Academic journal article World Review of Political Economy

THE "FINANCIALIZED" STRUCTURE OF AUTOMOBILE CORPORATIONS IN THE 2000s

Academic journal article World Review of Political Economy

THE "FINANCIALIZED" STRUCTURE OF AUTOMOBILE CORPORATIONS IN THE 2000s

Article excerpt

Abstract: Important changes in the economic system, both in productive and financial dimensions, have been observed since the 1970s, pointing to a growing capital mobility and a stronger presence of finance within the logic of non-financial corporations. This article aims to analyze this increasing role of finance in the dynamics of automobile companies. Data from annual financial statements of selected carmakers (Daimler, Fiat, Ford, General Motors, Honda, Hyundai, Toyota and Volkswagen) between 2000 and 2009 are considered, in order to verify the occurrence of a "financialization" movement in this industry. From the analysis, a clear movement towards a more "financialized" pattern of the carmakers' structure could be observed, although there were notable differences among groups according to corporate dependence upon activities from the financial segment and the degree of exposure of their financial structures.

Key words: automobile corporations; financial structure; "financialization"

Introduction

Significant changes in the economic system, both in productive and financial dimensions, have been occurring since the 1970s and the 1980s. Productive modifications involve a combination of different processes, such as the intensification of production internationalization and trade, a more intense competition at global level, and an increasing integration of productive structures of national economies. Financial changes are related to the interaction of three phenomena, which are the expressive expansion of international financial flows, a fiercer competition in the capital markets and a higher integration of international financial systems.1 These movements are reflected in the adoption of a wide variety of financial management strategies by non-financial corporations through the constant monitoring of net cash flows, merger and acquisition operations (M&A) and the use of mechanisms, such as derivatives, to hedge against or profit from interest and exchange rate fluctuations (Chesnais 1994, 1996; Gonçalves et al. 1999).

According to Belluzzo (2005: 228, authors' translation), the global economy after the end of the Bretton Woods regime in the 1970s was characterized by three movements: "the financial and foreign exchange liberalization; the changes in the competition pattern; the modification in the institutional rules governing trade and investment." The first movement represented an expansion of liberalization and deregulation processes of financial and foreign exchange markets both at national and international levels. This resulted in an intensification of the "financialization" process of the economy2 through a higher degree of financial asset flows and stocks in the composition of private income and wealth.

As Coutinho and Belluzzo (1998: 138, authors' translation) state, economic agents "began to subordinate their spending, investment and saving decisions to their expectations of the pace of their financial enrichment." This process was reinforced by the development of even more complex financial innovations, such as securitization and derivatives operations, and by the surge of new agents, such as institutional investors (e.g. mutual funds, insurance companies and pension funds).3 If, on the one hand, all these phenomena made high speculative and patrimonial gains possible, on the other hand, they made the system much more unstable and subject to systemic risks, given the high leverage degree and asset price volatility4 (Tavares and Belluzzo 2002: 153).

The second movement, related to the changes in the global competition strategy of large corporations, was characterized by a relocation of productive facilities and a capital concentration and centralization, both reflected in growing foreign direct investment flows (FDI), especially of M&A operations. The strategy for creating global productive networks contributed to changes in investment and trade flows. Simultaneously, corporations adopted strategies to promote technological modernization, including the establishment of joint ventures, and also asset "financialization," aiming for a combination of profitability and liquidity in their portfolios. …

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