sales, this includes limitations on the number of terminals companies, restrictions on the participation of foreign investment in auto parts companies and certain prohibitions such as: i) import of vehicles, ii) the importation of parts that were produced locally and iii) the production of auto parts companies in terminals, in addition to local content quotas on automobiles (Brown, 1998). However, sometimes these decrees have not proven to be very consistent because they are often a reflection of the industrial policy of each of the various governments that have been released (Moreno Brid, 1996). It is in the sixties, following the policy of import substitution model across different sectors of the country when the first automotive decree is issued, it sought to strengthen the automotive industry focused on the domestic market. By the mid eighties, the government opened the border mainly for the purchase of auto parts, a situation that is reaching its peak as a result of the Free Trade Agreement (NAFTA), which gradually from 1994 were reduced tariff rates of some parts and components similarly has decreased the minimum local content requirement for manufacturers of industrial terminal located in the country up to the full liberalization of the sector in 2004, not only the auto parts but also the finished vehicle, and with it ended the policy of protectionism towards the automotive industry. Here

we analyze in detail how it has been the strategic development of this industry over six phases clearly identified.

First stage: Birth of the industry and start-up (1925-1960) The history of the automotive industry in Mexico in 1925 with the installation of assembly lines of Ford, whose development in the United States increased significantly, and then in 1935 comes that eventually would become the largest vehicle manufacturer in the world: General Motors, while in 1938 started operations Automex later became Chrysler. They all turned their operational activity in the assembly of vehicles for the local market demand previously met by imports. There were several reasons that American manufacturers moved initially and later to Europeans and Asians to move its manufacturing facility to Mexico, Dombois (1990)
2

handles the following:

1) Reduction of production costs. Given that the costs of importing games CKD (Completely Knocked Down) used for assembly were lower than those paid on the importation of vehicles. 2) Low transportation costs. 3) Low wages. Mainly in the labor used in assembly tasks. 4) Expectations of a feasible market to monopolize. The main feature in all auto plants was that they worked with a low level of productivity, the result of minimal investment and lack of infrastructure. It is only after World War II when the government directs its efforts towards industrialization of the country, and by 1950 Mexico takes a turn in its economic structure until then dependent on agriculture and acquires a full approach to industrial development. This situation will be further strengthened as much to the automotive sector.

Second phase: growth based on import substitution (1962-1976)

As noted above, in Mexico vehicles manufactured from 1925 to 1962 is when the first automotive decree, with which begins on firmer ground automotive development in our country is issued, the prevailing situation at that time was characterized by plants only assembly in which less than 20% of the components were of domestic origin, while sales is mainly covered with imported vehicles. The first decree sector oriented towards satisfying the domestic market and in it the following aspects are included: vehicle imports were limited. imports of major assemblies complete as engines and transmissions are limited. Set a minimum 60% local content for vehicles manufactured in the country. Limited to 40% foreign equity investment in auto manufacturing plants. Established a price control in order to contain the utilities and encourage increased productivity. Among the most important movements mentioned by the terminal industry organizations that were given at that time under the existing regulatory scheme, we have the following: In 1964 Volkswagen, which a decade ago was engaged in the marketing of imported vehicles, started its assembly operations in the State of Mexico and three years later moved its production to the state of Puebla Ford makes an expansion of its production in 1964 and installed two new plants in the State of Mexico, while General Motors inaugurates engine and smelting complex in Toluca in 1965, principally to provide 6-cylinder engines and parts smelter located in the Mexico City plant Following the same path, opens a Chrysler engine plant in Toluca in 1964 and in 1968 opened its assembly plant Finally, Nissan Mexicana was constituted since 1961 and marketed vehicles in Mexico since 1959, started operations at the plant in the Industrial City of the Valley of Cuernavaca (CIVAC), in the state of Morelos fabricating the Datsun Bluebird Sedan.

As expected before the protectionism of the domestic market, the auto industry grew significantly and 96.781 vehicles were produced in 1965 was passed in 1970 to 250,000 units. Having achieved the goal of local content was reflected considerably in the activation of the auto parts industry and this phenomenon spread to other sectors of the economy. Already by the early seventies only seven vehicle manufacturers remained at home with plants located near Mexico City, the vast majority had a technological infrastructure that became outdated production each year.However, just as it is true that the production had a considerable increase so is the quality levels were not very satisfactory and production costs were above those given in other nations, but given the prevailing closing borders The lack of international competitiveness was not a factor of concern for the leaders of that era.

Third phase: facing the international competitiveness through trade protection and export promotion (1977-1989) Approach With the issuance of the second automotive decree 1972, the government implemented new regulatory policies aimed at improving the functioning of markets, of which highlighted the following: - The percentage of domestic content for vehicles intended for the export market was reduced - Manufacturers of terminal industry were forced to export an equivalent of 30% of the value of imports However, although in theory the model is acoplaba to new market needs, in reality and to the obsolete infrastructure production very little progress had and by 1975 exports from the automotive industry were below 16% what mattered the sector, so that the trade balance of the year entered into crisis situation characteristic of the different industrial sectors given the prevailing macroeconomic phenomenon. The change in government strategy model of import substitution towards the concept of export promotion, Brown (1998) attributes this to two main factors: Firstly Mexico as a producer, he was struggling to cope with the effects of oil crisis and the subsequent and

growing deficit in the balance of payments. Furthermore, the peso devaluation in 1976 and the recession that severely affected the automotive industry. The crisis in the balance of payments, largely for the lack of competitiveness of various industries run by the government, was the evidence that the industry in general should increase their levels of productivity, and the automotive sector was the first not only to understand but to implement it as part of a restructuring model (Moreno Brid, 1996). Given the high expectations that the discovery of oil deposits brought to the country and hence the expected benefit to the economy of the domestic market and to taking advantage of the competitiveness that lived in the international automotive market, the government published a new decree in 1977, whose main objective was to transform Mexico into a highly competitive exporting country which opened the sector to foreign investments. This decree established a strict control on the trade balance of the manufacturers of the terminal industry, which measured their level of imports including the one that was transferred to them by their direct suppliers. This decree included at least 50% of the trading of the shipping lines had to come from the export of locally produced parts, while as another measure of protection to the domestic industry of auto, not allowed to have foreign capital most share of investments. Given the need to increase competitiveness to meet international markets, technological infrastructure sector had to modernize, a situation that was adapted in parallel to the structural adjustments that U.S. companies made in their country in order to address the increasingly smaller, more efficient and economical Japanese cars, which by the end of the seventies began to penetrate the U.S. market, manufactured in plants that were installed throughout its territory. In response, U.S. companies began to increase their investment in the northern part of Mexico to where considerable amounts of millions of dollars converted at production came; example of this was the launch of assembly plants and engines that General Motors installed in the complex of Ramos Arizpe, Coahuila in 1981, which at the time represented the largest investment of this corporation throughout Latin America. The Chrysler engine plant in Ramos Arizpe Also in 1981, the Ford engine plant in Chihuahua (1983) and the assembly in Hermosillo, Sonora (1986) in conjunction with Mazda dedicated to the export market, same as at the time represented the assembly plant with the highest level of technology in Mexico.

Making a comparison of how they were accelerating exports for 1977 is that they have reached the equivalent of $ 181 million (of which 83.7% were autoparts) amount. For that year automotive exports accounted for only 4.3% of the country's total and 10.9% of the manufacturing sector. The proportion of auto exports kept a considerably greater share until 1987, when somehow activated largely vehicle exports for 1989 of 3,900 million dollars were collected by way of exports , auto parts accounted for only 57% of the total (see Figure 1 ).

The transfer of technology played a major role in this process of industrial restructuring reflected in the implementation of different production plants where the equipment, machinery and new working condition contrasted greatly with old plants located mainly sixties near the City of Mexico (Moreno Brid, 1996). Another significant difference that characterized the new plants was that the vast majority of the workers were young, most qualified and best trained to perform a wide range of tasks that made up the workforce of existing plants.Promotions and special assignments began to be based on individual performance and skills of workers, rather than just taking into account the age of the same in business, and while the salaries and benefits were not equal to those of the other plantswere still above the average of what was paid in the manufacturing sector. Such restructuring could not immediately comply with the central objective: reversing the deficit of the trade balance in the sector, a situation that continued to persist during the five years following the signing of the decree, mainly due to the appreciation of the peso against the dollar, the increased domestic demand and pressure from other countries to have more

favorable terms of trade, so that by 1982, when the Mexican economy collapsed, the deficit in the trade balance in the sector exceeded one billion dollars. It is precisely from the structural crisis of the Mexican economy that year, the trade liberalization model becomes part of the new policy of economic liberalization and restructuring of the productive apparatus (Vieyra Medrano, 1999). By 1983 and due to the unfavorable macroeconomic situation, a new framed under the name of "Decree for the rationalization of the automotive industry" regulation, which showed a significant orientation towards strengthening exports, establishing the central attention was export more vehicles in the auto parts, for which further reduced the minimum content of national integration in vehicles intended for international markets. This new regulation together with increasing domestic demand, the exchange rate and the productivity gains made in new plants that soon the sector's trade balance had a surplus, in this same time the government sold its shares Renault and Motor Vehicle Mexicanos (VAM) to French and American culminating with the domestic capital investment in the terminal industry investors. A relevant feature of this period is important to note that evolution played by transnational companies from the second half of the eighties, when designing your development based mainly on the external sector expansion, marked a decisive factor for current situation.

Fourth stage: The principle of trade liberalization (1990-1993) Convinced that to consolidate achievements prior to international circumstances and seeking to adapt to the new objectives of industrial policy and foreign trade of the time, the government of President Salinas issued a new decree in December 1989. It clearly understood that to compete within the framework of globalization of the industry, it was necessary to modernize the sector for which a process of economic deregulation, and an acceleration in the pace of investments were imminent. Looking as endpoint raise levels of efficiency, productivity and technology at international levels. The new regulation known as Decree for modernization and promotion of the automotive industry
in March

authorizing the importation of new vehicles for the first time since 1962,

provided the terminal industry to maintain a positive balance in its trade balance. This

situation led to more than 15% of the vehicles sold in Mexico between 1991 and 1992 were imported, a figure that has reached a level of 20% in 1993. The companies received tax concessions by the equivalent to 30% of their investments, while he strengthened equally to the auto parts industry to be set to at least the vehicles produced in national territory had to include at least 36% of its components manufactured locally, allowing exceptions in export vehicles (Moreno Brid, 1996).

Fifth stage: The FTA and the gradual liberalization of the automotive industry Even if it is true that before NAFTA the U.S. auto market was open to imports from Mexico, with very low tariff rates: 2.5% on average in cars and 3% in auto-, is the entry into force of that treaty the first day of January 1994 when the sector begins to have a process completely out of protectionism that had characterized to suit the consumer needs of an expanding market major transformation; agreements on the automotive sector played a very important role during the negotiations of the comprehensive agreement, under which it accounted for both Mexico and the United States and Canada's largest in terms of economic exchange sector. As quoted Moreno Brid (1996) with data from the Commerce Department of the United States in 1993: in 1992 65% of U.S. exports of vehicles and parts went to Mexico (6.8 billion) and Canada (23.7 billion dollars). Among the most important issues that the treaty brought, are the following: The tariff rates on imports were halved The price of imported cars and light trucks fell from 20 to 10%, agreeing completely eliminated from the year 2004 16% of fractions auto reduction suffered the same rate s immediately, 54% in the period of the first five years later, being exempt from taxes in full at the end of ten years Specifically, the tariff rate on auto parts increased from 14% in 1993 to 10% in 1994 and 3% in 1998 was reduced from 1.75 to 0.8 the compensation factor in the trade balance, which manufacturing companies located in Mexico could accelerate the pace of imports

 The range of local content for vehicles produced in Mexico is defined under the following scheme: 34 - 36% in 1993, 29% in 1998 and 0% in 2004 Undoubtedly with NAFTA automotive sector has been one of the most active, Gross (GDP) in Mexico Specific Domestic Product rose by an average 8.8% between 1998 and 1999. The gradual deregulation of the sector from 1994 to take the total from 2004 has created business opportunities for foreign companies and this is forcing auto manufacturers installed in the country to improve the quality and reduce production costs of their products in order to maintain and / or increase their business after 2003 for which they must meet the requirements of export markets. It can be said that the terminal industry initially and auto then went from assembly process and low production integration to a phase of greater integration and technological developments. Along with this process of industrialization of the sector a number of changes were triggered from the geographical reconfiguration of production to the adoption of new technologies that impacted the productive organization of work and the entire system of suppliers that supply this industry (Vieyra Medrano, 1999 and 2000). In an investigation ordered by the Ministry of Economic Development of Ontario in Canada, in order to compare the factors of competitiveness of the automotive industry between this country and Mexico, concluded as follows:
4

The return on investment is higher in Mexico than in Canada and the United States. In the case of the terminal industry the two main reasons to invest in Mexico are: low cost of labor and expectations of growth in domestic demand for automobiles. In the case of auto parts, the main reason to invest in Mexico is the high cost of transportation involving supply the assembly plants with products from abroad. While the overall labor productivity is lower in Mexico than in Canada because of the level of technology involved, taking stock of capital invested, the Mexican labor is as productive as the Canadian. In certain cases, the high level of productivity in the Mexican labor is attributed to a more flexible workforce that of Canada.

 NAFTA has been important to simplify the investment process, but has not been a factor for increased investment. The free trade agreement with the European Economic Community (EEC), which became effective from the first of July 2000, will have a significant impact on investment in the automobile sector in the long term. Mexico has a competitive disadvantage in the production of certain raw materials, particularly steel plates, plastic resins and generally parts that require high technology. In Mexico, increased industrial expansion potential sites is hampered by lack of water supply and inadequate infrastructure with respect to transportation facilities and systems. In the case of the terminal industry, we believe that investment will grow over the long term. In the case of the auto parts industry, investments are directly related to the investment decisions of the terminal industry, given the high number of parts that are imported to the country and the preference of the assembly companies to use manufactured locally parties, generally thought that investments in this area will grow considerably. In the case of the terminal industry, it is estimated that investments will grow considerably in the long run, while in the short term excess current installed capacity largely determines investments in new production facilities.

Sixth stage: A modern approach to strengthening the competitiveness and development of the domestic market In December 2003, the administration of President Fox issued the "Decree to support the competitiveness of the automotive industry and the terminal impetus to the development of the domestic car market", in which the federal government being aware of the opening and entry into force of deregulation applicable in this industry contracted by Mexico in the international context, which include those contained in the free trade agreement with the EEC, in addition to those discussed framed within NAFTA, recognizes the need to create new

mechanisms conducive to increasing the competitiveness of the automotive industry, seeking among other things, strengthening the domestic market. This order provides: Continue to stimulate the flow of investment for construction and / or expansion of production facilities in Mexico. Reduced costs of imports through tariff reduction. Authorization of registration of new production companies in the country terminal industry (as long as its fixed asset investment is at least $ 100 million) and considering the manufacture of 50,000 vehicles a year at least, with a deadline for fulfillment of three years from the start of operations. Benefits to the importation of certain vehicles with zero tariff rate, reaching volumes of up to the equivalent of 10% of the production of the previous year. Authorization to companies to import larger quantities of vehicles, as long as there are concrete commitments to increase investment to expand its production facilities in Mexico, continue training and developing local suppliers to develop and transfer technology to providers first and second level. The answer to this industrial policy for the sector has not been slow to materialize mainly in the terminal industry, which is proven with the launch of the new Toyota plant in the northwest of the country, investments in Nissan Aguascalientes plant , Volkswagen plant in Puebla and ads expansion and investment General Motors (including the construction of a test track in the state of Michoacn), Daimler Chrysler and Ford plants located in northern Mexico. In July 2004 took place the second CIIAM under the theme of "Competitiveness" unlike "Trade liberalization of 2004," the first congress in 2003. The findings of this second congress agree on the need to strengthen the domestic market, increasing participation in the global market and increased productivity and competitive environment.

Two. Analysis of the development of the sector

As previously noted in the review of the different phases that have characterized the development of the automotive industry in Mexico, and although from 1925 cars already manufactured in the country, starting in 1962 with the appearance of the first automotive decree when starts on a firmer basis the automotive development in our country. However, and even though Mexico has over four decades of experience in this sector, industrialization has not reached the levels of other countries such as Korea auto industry began eleven years after Mexico and to the late eighties produced vehicles twice Mexico. According to a study at the Institute for Economic Development in Japan about the Mexican automotive limited development compared with the Korean development, Taeko Taniura detected two major flaws in policy development for the automotive Mexico:

1) Automotive Decrees The first automotive decree was directed exclusively to the production of vehicles for the domestic market and a limit of shipping is not fixed in the terminal industry, which led to that for 1965, the year in which the manufacture of auto parts was released only occur between the seven existing companies 96.781 vehicles given their variety precluded the use of economies of scale. While Korea its first automotive decree sought economies of scale orienting production to both domestic market and for export, setting levels of local content in the manufacture of its vehicles by 90 and 70% for the domestic market and export respectively. Besides that only the establishment of four shipowning companies (all of Korean origin) and 250 auto parts makers, thus achieving high levels of specialization allowed. With the second and third automotive decree of 1972 and 1977, respectively, we attempted to correct this error by opening the market to exports, but the oil crisis of the early seventies forced a contraction in U.S. demand for vehicles (main export destination) and export expectations came down, fail by the second decree, while the third suffered a setback with the oil boom in Mexico that turned heads again towards the domestic market (for allegedly purchasing power than expected reach) desinteresando exports.

2) Industrial Organization

The growth of the Mexican automotive industry was made without a preset order of development, ie, they did not know the right way to stratify each of the elements involved in the production chain of the automotive industry.Allowing manufacturers appear everywhere common auto parts for all automakers, which in most cases lack of expertise given the diversity of products still on the market and gives rise to low productivity, caused inter alia by as complicated relations of exchange between suppliers and assemblers. To this we can add that when Mexico decided to move towards openness and trade globalization in the late eighties, the infrastructure of this industry would not let him conform to international requirements in terms of quality, productivity and cost lived and still valid market leaders in automotive production and sales. While the terminal industry appears to work satisfactorily in the new global model, although the behavior of the production has been rising since the early nineties, does not maintain the same level of growth than other emerging nations, so in 2004 was moved to eleven position on the leading countries producing vehicles. This problem is experienced more intensely in the auto parts industry, where every day companies lose market installed in Mexico before the incursion vehicle manufacturing component parts imported mainly from the countries of origin of the companies in the industry terminal locally developed suppliers whose quality and productivity levels allow them to export to Mexico parts at competitive prices.

Three. Current Structure The automotive sector consists of both industry and the terminal for the auto parts industry undoubtedly has an important role within the current national economy, according to the National Institute of Statistics, Geography and Informatics (INEGI) and the Secretariat of Economy (SE), 2005, some of the most representative indicators are: Generates 1.6% of the national employment (488,900 direct jobs) 18% of manufacturing employment It contributes around 2.5% of GDP

 16% of GDP in manufacturing 19% of total exports (second only behind oil exports) 21% of total manufacturing exports 11% of total imports original equipment market estimated at $ 26 billion Amount of exports 32.5 billion value of imports $ 23 billion These numbers are simply the result of structural change from which this industry has evolved and today make them an export sector par excellence to be the areas most benefited from NAFTA and places where the infrastructure as eleventh power in the world. Regarding the immediate future, the most important aspect of macroeconomics for the automotive sector is the expected growth in domestic demand in order to follow the model of the Canadian and U.S. markets, the automotive and vehicular structure are significant, hence a significant part of the overall strategy for the coming years should be to encourage domestic consumption contracted during the eighties and nineties mainly by concurrent economic crisis. Example of the importance of this industry in the country is the fact that six of the ten largest TNCs are automakers: General Motors, Delphi, Volkswagen, Daimler Chrysler, Ford and Nissan, which represents the main source of FDI in the region. Information SE (2004) shows that in the period between 1999 and 2004, FDI reached 9,390 million dollars, equivalent to 21. 2% of the FDI in the manufacturing sector in the same period. The origin of this investment in the auto industry countries were the United States, with 57.6%, Japan 18%, Canada 8.9%, Germany 6.6%, France 4%, Spain 3% and other countries 1.9%. Only in 2004, FDI in the automotive industry reached 2.018 million dollars. In 2005, 1,500 were obtained for the next four years is estimated AMIA in Mexico will receive 6,500 million in the same area throughout the automotive sector.

Industry capacity terminal

The first quarter of 2006 are installed in nine nationwide vehicle assembly companies (see geographic distribution in Figure 2 ):

BMW. With a plant in Lerma, State of Mexico, which began operations in late 1994 and which currently produces armored vehicles for the domestic market and export, as the production of the BMW 3 Series was decided to substitute imports from Germany . Daimler Chrysler. A truck plant in Santiago Tianguistenco (formerly Mercedes Benz) in manufacturing products Freigthliner line, one in Toluca (opened in 1968) in the PT Cruiser which is exported to 60 countries and truck plant production and motors in Ramos Arizpe, Coahuila which exported to the U.S. and Canada. In the latter, according to information from Peter Rosenfeld, executive vice president of purchasing and supplies, an investment of $ 210 million-seeking greater flexibility in the manufacturing process which is set to the number of robots body area will 160 to 360, whereby the plant will have the capacity to produce different types of vehicles on the same production line.
5

Ford. With plants in Cuautitlan, State of Mexico, Chihuahua, Chihuahua and Hermosillo, Sonora, which will benefit within the business plan that the company has for America, in which a total investment of 1,600 million is included with which the installed capacity will reach 300,000 units per year, in addition to the construction of an industrial park similar to the modular plant suppliers in Brazil. The company plans to produce at this plant are the

Ford Fusion from 2006 and two additional models for export to the U.S., which the company seeks to turn this production center in a strategic stronghold in the competed this dispute with the Japanese market.
6

After the announcement by the executives of this company in 2005 compared to the end of different plants in North America, located in Cuautitlan-it was one of those identified as candidate to close operations-has put aside these rumors to be confirmed from corporate in Dearborn, Michigan, there is a new program for this plant, theFord Bronco, whose start of production is expected in the second half of 2007. General Motors. An assembly plant in Silao, Guanajuato (opened in 1994) where they are produced, a smelting complex, engines and trucks in Toluca, State of Mexico (opened in 1963), in which Volvo light trucks and heavy trucks Kodiak occur the Suburban, Silverado, Tahoe and Yukon SUVs, mainly for the export market, and other industrial complex that produces engines, stamped parts and vehicles: Chevy Rendezvous and also the most recent one: the HHR in Ramos Arizpe , Coahuila new utility vehicle from 2007. Honda. In 1994 he started in Salto, Jalisco, building a car assembly plant in the Accord since 1995, the volume of production in a very small beginning has increased significantly for the company. Since 2002 the production of the Accord Sedan is exported to Brazil. Nissan. With a plant in Cuernavaca, Morelos (opened in 1966), which has a production capacity of 132,000 cars and 86,000 light trucks both in two shifts, in which vehicles are currently produced: Tsuru, Tsubame, his series of light trucks and Renault Scnic. While in Aguascalientes has one of the most modern plants in Latin America with an installed capacity of 202,500 cars in two shifts, currently manufacturing the Sentra, Platina and Renault Clio capacity, besides having an installed capacity that allows it to manufacture annually: 168,000 transaxles (1 turn), 648,000 engines (two shifts) and 11,280 tons of cast aluminum. Volkswagen. With its traditional plant in the city of Puebla, where workers toil around 10,000, which before the departure of production Volkswagen Sedan (with low sales: 36,500 units in 1999, 41,200 in 2000, 38,800 in 2001, 24,400 in 2002 and only 14,500 in 2003) this year has been dedicated exclusively to the manufacture of the Beetle, Jetta and Bora Version 5 mainly intended for export to Europe and the United States for which it has earmarked an investment of 2,000 million dollars to be completed between 2003 and
7

. This plant is in preparation to start making a

2008. Information provided by Thomas Kerig

August

, director of corporate relations and

strategy at Volkswagen of Mexico, said that under the devaluation of the U.S. dollar against the euro, the parent company contemplates adding to the models described previously manufactured at the plant in Puebla fifth generation Golf model as part of a program to increase the competitiveness of the company worldwide. Volkswagen handles the possibility of raising the volume of production of the new Jetta up to 400,000 units per year instead of the 250,000 that were originally contemplated. Bringing information as Otto Lindner, president of the company in Mexico, there is the possibility of the growth of infrastructure in this country as part of the international strategy of the company to produce a dollar cost vehicles to be marketed in dollars , to the sharp devaluation of the currency against the euro and thus the increase of production in Europe. From Germany manages information about the possibility of increasing infrastructure in Puebla with a new plant or even find it in the north, although the United States and Brazil are struggling to attract this investment. After negotiations that took more than a decade, Japan's Toyota Motor Corp., the world's second largest automaker since late 2002 confirmed an investment of 140 million dollars to build a new assembly plant in Tijuana, Baja California Norte in which includes initially manufacture 30,000 units a year of the Tacoma pickup truck that is exported to the United States since 2006. This plant began operations in September 2004 with the manufacture of automotive components for U.S. plants. As regards the behavior of the total production in Mexico in 2000 a historical volume reached 486 vehicles produced with 1'889, but later, as seen in Figure 3 , this shows a decreasing trend from 3.8% in 2001 , 6% in 2002, 18.5% in 2003 and 20% in 2004, while the 2005 has some recovery, reaching a total volume of 1 '606, 460 units, of which 74% was destined for the export market (see Figure 4 ).

The downward trend of the early years of this decade is mainly attributed to the slowdown in the U.S. economy, whose recovery in numbers the automobile industry began to grow until 2005. Although in the nineties the sector was dominated by companies such as Daimler Chrysler and Volkswagen, the turn of the century was the leadership of General Motors, since their diversification strategies and increased exports to North America in 2005 was 27 % of national production, Nissan reached a level of 22%, Daimler Chrysler and Volkswagen 21% 19% (see Figure 5 ). According to the Information System of the Mexican Automotive Sector (SISAM), assemblers installed in Mexico operated at 60% capacity in 2004 with a growth rate of only 6% in 2005 and expected to grow 15% by 2006; while China is emerging as the car factory

in Europe and installed automakers in Brazil maintain a strong growth rate over the past four years. In the area of sales, they had a real considerably since 1997 as the national economy was showing a gradual improvement, reaching a total of 977.558 units sold in 2002, 66% more than in 1994, 14% above 2000 and 6% more than in 2001. As in production is General Motors who has dominated this segment since the second half of the nineties, followed closely by Nissan, Volkswagen and Ford recently (see Figure 6 ).

Finally, in 2004 we were able to exceed one million units sold to reach the figure of 1 '096.777, which increased by 3% in 2005, which were sold in the country 1' 131.768 vehicles, demonstrating leadership General Motors with 23% market share followed by Nissan with 21% (see Figure 7 ).

The worst point is that vehicle imports have grown significantly going from 11.5% of what was sold in 1994 to 37.6% in 1999, 46.5% in 2000, 52.6% in 2001, 53.5% in 2002 and between 2003 and 2005 , an average of 63% of the total vehicles sold in Mexico came from abroad (see Figure 8 ).

Auto parts industry According to information from the INA, in territory are installed 600 manufacturers of automotive components, of which 230 companies are large, 162 medium and 208 are small and / or micro. Taken together generate 89% of direct employment in the automotive industry and 41% of the total employment generated by the automotive chain that reaches the figure of 1'062, 542 seats, while covering nearly 9% of sector exports manufacturing, in 2005, the industry reported sales of 23.5 billion dollars. Of the total 450 are original equipment suppliers, and of these only 33% of them are considered as first-tier suppliers, ie that have a direct connection with the terminal industry companies. The other companies include second and third level have no direct negotiations with the automakers, but only supply components to first-tier suppliers. As far as expertise is concerned, the auto parts industry has more development in the manufacture of components for engine, transmission and body, the experience is very noticeable in the manufacture of rings, monobloc, pistons, camshafts, carburetors, transmissions, axles, electrical harnesses, wheels, glass, prints and plastic parts (see Figure 9 ).

Although the terminal industry in Mexico has proven to be a major competitor in the global competitive yet under-priced labor and easy disposition towards training and the logistical issues. The auto sector has no equivalent competitive position, it required investment credits more accessible, more training of the workforce and especially develop a better environment for business development in primary reason that their Canadian competitors , American, European and Asian hope to take advantage before the market opening. During the first three years of this century, the total exports of auto parts was only 35% directly, the rest was done via export vehicles.
9

Among the auto parts that report positive trade balance numbers include: electrical systems, boards, windshield wipers, transmissions, engine assembly. While the following auto show low competitiveness (negative trade balance): Carpet and seats, stamped parts, engine parts, tires, paint and chemical In his analysis of the auto parts industry, Alvarez (2002) found that some local businesses are kept as suppliers of terminal only industry through the importation and distribution of

components; strategy without which they could not afford the current unequal negotiations, that year after year mean reduction in selling prices. The application of systems highly competitive production, characterized by production Just in time (JIT for short) or by its application in Mexico of the system known as Just in sequence, to where they have moved companies Terminal Industry , forced to incorporate networks of experienced and reliable suppliers with a major role in the performance of each assembly plant. This new system suppliers located in industrial parks around final assembly plants, which supply parts in the same order in which they will be used for the manufacture of various types of vehicles and in some cases suppliers are located within the same final assembly plant. It is a kind of providers "satellites" for whom the quality requirements are much higher than those with other would proveedura; them, OEMs have more control of the process, care systems and quality production of the components before they are received. This system is working well seen in the Volkswagen plant in Puebla, Aguascalientes Nissan and General Motors both in Silao, Guanajuato and Ramos Arizpe, Coahuila, the vast majority of cases, suppliers are of the same origin as the companies in the terminal industry.

3.1 Prospects After reviewing the general context in which it operates and the Mexican automotive sector is formed, it concludes some of the defining characteristics of the current situation and that establish what are the prospects for change numbers not implement any strategic model that seeks to restructure margin development under this sector globally is one that has suffered more global economic recession. a) terminal Industry - To some extent the domestic market has been activated as a result of financing up to 36 months that are offering the shipping lines and the low sale prices connoted from the 2002 models.

- Mexican exports fell due to lower demand from its main customer: the United States, the current signs of recovery remain tied to the demand for this market. - Increased investment in Mexico terminal industry are the big three American, which have suffered a drop in sales in the United States to the great success that Japanese vehicles are having on that market
in October

- If only the U.S. market is seen as an option that determines the growth of exports, it is important to remember that today the country faces the biggest trade deficit in its history, to it have contributed imports of consumer durables, including vehicles and auto parts. While such a situation the trade deficit would be sustainable few years thanks to the pace and potential of the U.S. economy, there is a risk that in the future a contraction in demand is present and a market that mostly resent the slowdown would be the automotive sector. - It is important to note that the U.S. market has shown a preference in recent years by Asian and European vehicles, manufactured both in that country and imported from their countries of origin, so that the recovery of the U.S. economy has shown the same effect in Mexico. b) auto industry - This sector has based its competitiveness in the international markets in compliance with the requirements set by the shipowning companies through the certification of their production processes, distribution and shipping. - A disadvantage of the sector is that despite investments in recent years, they have focused on the production and have not reached management systems. What has resulted in low productivity and has not been allowed to develop strategies that allow you to identify and seize opportunities. - After the full liberalization of the auto parts within the framework of NAFTA is not expected development for the first decade of this century of the organizations that comprise it, but rather a contraction thereof. - Studies of the Center for Private Sector (CEESP) Economic Research in 2004 estimated that 40% of auto parts factories in our country will disappear or be absorbed by the end of

2006. Attributing the causes of lack of credit, increase in imports, the entry of illegal products and especially the entry of China into the World Trade Organization (WTO). The same study concluded that only 20% of parts makers that concentrate 55% of the national production may face competitively market opening. - Organizations are required to specialize in order to maintain its share of the domestic market and expand its borders. - New investments in the sector will be focused towards production for the export market. - Investments in this sector can be increased as the investments of shipowning companies do the same. - Analysts UK Trade & Investment expect given the high levels of investment that Asian and European suppliers in the United States have made new investments of those destinations could reach Mexico. With some initial fluctuations, the automotive industry in Mexico has installed overcome the pitfall that may pose limitations for any sector of domestic market growth and uneven development of industrial infrastructure, but in regards to future behavior is necessary note that the level of automation achieved by the automotive sector and cheaper technology, low labor costs will not be sufficient to justify the expansion of operations in Mexico. The status achieved by the automotive industry necessarily obliged to rethink its current role in the Mexican economy and its relationship with new forms of industrial development. The report of ECLAC, 2003, as previously stated, the analytical framework used is highlighted to track the performance of FDI, which involves not only an assessment based on aggregate-level monitoring of flows, but in the "quality" of the same, that is, highlighting the role of microeconomic foundations. In this regard, we consider the corporate strategies pursued by companies and which are decisive regarding FDI flows to Latin America and the Caribbean, highlighting the case of Mexico, where transnational companies allocate FDI flows following a strategy of increasing efficiency in order to penetrate and dominate other markets, mainly the U.S.. In this context, it is relevant to the analysis in paragraph investment and business strategies in the automotive industry where the competitive situation of the automotive sector is evaluated in Brazil and Mexico, noting that transnational corporations in their

search strategy to increase efficiency have established International Integrated Production Systems (IIPS) through FDI. Also, the implementation of NAFTA, as well as public policies implemented to encourage the entry of foreign investment allowed more dynamic companies in the sector, making the establishment of an export platform and channeling as well, FDI flows order to meet the demanding North American market. This section states that the main challenge for the Mexican automotive industry is the consolidation of an efficient network of suppliers whose operations are transnational in nature in order to facilitate the establishment of major automotive companies in the region and achieve, so a synergistic integration of the sector resulting in advances in operational efficiency and international competitiveness. Under the second CIIAM, SE established the three main lines of action in the medium term for this industry: 1) Boosting competitiveness with greater production capacity, developing more suppliers second and third levels and ensuring access to inputs in good condition 2) Strengthen the domestic market through the participation of all stakeholders 3) Adapt the regulatory framework for the automotive sector, updating and developing standards for new vehicles into service and parts in order to have a better market competitiveness. Areas requiring a solid strategic plan that supports the expected development.

3.2 Competitiveness of the automotive industry in Mexico Despite the sluggish growth of this industry and the major threats posed by emerging raid Same, Mexico today competitiveness based on the following elements: Geographical position. U.S. is undoubtedly the biggest consumer of vehicles and related parts in the world, so Mexico is a strategic hub for both manufacturing and distribution for those countries interested in accessing the U.S. market. The country has significant access ports on both the Pacific Ocean and the Atlantic Ocean.

Infrastructure. 's vehicle assembly plants operate below their installed capacity, which together with the restructuring plans announced by General Motors and Ford in the closure of U.S. plants are contemplated, makes them the first choice to increase production volumes and continue to supply that market. While on the side of companies of Japanese origin, the possibility to increase their production levels is imminent following the commercial success they are having their products both in the U.S. and Canada, and Central and South America. Industrial parks located mainly in the shallows and in northern Mexico play an important role in the search for competitive advantage, by virtue of the significant investments made into production technology made during the nineties and early this century, addition to road and rail infrastructure that communicates with both the center as the north. Automotive plants in northern Mexico have been characterized by intensive development of flexible systems that obey a competition strategy and global supply rather than an orientation towards the domestic market that have been commissioned plants located in the Midwest (Vieyra Medrano, 1999). . Trading Arrangements Mexico becomes attractive to foreign investments under the installed plants in national territory comply with the rules of origin agreements with North America and Europe, plus it is an advantage for export trade agreements have other regions, especially Central and South America attractive feature during the recent signing of the Free Trade Agreement with Japan. Technology transfer. For decades, manufacturing plants installed in the country have proven efficient technologies used around operations, where a proper balance between technology and traditional production systems adapted remains. Production centers in Mexico have been able to match and even exceed the quality standards of the plants of origin, proof of this are plants in Aguascalientes Nissan, General Motors in Silao, Daimler-Chrysler and Ford Ramos Arizpe in Hermosillo. Skilled labor. The economic importance of this sector and high reliance on technology countries have encouraged the development of skilled labor that goes far beyond the direct operators of the production lines. Mexico has enough experienced staff in planning, quality, production and design, many of them trained abroad by the same car companies during the nineties. Situation before the rise of these activities in the countries of origin, a competitive advantage of singular importance.

Test the validity of these five elements of competitiveness, is the most recent announcement by General Motors, in which the construction of a new plant in San Luis Potosi, in which $ 650 million will be invested is confirmed, with what the current government will reach the figure of $ 8 billion of FDI in the automotive industry
in November

according to information coming directly from the company, this plant will begin building from June 2006 and is expected to start operations from second half of 2008. The plant will be responsible for the manufacture of a new compact vehicle whose design stems from its Korean Daewoo subsidiary, intended for the domestic market and for export to Latin America and even the United States and Canada.
12

April. Strategic Profile The current world scenario in which the automotive industry operates requires a strengthening and / or rethinking of strategies is made to follow, aimed at achieving levels of international competitiveness, for which the active involvement of all stakeholders is imminent. Government and private organizations have to work together in order to put in place systems that strategically aligned with the country to achieve this objective. The strategic lines should aim to follow in the following aspects:

Development of local suppliers Organizations that to date automotive components manufactured in Mexico should establish supply chains second and third level by establishing long-term contracts, extending throughout the same quality systems that are used in the first-tier suppliers of the same way in which the terminal industry companies have been extended to them as a means of quality assurance.

Effective quality systems For over two decades, production in Mexico and especially automakers, organizations have enlisted in the process of certifying their quality systems based on ISO 9000, which has

almost become an essential requirement of the automotive industry . However and despite the certification process have been met, few organizations have managed to raise their quality levels, under these certifications have been only on paper, framed within the rules met protocol ISO 9000, but have not been reflected in the products leaving the production lines significantly. The problem described is most noticeable in the auto parts industry in the terminal industry, the main reason that shipping lines were using specific quality systems in their countries of origin, which were extended in their plants overseas. The management of organizations should focus their efforts to implement effective quality systems that achieve to implement the statement that quality is equivalent to productivity directly linking the benefits of quality systems with increased profitability.

Export diversification The export platform to date has a direct dependence on the market in North America, primarily in the area of the terminal industry must diversify their destinations. According to information from the AMIA, in February 2006 the industry maintains a pattern of exports to this region of 87% of its production, while 9% is sent to Europe and only 4% is to final destination Latin America and the Caribbean. Total exports from General Motors, Ford and Daimler Chrysler up 65% of this total. While it is true that free trade agreements with the EEC and Japan represent an advantage to companies that source to export to the U.S., the share of European and Asian brands in Latin America is very strong, so this market is a strategic option to increase exports.

Production systems The global production model that moved several plants during the nineties is highly dependent to the success of a vehicle, given the current conditions of market diversification, plants allocate exclusively to the production of a single model is not the best option. Companies in the industry must continue to set terminal flexible manufacturing systems, enabling them to meet the changing requirements of the market with the option to manufacture different vehicle models interchangeably.

The situation is not the same in the auto parts industry, where you should pursue is the specialization of manufacturers, which in most cases much diversified production today can not compete internationally. The new paradigm of flexible production requires, among other things: flexibility of the workforce, decentralization of functions and non-spine operations, promotion of subcontracting, continuous improvement, the company's relationship with its environment processes in addition to networking between large, medium and small enterprises through the use of computer systems, close technological cooperation, training, investment planning and production (Alvarez, 2002).

Diversification of investments While investments in production facilities generate significant benefits for the economy, of which must continue, Mexico must take the next step when looking for capital flows to the installation of research, engineering and / or tests. The rise in the cost of labor mainly specialized in both Western Europe and the United States is forcing multinationals to move their large engineering support activities outside their countries of origin, for which the system strengthening education in the country is required.

Local market development with domestic production Strengthening the internal market is essential for the growth of the automotive industry, flexibility in production systems of plants in Mexico should be used in one way or another to offer a portfolio of equity products at competitive prices, replacing considerably import of vehicles is behaving upward from the last decade.

May. Conclusions Each was analyzed automotive decrees shaping the development of the Mexican automotive industry from different perspectives, ie, from an initial integration phase to its current focus of international competitiveness.

NAFTA strengthened the export orientation of the terminal industry and puts Mexico in a strategic position for negotiations with Europe and Japan, but trade liberalization also resulted in a contraction of the auto parts industry to take it to the extent that only third of these are considered as first-tier suppliers under especially low levels of productivity and quality that result in a loss of competitiveness, with the inclusion of the organizations of the terminal industry, parts coming from their countries, whose quality is recognized at the international level (Brown, 1998 and Alvarez, 2002). The growth of auto parts suppliers has been most noticeable in those whose production process requires a considerable number of manual operations to semi acting in parallel processes, so that the next step should be to seek investments aimed at modernizing their systems production, as has been happening in the terminal industry. The role of auto part suppliers in the restructuring of various industry organizations that in the terminal-pressure world globalization of this sector is leading to the imminent implementation of a flexible production systems-take singular importance to open a possibility of growth, provided that suppliers are prepared to work with systems that allow them to supply components to production lines in the same sequence in which they will require the match market needs. This new type of organization not only requires you to work at higher levels of productivity and value through the implementation of systems design and computer-aided manufacturing, process automation, integrated process monitoring, statistical quality control and total (Brown, 1998) - but it also involves the geographical relocation of suppliers to nearby places around plants terminal industry or even within themselves, in addition to the involvement of the suppliers should be from the early stages of planning and design vehicles. In practice, it appears that the vast majority of providers who have successfully adapted to this system are those who have established business partnerships with foreign companies; rethinking the strategy followed by the auto parts industry should be given in two main aspects On the one hand, must consolidate its export capacity and strengthen its presence in the U.S. market, and on the other, should take the inertia of the investments made and announced by the terminal industry organizations to increase the use of local autoparts manufacturing centers located in national territory. 2005 represented the first year of recovery from the total production of the terminal industry, since exports were down from 2001, this positive trend is due in part to changes in strategies especially U.S. automakers that , under pressure representing growth in sales of Asian companies in the United States, seeking to reduce their production costs, so

increasing imports from plants in Canada and especially in Mexico becomes the first choice.Current infrastructure underutilized coupled with announcements of new investments in the country to estimate that this favorable trend in production will be increased and a maximum period of three years, total production should exceed 2 million units, for which it is imminent mechanisms that allow the flow of FDI in Mexico timely and can remain an important element in the international context of this industry are established. Although inconsistently, the behavior of vehicle sales in Mexico presents some growth in the last decade, except for the period 2002-2003 in which they had a drop of about 2%. The proliferation of financing plans and the wide range of products for various economic levels of society has helped this phenomenon, however, should be sought to align this favorable trend by offering to bring down domestic production and thus the rise of imports mostly Korean origin vehicles that are entering the country. Definitely the information analyzed, suggests that the current structure of the industry is placing Mexico at an acceptable competitive position on the international scene, but with a downward trend at the growth of emerging nations. In this situation, the implementation of actions as recommended in this article by all the actors involved in this industry, should help greatly to strengthen it, as long as they seek to align the national strategic development the entire auto industry with individual plans reconfiguration of North American and European companies, in addition to sustained growth characteristic of Asian firms in order to take advantage of all the opportunities in the global landscape.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx