Detroit’s financial predicament today rests squarely on the shoulders of its executive leadership going back nearly four decades. The American auto industry failed mostly in its will to succeed in a changing business environment marked by the entrance of new competition, adoption of new technologies, and demands for greater fuel efficiency. Had Detroit taken those actions necessary to be leaders, rather than laggards, its overall situation of falling market share, reputation for poor quality (in comparison to certain foreign competitors like Toyota and Honda mostly), and weakening financials might have been avoided.
The automotive industry undergoes significant changes as measured over any ten year period. Each decade since the beginning of the automotive era starting in 1900 has witnessed rapid and unpredictable volatility due to market forces, economics, new technology, and more recently, vehicle production economics and global competition. This has tested the ability of each auto company to adapt to these elements of change. The equity markets place a premium on those auto companies that have organizational, product and production flexibility to best respond. No forecaster can accurately predict the most basic aspects of the industry from the actual sales volume of the next decade to the model mix and market share distribution or profitability from any individual automobile manufacturer. Over the last 100 years, auto companies succeeded or failed on the appeal of their vehicles, their corporate resources and the talent of their managements, which reduced the field of U.S. assemblers to only four (GM, Ford, Chrysler, and AMC) some forty years ago from a much larger field of competitors.
But in the forty years since then, profound and rapid changes in the US domestic auto market have occurred unlike in the past. Two factors stand out: oscillation in energy prices and the growth of foreign brands. And in response to both, Detroit failed. It could not repel the Japanese invasion as a result of the first and second oil crisis in the 1970s with its lack of will to build competitive small, fuel efficient vehicles. Then, as imports grew in scale and scope of product offerings, Detroit looked elsewhere for profit opportunities without fixing its core North American auto business.
At the same time, Detroit often blamed a host of factors beyond its control for its shortfalls. To wit, currency manipulation, rising health care costs, unfair trade, and labor intransigency would be cited. But the sad fact remains that Detroit is still losing market share as consumers gravitate to the import brands. Strangely, it is not a matter of pricing – Detroit vehicles, especially in passenger cars and CUVs, are less expensive to acquire than those from mainstream competitors. The Wall Street Journal recently ran a story documenting the price differential between the Honda Civic and comparable offerings from Detroit.
Now with GM’s and Chrysler’s admissions of impending failure, a firestorm of debate has erupted as to whether Detroit is deserving of government assistance. That is not the question. In fact, there should be no debate as to whether the United States, as a modern economy, should have its own domestic automotive industry. Without it, we sacrifice our ability to determine our own solutions to future transportation needs. In fact, the current crisis offers a historic opportunity to complete recast the direction of this industry to prepare it for the future. It now remains a question of how many US automakers will make it to the next decade and who should lead them.
I submit that the US should have two remaining auto companies: General Motors and Ford. Chrysler is not viable as an auto company as it lacks future product development capabilities having its engineering capabilities mostly gutted by Daimler and Cerberus.
General Motors does have prodigious engineering talents worldwide which it can leverage. What’s been missing has been executive will to apply this talent to its North American business in recent decades. Only recently have we seen a slow rejuvenation of some products, but the overall portfolio of vehicles remains too broad and non-descript. “Too little, too late” might be the most apt description. In addition, the company has never addressed its multiplicity of overlapping brands, vehicles, and dealers. All of its efforts so far have mostly been to reduce installed production capacity.
With any government assistance to GM, one key requirement should be for wholesale reform of its Board of Directors and top executive management team. They should all be jettisoned for their failure to address known and obvious problems. This is not an ad hominem attack; rather the results of the business in North America over the last forty years mostly prove the point. What’s needed are new executives willing and enabled to make those hard decisions, not beholden to the past practices and culture within this giant corporation. Giving money to executives schooled in the past is no recipe for future success.
Ford Motor Company was, until 2006 and the arrival of Alan Mulally as CEO, in exactly the same situation as GM today. But as an outsider, Mr. Mulally took a fresh look at the company and its operations. By the time of his arrival, Ford had implemented the first of its “Way Forward” plan – which was to reduce installed capacity. But this would prove to be ineffective. Instead, Mr. Mulally outlined his “One Ford” plan – which jettisoned extraneous brands (Jaguar/Land Rover already and Volvo soon) while integrating vehicle platforms between Europe and America. Moreover, with new executive talent recruited from other auto companies/distributors, Mr. Mulally has reoriented his management team with fresh thinking.
Ford, unlike GM, does not face immediate prospects of demise (barring a bankruptcy of General Motors). It has outlined for the industry a view of its future, its new products, and the expectation that by 2013, there will be 100% commonality of its European and American platforms. I credit Bill Ford Jr. with understanding his company’s need to place a skilled executive at the helm, with the full backing of the Board to make the painful but requisite actions. So in Ford, we have seen an example of how a change in top leadership can make a difference – though profitable results may be years off and interim government financing may be necessary.
So for the American auto industry to survive and prosper, we need Congress to understand that importance of a domestic auto industry. Second, Congress should recognize that it too must make some hard decisions with taxpayer money. This would be to allow Chrysler to fail and be sold in pieces to others. It must also recognize that labor cannot be protected to any more degree than other creditors. Jobs will still be lost; VEBA’s underfunded for the time being. Third, Congress needs to craft a funding program tailored to the needs of the remaining two automakers. In the case of GM, even without a bankruptcy, a complete recapitalization and restructuring of the company must occur. This will require new leadership at the Board and executive management levels with the will to succeed. And Ford just needs time and a little bit of money.
I’m visiting my mom out in Fremont California. All Detroit auto executives should be forced to live out here just a little while to see the future of the US automakers. There is virtually no presence left of the domestic auto fleet except for a few pickups and SUVs virtually 90 to 95 percent of the vehicles I have been seeing are foreign brands.
But the sad fact remains that Detroit is still losing market share as consumers gravitate to the import brands. Strangely, it is not a matter of pricing – Detroit vehicles, especially in passenger cars and CUVs, are less expensive to acquire than those from mainstream competitors
Yes it is a matter of pricing! Detroit has compromised the quality of their offerings to maintain a low price. The last thing they should have done to reduce expenses was to cheapen their offerings. If they had cut expenses elsewhere (labor, management, location of business) they might have done better.
That is not the question. In fact, there should be no debate as to whether the United States, as a modern economy, should have its own domestic automotive industry.
There is no debate IMO. If GM, Ford and Chrysler disappear tomorrow we will still have a dynamic responsive auto industry that would quickly expand to replace them.
What’s needed are new executives willing and enabled to make those hard decisions, not beholden to the past practices and culture within this giant corporation.
I agree. But no bailout is needed. If the core business was reformed, through chapter 11, as of Jan 1 2009. (New labor contracts, new management, new directors)investors would flock to the revitalized companies. a bailout will just prolong the rot.
I’m visiting my mom out in Fremont California. All Detroit auto executives should be forced to live out here just a little while to see the future of the US automakers. There is virtually no presence left of the domestic auto fleet.
Conversely, I recently went back to northeast Ohio where my family is from and couldn’t find a non Big-3 vehicle. Of course, many in that area are employed by the Big-3.
All very interesting in that if the feds hadn’t bailed out Chrysler 30 years ago we wouldn’t have them as part of this mess now.
John
Nice piece, Ken.
I’m pretty much alone on this, but continue to believe that the problem is not the number of brands (number of channels is a different story). Instead, the problem is that these organizations have lacked the structure and culture necessary to properly manage brands.
A company actively managed from the top cannot successfully develop and market multiple brands.
At least Pontiac and GMC need to be terminated. Saab needs to be sold. Hummer needs to be sold. Saturn can be the US arm of Opel. That leaves Chevy, Buick, and Cadillac as international brands that GM can market effectively. Holden’s lineup needs to be commonized with Chevy’s. GM has to limit the # of different variations it makes out of each platform.
Ken, I agree with most points in the article, but I think all facts are not only pertinent to Detroit, but to state of our economy and attitude in general. Our populations change significantly in the past 40 years. Somehow hippies turned into their parents and actually became worse. If the most parents of “graduate” were doing a little scotch and nookie on a side, my generation raised it to level of Sodom & Gomorrah (booze & drugs enticed with rock-n-roll level orgies). Notion of hard work and reward is substituted for business plan and venture(vulture) capital. And I am referring to a better part of society. So why there is a surprise that GM, Ford & Chrysler are screwed up? The whole system is to blame. Banks were loaning them into oblivion, accounting firms that were reviewing books did a job not any better then at Enron. The SOX was violated everywhere and FBI stated that they have no means to prosecute 1/2 of the country.
As an optimist, I hope that we will get over it.
There is no way Detroit can in the short to medium term reverse or even stop its losses on the costs. Fortunately (in an unfortunate kind of way) there isn’t much more they can lose on the costs as Sherman points out since most people already drive foreign cars there.
The only thing left to Detroit is to defend and stop the market losses in the middle of America. That should be their primary objective. The problem there is that this is exactly where the foreign brands have chosen to attack with their brand spanking new factories and decent wages. This would make it extremely difficult for Detroit if it were in top fighting form. As it is it makes it nearly impossible. Even if everything goes Detroit’s way from bailout money to gas prices to improved vehicle quality and service I still see them as being on the losing side long-term. Even Ford I see surviving as no more than a truck maker in NA with barely meaningful car presence.
A great piece Ken, and right on target.
One sign that the average US buyer is wising up is that even though Detroit has offered lower initial purchase prices, in general the total cost of ownership for a new Detroit branded car is well in excess of that for a Toyota or Honda. People aren’t just buying on initial purchase price. The problem with rebate mania is that often the customer actually gets burned. Every dollar of rebate on the new ride is almost completely lost in the reduced value of their trade-in. Lower the price of a new 2008 Impala by $1000 and the value of a used 2004 Impala drops by almost the same amount.
Now some might say that the smart buyer keeps their car for 100k miles or more and doesn’t care about trade-in value. Well, my experience is that the running costs of a post-warranty GM product well exceed those for a post-warranty period Honda. I’m not alone.
A better question is whether the United States as a whole has the self discipline and will to compete.
I don’t think you need to look far to see how undisciplined and self-indulgent our culture has become.
GM and Wall St. are not isolated incidents – I think it points to something far deeper, and more troubling.
Ken,
Thanks for writing this piece. Good read.
I can’t see any investor taking on the level of risk to recapitalize GM without a Ch. 11, though. The infrastructure of expenses is simply too large to support the sales they now have.
Like it or not, for GM to survive and eventually become profitable, they should be no larger than Toyota. That’s 3 brands and approx. 1500 dealerships. That means GM shedding 4-5 brands and thousands of dealerships.
There is virtually no presence left of the domestic auto fleet except for a few pickups and SUVs virtually 90 to 95 percent of the vehicles I have been seeing are foreign brands.
This is how the meme “nobody buys American cars” gets propagated.
When I was in NYC for my niece’s bat mitzvah I noticed how few of the passenger cars were American brands. Sure, there were some US SUVS, CUVs and pickups, but almost all the sedans were foreign brands.
While alternative media is chipping away at the domination of the media-entertainment complex, that complex still has tremendous influence. Even if there was no inherent bias, people, including journalists and tastemakers, tend to view the world based on what they see immediately around them.
The media-entertainment complex in the US has two loci, New York City and Los Angeles, two markets where foreign brands predominate. Both cities also have large Asian immigrant populations and it’s completely anecdotal but I’ve noticed that Asian immigrants seem to prefer Asian cars. Add to this the fact that only about 25% of people who live in Manhattan actually own or drive cars and it’s easy to see how the people who mold opinion in this country could have a distorted perception on the US auto market as a whole.
Market share and perception of it are two different things. Since 1980, Apple has seen it’s share of the personal computer market (according to Gartner) plummet from 15% to less than 3% today but you don’t hear people saying “nobody buys Apples”. Part of that reason is that the Mac continues to be the platform of choice for people working in graphics and multimedia, both critical elements of the media-entertainment complex.
People in that complex look around themselves and see foreign cars and Apple computers, they talk about what they see, that filters out into the general public.
What would Nietzsche (pictured) drive? He had a will to power. Maybe the Ford GT whipplecharged, recently reviewed by Sajeev Mehta.
Replies such as Mr. Schreiber’s answer the question quite nicely. The answer is no.
There is no will because the perpetrators view themselves as victims. It is always someone else’s fault.
They take no responsibility for what they have done. They are addicted to making excuses, and they will not experience the moment of clarity that is necessary to turn these businesses around.
As far as they see it, there is no need to build a better product, because the product is fine. There is no need to improve the service because the service is fine, the rest of just don’t realize it. There is no need to improve the marketing, because the consumer is stupid and biased, and will just have to come around eventually.
Unless the company’s senior management accepts responsibility and includes their workers as part of creating the solution, it is already too late. A lot of hard work will be required to turn these companies, but they are fully unprepared to do the heavy lifting.
The media-entertainment complex in the US has two loci, New York City and Los Angeles, two markets where foreign brands predominate. Both cities also have large Asian immigrant populations and it’s completely anecdotal but I’ve noticed that Asian immigrants seem to prefer Asian cars.
If you think its some media bias or asian demographic bias that explains all the foreign cars, you’re dreaming.
That is all.
Apple has seen it’s share of the personal computer market (according to Gartner) plummet from 15% to less than 3% today but you don’t hear people saying “nobody buys Apples”.
Not entirely a fair comparison, but your core reasoning is correct. Apple sells more and more units each year, but the entire pie is getting larger, while at the same time, Apple is branching out into new markets (different “pies”).
The auto “pie” is comparatively static, and the domestic’s slice is getting smaller. GM has been trying to feed eight brands with said thinner slice of the auto pie, while divesting itself of slices of other pies (parts, other manufacturing enterprises, financial services) that might have allowed it to weather this kind of hit.
It’s worth noting that Apple’s recent growth was largely due to some excellent, product-oriented (some might say psycopathic) leadership. Gil Amelio was very much a Rick Wagoner-style CEO and presided over a similar decline (commoditization, cost cutting, loss of uniqueness of product); Steve Jobs’ laser-beam focus on product and marketing, and his whipping of his teams into producing it, was largely what brought them back. No product or ad campaign leaves Apple without Steve’s approval; I personally have trouble with the concept of Rick Wagoner so much as sitting in a Cobalt, let alone having the chutzpah to sign off on it.
Note that, at no point was Apple under Jobs whinging about cost or perception. They simply made better stuff that people wanted and marketed is smartly.
GM needs a product-oriented, consumer-savvy leadership. It does not need men-in-grey like Rick Wagoner, anachronisms like Bob Lutz or complete incompetents like Mark La Neve.
Michael Karesh, I’m a bit surprised you don’t see the massive problem of too many brands: cost. Just the marketing and advertising costs alone represent a dire obstacle. Notice how GM will push/advertise a new product for a few months, then it dies on the vine while the ad budget goes for the “next new thing”. When is the last time you saw an ad for an STS, for example?
The Asian brands support their products continuously throughout their product cycles; GM can’t. It would be a huge problem even if GM’s products were more competitive. Have you priced media?
A restructured GM should result in two brands: Chevy and Cadillac. GM’s market share is not going to increase, and two brands is all they can afford to support.
Both cities also have large Asian immigrant populations and it’s completely anecdotal but I’ve noticed that Asian immigrants seem to prefer Asian cars.
News Flash:
Just about all of the immigrants to the USA come from places where you are more likely to find VWs and Toyotas than DOMESTIC Chevys and Fords.
Immigratns from the Caribbean, South America, Africa, India, China, etc have all been raised on a diet of Japanese and European cars. Even the GM and Ford models they are acustom to are Euro Fords and GM vehicle which needless to say are quite different than the junk they dump on the US market.
“I’ve noticed that Asian immigrants seem to prefer Asian cars”
I am an American of Chinese descent, Born 46 years ago and raised in the South. I first went to school with my white classmates in then segregated Tampa. Never saw black classmate until the schools integrated. Continued never seeing any Asian classmates for about 7 years. Back in the day my parents would wave at and pull over and try to meet anyone just if they had an Asian appearance. In this way my parents met and formed a small Chinese American community in Tampa. The key word is Chinese. They had nothing to do with Japanese, Korean, Thai, Vietnamese etc,
Most Asian Americans by my experience if they have any pride in their heritage it is based on nationality and not race. My parents and their friends quite frankly hated the Japanese. My parents refused to buy Japanese products, Sorry to bust the bubble on some sort claims of racial affinity. That would be like saying French and English people buy cars from BMW and Mercedes simply because they are European cars.
The funny thing is this when I went to college in the 80’s the joke was “Have you noticed that all the Asians only drive American cars” which back then was true by what I saw.
A company actively managed from the top cannot successfully develop and market multiple brands.
I know it’s popular in these parts to regard Rick Wagoner as the man who destroyed General Motors but I think that title goes to Roger Moore Perhaps the only thing on which I might agree with Michael Moore is that Roger Smith was not a very good CEO (though most of Roger & Me, like all of Moore’s work is full of cheap shots and propaganda).
It was Smith who ended the Alfred Sloan’s model of semi-autonomous divisions, each responsible for its own design, engineering and marketing. While Smith’s consolidation of GM’s heavy truck and bus operations under GM Truck & Bus may have been a good idea, his concept of combining Chevy, Pontiac and GM Canada into a small car group and Buick, Olds and Cadillac into a large car group was a disaster.
Sloan’s model had its inefficiencies. Into the 1970s, Chevy, Pontiac, Olds and Buick each made completely different small block V8s (and big blocks too if I’m not mistaken). Still, the autonomy of the divisions allowed them to have distinct brands. There was healthy competition that let each of them find their niche. Ironically that competition resulted in little brand overlap and direct competition for customers. Autonomy resulted in things like the GTO. Smith, in trying to find efficiency, didn’t find a middle ground and went straight from autonomy to badge engineering. Putting 350ci SBCs in Oldsmobiles may have made fiscal sense, but the fallout from the resulting class-action lawsuit was another nail in the coffin of the brands.
Smith wasn’t a complete disaster. Like I said, Truck & Bus was probably a good idea (though Smith’s creation of two separate bureaucracies for the Truck & Bus Group and Truck & Bus Manufacturing was not), and Smith was the driving force in building modern plants like Lake Orion and Poletown and GM’s embrace of robotics (though GM mismanaged its JV with Fanuc). Still, on whole, Roger Smith was responsible for many of GM’s current ills, particularly the dilution of their brands and the resulting direct competition between the GM brands.
It was Smith who turned distinct divisions into merely brand names. Smith also made the relationship with the UAW and salaried employees more contentious, seeing robots as a means of eliminating jobs, and raising executive bonuses as he negotiated concessions from the UAW and cut salaried workers’ compensation.
Wagoner hasn’t played his cards well, but Smith left GM with a badly reshuffled deck.
BTW, I’m a free market kind of guy but it’s remarkable how CEOs, like sports managers and coaches, can never completely fail. In professional sports, getting fired as a coach or manager is often a good career move. The Detroit Lions are known as the place where head coaches go to end their careers, but even Bobby Ross (I know, he retired and wasn’t fired) got a job as head coach at West Point and Marty Mornhinweg is the offensive coordinator/asst head coach for the Eagles.
Likewise, Robert Stempel, who followed Roger Smith as GM CEO, now is the chairman of Energy Conversion Devices (now a major player in batteries) and John Smith, who succeeded Stempel is the chairman of the BOD of Delta Airlines and on other corporate boards including Procter & Gamble. I’m sure he’ll come out of the Delta/Northwest merger okay.
Part of the problem at GM is how corporate BODs are filled with executives and former executives who haven’t exactly excelled. GM’s BOD includes executives and former executives of companies like Kodak, Ernst & Young, Pfizer & Compaq, all of which have had issues concerning corporate governance.
Once you get to a certain level of corporate aristocracy, it’s hard to fail.
I’ve noticed that Asian immigrants seem to prefer Asian cars
Most Asians (and indeed, most recent immigrants) don’t immigrate to flyover states, favouring coastal areas for all sorts of reasons, so it’s not so much a cause as a symptom.
You may as well say “Most gays/lesbians/transsexuals drive imports”, “Most rich people drive imports”, “Most Democrats drive imports” and/or “Most post-secondary graduates drive imports”, because the reason is pretty much the same: most of these people all tread the same socioeconomic path.
What’s happened over the last 50 years to Detroit is a reflection of what happened to the rest of society. California is the bellweather. Used to be thirteen car plants, now there is one. Used to have a thriving aircraft industry, now we don’t. Used to have enough electricity, now we don’t. Used to have the best roads (and the best drivers) now the roads are a disgrace and the driving standards have fallen dramatically. Last but not least in my rant, we’re getting ready to outsource our food supply. Not a lot of fun to watch, especially when you were warning people about the long term consequences of paying people not to work instead of building places for them to go to work long ago.
GM and Wall St. are not isolated incidents – I think it points to something far deeper, and more troubling.
It started with the decline of the US manufacturing base and an attitude that real labor was somehow below people and that blue collar jobs were for people too stupid to go to college (ignoring the fact that a large fraction of college graduates are not really capable of doing true college level academic work – if all you could get were Bs in high school you’re better suited at a vocational school or a community college, not an advanced university). People get angry about highly paid factory workers as if that upsets the natural order. Keith Olbermann and the New York Times have hissy fits about turkey farmers doing what turkey farmers do (kill turkeys) and the MSM does a hit job on Joe the Plumber. It’s not just a white collar blue collar thing. We graduate more lawyers than engineers.
Maybe it’s true, there are some jobs Americans won’t do.
it’s completely anecdotal but I’ve noticed that Asian immigrants seem to prefer Asian cars
Ahem, Asians are hardly a monolithic entity.
Anecdote: as a result of Japanese conquests during WWII, for the longest time many non-Japanese Asians avoided buying Japanese-branded vehicles.
Mr. Elias,
Very interesting editorial.
You write that GM’s never addressed its multiplicity of overlapping brands and dealers. While I’m not a big booster of the Big Three (I only own cars physically assembled in Japan), I ask you if the brand and dealer issues haven’t been dealt with because of poor management, or becuase of the lawsuits and extreme expenses involved in dealing with thee two issues?
Regards,
Hal.
Good write up. Yes, the “Will” has been gone for some time. The “will” has become the lowest common denomenator in the Detroit area due to no secrets. Face it, families and friends all work for GM, Chrysler, Ford or local suppliers. Nothing’s sacred. Notice how they all copy one another on product ideas, union relations and dealer managment.
Detroit marketing is just awful too. They’ve focused solely on price when that should be the last topic of discussion in any sales transaction. Value for the retail customer? What’s that. Dealers for years now have been advertising one year old cars at nearly half price of new MSRP. Thus, clearly training current or potential customers that their product has no resale value and gee, what a sucker you are for having bought a new one from them.
Let Chrysler die as Cerberus clearly intended to do anyway when they bought it to strip and flip. Leave Ford alone to continue their journey in Detroit. GM should move the HQ out of MI and remove the current BOD and CEO.
Let them sort out their own mess and use Ch11 as the lucky tool they have available. Let Congress focus on cleaning up basic finance issues and clean up the mpg rules. Sure, none of us wants to see any company fold up but when one does in any industry, isn’t it pretty much due to their own making??? Why should taxpayers be held ransom.
Ronnie Schreiber: It was Smith who ended the Alfred Sloan’s model of semi-autonomous divisions, each responsible for its own design, engineering and marketing.
Not to defend Roger Smith, but this process began long before he took charge of GM. John DeLorean complained about the systematic efforts of GM’s central management to strip the divisions of their autonomy in his book, On a Clear Day, You Can See General Motors, which was published in 1979 – or before Roger Smith was in charge.
Ronnie Schreiber: People get angry about highly paid factory workers as if that upsets the natural order.
Most of us don’t care how much factory workers make. But when they price themselves out of the market, and then team up with management to seek an injection of taxpayer dollars to sustain a failing business model – that’s what gives many of us pause.
I don’t care if UAW members make $200,000 annually with a three-day workweek. If their employer can afford it, more power to them. But don’t expect me – along with other taxpayers – to step up when those wages (or work rules, or the Jobs Bank) aren’t sustainable.
Rhetorical question:
Is it really true that the mighty USA can’t sustain three major local automobile manufacturers?
It seems to me that if GM, Ford and Chrysler did some significant restructuring, they should easily be profitable in America. After all, they already have all the needed infrastructure in place. Plants, workers, products, engineers etc.
Surely there must be a way for them to rid themselves of the major issues that are killing them. In the long run, wouldn’t it be better for the unionized workers to do some major give-backs now, in order to ensure jobs for the future? Wouldn’t this be better than being stubborn and having GM die leaving zero union jobs behind?
Is there no way for GM to cut back the number of dealers without being successfully sued for billions?
GM has from the entire world to pick top board members and managers. I can’t believe that there are not quality men and women available to run the company.
Even if restrucuring means further market share erosion, the Big Three could still divvy up 40% plus of the pie. This has to be large enough for Chevrolet, Cadillac, Ford, Lincoln, Dodge and Jeep to survive on.
Many foreign auto makers prosper on 2% of the American auto market. Even Chrysler could be profitable at 8%. Ford at 12%. GM at 16%. All three have enough good product to sustain these numbers. Yes, even Chrysler. Well, maybe Chrysler’s iffy.
Replies such as Mr. Schreiber’s answer the question quite nicely. The answer is no.
I never said Detroit was a victim, I was discussing how memes get propagated.
I’ve been told that I need a more “nuanced” approach to the things, but apparently the only nuance that is acceptable to some is “Detroit bad”.
Like the old saw goes, even some paranoids have real enemies. Detroit, the car companies and people who live around here, have screwed up plenty, but that doesn’t mean they get a fair shake in terms of conventional wisdom. A lot of conventional wisdom, be it about politics, finance, the environment, or the car biz, is not very wise. Challenging conventional wisdom will always disturb some people. I’m a contrarian by nature and I’ve gotten enough hairy eyeballs in my life to know that nuance and counterintuitive thinking isn’t very popular. Hell, I got the police called on at a book fair me because I asked the co-author of the producer of An Inconvenient Truth an inconvenient question.
My experience is that so many people are set in their views one way or another, they see a nuanced view as supporting the opposition, not as trying to get a handle on all sides of an issue.
A lot of hard work will be required to turn these companies, but they are fully unprepared to do the heavy lifting.
So you disagree with what Ken said about Ford?
If you think its some media bias or asian demographic bias that explains all the foreign cars, you’re dreaming.
I was discussing the meme that “nobody buys American cars” and how it gets propagated.
If anything, I’d say you have things reversed. It’s all the foreign cars etc. in NY and LA that explains the media bias. That being said, memes have a way of being self-fulfilling as more people accept them as conventional wisdom.
It’s getting tiresome. I try to debunk myths about the $73/hr UAW “wage” and I get called a shill for unions. I take exception to foundational myths of organized labor and I get called a union buster.
Stephan Wilkinson’s comment the other day about the need to THINK was well stated.
I was discussing how memes get propagated.
To refer to customer preferences and discontent as a “meme” is to trivialize it. It dismisses the loss of market share as a cultural fluke or bias, rather than as a logical outcome based upon the failure to serve the customer.
You’re mired in the problem to an extent so deep that you will never see it, because you don’t want to see it. Admitting blame is too painful, it’s easier to blame the media and everything else than it is to step up, own up to your own failures, and take full responsibility for the result.
The Japanese entered the US market with tremendous disadvantages. By all accounts, they should have failed miserably. But through persistence, hard work and gaining an understanding of the market, they ultimately prevailed against the odds.
There is a lot to be learned from that, but Detroit is too busy whining to launch an effective counterattack. Since American consumers won’t willingly give them the money by purchasing the products, they now want the government to take those consumers’ taxes in order to provide the funding that their own products could not.
Americans who have defected to the transplants and imports instinctively understand this, which is why they are largely opposed to this rescue plan. The public knows that a rescue wouldn’t be necessary if these same companies hadn’t driven them into the arms of the competition in the first place.
psarhjinian
RE: Apple.
Steve Jobs has been brilliant at getting people to buy in to his version of planned obsolescence. Create a market niche, then keep the customers in the fold with incremental upgrades and forced use of proprietary Apple apps like iTunes and the iPhone store.
I suppose it’s a good thing that I didn’t say anything about the fact that buying an Apple product is something akin to joining the Steve Jobs Fan Club with a requirement of regular membership fees.
Jobs is smart, no doubt, but he’s not perfect. Remember the Lisa? NEXT? Losing control of his own company?
Steve Jobs is a smart guy. Woz is smarter.
Boy, now I know how to really make a lot of enemies: Defend Detroit and criticize Apple at the same time.
You may as well say “Most gays/lesbians/transsexuals drive imports”, “Most rich people drive imports”, “Most Democrats drive imports” and/or “Most post-secondary graduates drive imports”, because the reason is pretty much the same: most of these people all tread the same socioeconomic path.
And most of them repeat the same conventional wisdom that is acceptable in their social circles.
Ask a political conservative who lives in San Francisco or NYC’s upper west side about bucking their social circle’s conventional wisdom. I know of people who don’t discuss their conservative or libertarian ideologies on the job for fear of losing their jobs.
Now with GM’s and Chrysler’s admissions of impending failure, a firestorm of debate has erupted as to whether Detroit is deserving of government assistance. That is not the question. In fact, there should be no debate as to whether the United States, as a modern economy, should have its own domestic automotive industry. Without it, we sacrifice our ability to determine our own solutions to future transportation needs.
Ken,
Please don’t take this personally, but the above is just plain silly.
Consumers determine their own transportation needs, every day in the free marketplace. And we’ve determined that Detroit’s models by and large don’t suit our needs. (Not me, personally — of the eight cars I’ve owned, five were domestics.)
Toyota, Honda, et el, have proven themselves more adept at serving our future needs than Detroit has. What makes anyone think that my tax dollars will somehow change that fact?
Ronnie: this is the internet. Not everybody wants to think. You need to get over it. ;)
I don’t agree with all of what you say, but I do agree that it is becoming increasingly difficult to debate issues without a marked polarization of opinions. We see it Canada regularly whenever our health care system is “debated.” Opponents of reform reflexively label any alternative system as “American-style” which of course frightens the ignorant. Any chance of a real debate, and a real exchange of reasoned ideas goes out the window.
The internet has had a fabulous effect on democratizing media, but it has also helped speed the reduction of discourse to lowest-common-denominator levels.
Regarding the editorial: I believe Mulally and Ford have the will, and probably the game plan, to succeed. If they can weather the storm until economic earthquake subsides (how’s that for mixing metaphors?) and their product pipeline starts to spit out these promising models, I think they will be well poised to remain a player in the market. They still have some work to do on the branding front, however. I’m thinking of Lincoln, here, and I echo RF’s thought that it should be taken well upmarket.
Wagoner’s only will is to make his hay while the sun shines. GM is doomed with him at the helm. Full stop.
For when the masses learn to drive, driving will descend to the level of the masses.
Also sprach Carathustra
Ahem, Asians are hardly a monolithic entity.
Anecdote: as a result of Japanese conquests during WWII, for the longest time many non-Japanese Asians avoided buying Japanese-branded vehicles.
Likewise, many Jews avoided Ford products for generations because of Henry Ford’s antisemitism.
I never said that Asians were monolithic and I’m well aware of ethnic and cultural differences between Asians. That’s why I used the words “anecdotal” and “seems”. I grouped Asians together because it was shorter than typing “Japanese drive Toyotas and Koreans drive Hyundais”. FWIW, I’ve noticed that Koreans around here seem more likely to drive Hyundais and Kias than Toyotas or domestics.
Like a professor of mine said, compared to Europeans and Asians, Americans are rank amateurs when it comes to racism. The US obviously has its own history of slavery and war, but both of those examples have been pretty much universal across the globe. The US has never had the kind of *genocide, democide, or religious wars one can point to in relatively recent European, African and Asian history (e.g. Holocaust, Cambodia, Rwanda). Ethnic Koreans who have lived in Japan for generations are not fully accepted as Japanese. Supposedly when an archaeological dig in Japan revealed evidence that the imperial family may have had its origins in Korea (not that unique in the world of aristocracy, George III of England was German and during WWI the British royal family changed their surname from Battenberg to Mountbatten) the dig was quietly stopped.
The Japanese are hated across Asia. So are the Chinese. I suppose like you mentioned, it has something to do with conquest and empire. Resentment and jealousy of the industriousness and financial success of ethnic Chinese minorities outside of China is also not unknown.
*Slavery in the US was not genocidal as the population of Africans in the US increased. It was also qualitatively less brutal than slavery in the Spanish and French territories in the New World. Regarding the aboriginals in the New World, while there was military conflict and undoubtedly incidents of wholesale slaughter (Columbus and the Caribs, as well as natives wiping out settler commmunities) perhaps 90% of natives died from viral disease before seeing any Europeans (though there now seems to be evidence that in South America it was more likely to be a local hemorrhagic disease than European viruses).
Let me ask this: Is it or is it not true that certain groups go with certain trends? And by groups, I mean age, race, religion, culture, background, ect etc. Why did Chrysler pick Global Hue Ad Agency (Southfield) when they already had BBDO? You know damn well why they did it….to market to African American customers. Ever see Chrysler commercials on BET with the funky music and African American themed?
It IS possible that certain groups favor certain brands over other groups. Market research reveals this. Would I be stereotyping if I said ALL old folks like Buicks? Possibly, but it isn’t all that far from the truth.
Ask a political conservative who lives in San Francisco or NYC’s upper west side about bucking their social circle’s conventional wisdom. I know of people who don’t discuss their conservative or libertarian ideologies on the job for fear of losing their jobs.
I find that hard to believe or, if true, hard to swallow. Ideologues on all sides are really, really quick to scream oppression. A lot has to do with how you’re going to project those views: it’s common for people to go in, guns blazing, because they hold a contrarian viewpoint and (this is important) don’t have a lot of respect for their opposite number and their opinions.
Rather like the way we discuss automakers.
Not to defend Roger Smith, but this process began long before he took charge of GM. John DeLorean complained about the systematic efforts of GM’s central management to strip the divisions of their autonomy in his book, On a Clear Day, You Can See General Motors, which was published in 1979 – or before Roger Smith was in charge.
True, but Smith accelerated the process and formalized the end of the divisions’ autonomy. It was too long for TTAC’s style guide, but I recently wrote an essay on how the Corvette, small block chevy and muscle cars destroyed Sloan’s model of “a car for every price and purpose”. It’s interesting that you brought up DeLorean because he himself had an unintentional role in how GM ended up competing with itself when he shepherded the development of the original GTO. By the end of the 1960s, all the GM car divisions except for Cadillac had A Body muscle cars: GTO, 442, GS, and Chevelle SS.
Very trenchant analysis if I may say so. Something you wrote jogged a synapse. You were comparing Detroit’s current situation with that of 40 years ago. 1968. That was when Brock Yates penned the immortal “Grosse Pointe Myopia” in the late, great Car and Driver magazine. Everything, and I mean everything, he mentioned then is still true today. Except back then, the D3 had a 60-70% market share. It’s less than half of that now.
I agree that the existing management should be replaced. Wagoner has received something like $100 million in compensation from GM and Nardelli got double that for practically destroying Home Depot. Maybe they would like to float loans from their personal resources? Yeah, right.
Ditto the Boards of Bystanders.
Actual market share improvements should be legislated into the “loan” packages.
I used to think that Chapter 11 was the sensible way for GM to kill redundant brands and dealers, and renogotiate labor and supplier agreements. But the timing of Chapter 11, it turns out, would scare off too many needed customers and the resultant damage to cash flow would mean a quick procession to Chapter 7.
So I foresee a dissolution of Chrysler. Dodge Truck and Jeep will be sold to Nissan/Renault. The Chinese might buy Chrysler and Dodge cars to get a foothold in the US, instant credibility and factories for a song.
GM will lose brands. Pontiac, GMC, and Hummer fairly certain. Buick (in the US), SAAB, and Saturn probably doomed also. Chevrolet without Chrysler (and in-house) competition should have immediate sales improvements.
Ford will also benefit from the loss of Chrysler competition. The real question then becomes, can the Detroit 2 regain market share?
I find that hard to believe or, if true, hard to swallow. Ideologues on all sides are really, really quick to scream oppression.
I’m not talking about ideologues, I’m talking about run of the mill right of center folks who get tired of being called names or being excluded for their political beliefs.
Again, it’s anecdotal, but Jay Nordlinger has written on this subject.
http://article.nationalreview.com/?q=YjM2ODlkYTFmNTU0OTAxZmUzZTU1Nzk0YmNiOTkyNmE=
http://article.nationalreview.com/?q=ZTY0NDM3NmZkY2Y5ZGNhYjY4YjdjNGZjYzAyMTVkYzc=
The left has no record of tolerance of dissent. As Herbert Marcuse, perhaps the most influential leftist philosopher of the 20th century, said, “Liberating tolerance [would be] intolerance against movements from the Right, and toleration of movements from the Left.” Marcuse opposed absolute free speech because it allowed his political opponents to have a say.
Of course there are echo chambers for all political and social views, but it’s hard, for example, to be an open Zionist in most universities’ Middle East Studies departments. MESA, the so-called academic association of Middle East scholars is orthodoxly pro-Palestinian. More orthodox in their beliefs, it seems, than most of the rabbis that I know, and I know more than a couple. Of course rabbis have a long tradition of seeing problems from more than one side*. If you want to experience some hostility, try telling most American Jews to vote Republican. I’ve had relatives that I love dearly literally scream at me about Republican hypocrites when I’ve discussed people running in Democratic primaries.
*How many rabbis does it take to change a lightbulb?
Some say 3, some say 4, there are opinions that say 6.
Nice piece, Ken. One thing that has always bothered me is that the Big 3 present themselves as… well, the Big 3. They are 3 different companies with different realities. Any bailout/support/package should recognize that. Wagoner must go (how in the world does that guy still have a job?!?!?!?!), but Mullally is a different story. After bailing out pigs such as AIG and Citibank, not helping Detroit would be absolute madness; however, this time around they should be more clever on where and how to invest the $$$$.
I’m in the socioeconomic group that buys foreign cars. But I bought a Saturn in ’93, because it sure seemed like Saturn was going to be doing things differently, in a way that I liked. (If I hadn’t bought the Saturn, I would have bought an Integra.) “The practical person’s sporty car.” They were going to improve the engineering rather than worrying about styling (which was great in the first generation, and terrible after that). Saturn was going to have employee empowerment, which was going to improve both quality and employee satisfaction. And according to Roger Smith’s vision, which never seems to get enough credit, it was going to show GM its future. Instead, GM dragged Saturn, at first an independently run company owned by GM, back into the mother company, and everything went down from there both for Saturn and GM. I went from being proud of driving a Saturn to feeling I had to apologize for it (me: “Well, the first gen really was sporty and cool.”). So I drive a Honda, and I look pretty unfavorably on a Detroit bailout.
Ronnie Schreiber has some good points about the left and dissent, although I think this is more typical Homo sapiens behavior than anything that is unique to the left. The reason it looks so weird on the left is that the left preaches tolerance. (For the record, according to politicalcompass.org, my views are somewhere betw those of Nelson Mandela and the Dalai Lama; nonetheless, I have a bumper sticker that draws a lot of evil stares in Cambridge. And I once got into a verbal battle with Jane Fonda, back in the late ’70s.) I think most people have trouble being open-minded, and I wouldn’t be surprised if this is more true among extremists than centrists.
First of all..I don`t know if I am at the intellectual level to compete with the “best and brightest” but here goes
Short and sweet
I live in Memphis Tennessee and my viewing of fellow motorists on the freeway leads me to believe that the majority of ‘minority’ drivers here prefer domestic cars!
I don’t know why,maybe their fathers worked for the ‘big three’ or the style of the cars fits their wants.
but I applaud them,for whatever reason in choosing American Cars!
There is SO much hate….so much…
We applaud the rescue of dim-witted bankers making a bazillion dollars a year for securing bailout money????
But it makes our 401k look good…….
I have never talked to anyone in my 57+ years on the planet that has not been burned by a less than perfect car…ALL BRANDS.
I`m sure the”best and brightest” will keep up the hate…but it`s so sad..
I want variety in my choice of automobiles…and If I make a bad choice,so be it….
I really think many the” best and brightest” are not enthusiasts or realists,they just HATE ,I believe that they just have found a forum to do it here on TTAC.
MY humble thanksgiving wishes to all.
@oldyak:
I really don’t think that it’s a matter of hate…probably more like indifference.
I actually get the “buy American” slogan. Everybody who’s even a little bit patriotic would love to drive a car that was made in his home country.
The problem is, that this is one of the reasons why the Detroit boys are in the messy situation they are in now. They could simply count on the domestic market, because almost everebody would automatically “buy American”. Well, only to a point. They crossed the line and people started to feel as if they were ripped off by their domestics and slowly turned away.
Today, the cars made by GM, Ford and Chrysler are considered to be junk by many people. If there’s a perception gap or not doesn’t matter, what matters is that this is how people feel. And it’s the punishment for past sins…for thinking that people would always just buy American.
In the long term, patriotism is simply not enough. You need the economic factors as well and the Detroit 3 don’t have them. They burn through billions of Dollars each month.
Oldyak,
I think you’re sensing hate where there isn’t any. Disgust with the conduct of management at the big 3, yes. And they’ve earned it (see my post about GM and Saturn two above yours). If every GM car did what it’s supposed to do as well as the Corvette does, GM wouldn’t be in this pickle. And I would love to see them making cars like that. But I am not anxious to bail them out. I think they’d still ultimately go under.
David
David Holzman: I think most people have trouble being open-minded, and I wouldn’t be surprised if this is more true among extremists than centrists.
As someone who works in a political environment, I can vouch for this. The more “difficult” personalities tend to be found on the extremes of both sides.
oldyak: There is SO much hate….so much…
I believe that it is anger and disappointment as much as anything else.
It has been painfully obvious for the past 30+ years that the Detroit needs to change.
American cars – up through the early 1970s – were stylish, fun, reliable (with a few exceptions) and great value for the money. But changing consumer tastes, changes in how people used their vehicles, the appearance of tough foreign competitors from Japan and Germany and government regulations required a change in the business model.
This registered with virtually everyone BUT management and the UAW.
Most of us are frustrated at the reflexive “can’t do” attitude exhibited by Detroit. We are also frustrated that the flashes of brilliance – Ford during the mid-1980s, for example – are quickly snuffed out by an industry culture that accepts mediocrity and takes the short-term view.
It has been painfully obvious for the past 30+ years that the Detroit needs to change.
The idea that Detroit hasn’t changed is what rankles folks here in Michigan. Hell, even Roger Smith closed the archaic Fleetwood assy plant and had Poletown and Lake Orion built. Not that yet more change isn’t needed, but plants have been closed to reduce overcapacity, quality has improved, and they’re now designing and building some decent cars (except for Chrysler, who kind of got gutted by Daimler in terms of product development).
The problem is that they pissed off so many customers that people aren’t willing to see any of the changes.
Ronnie Schreiber
Motorobilia
Ronnie Schreiber-
Very few ordinary people buy new, full priced, Detroit-branded cars in the United States, especially in big cities outside the rust belt. Now, Detroit sells a fair number of cars, and plenty of ordinary people buy Detroit-branded vehicles (that is, including pickups and SUVs). But a very large amount of Detroit’s car sales are to one of the following groups:
1. Government entities.
2. Rental car agencies.
3. People with employee discounts (because they work for, or used to work for and are now retired, or are related to somebody who works for, or used to work for, a Detroit manufacturer or parts supplier).
4. People who get discounts similar to #3 in one of Detroit’s periodic nobody-buys-our-cars sales.
Keep in mind that the number one company in car sales in the United States is not GM or Ford; it’s Toyota. Toyota sells more cars in the US than GM does. Now, GM does sell more light vehicles than Toyota does, because they sell so many pickups and SUVs. But they sell very few cars, comparatively, especially if you consider that a large amount of their sales go to people or groups in the four categories above, and very few of Toyota’s sales go to those groups (for example, I believe that the current promotion Toyota has is the first time they ever offered 0% finacing, while Detroit has done so countless times).
@John Horner:
“The total cost of ownership for a new Detroit branded car is well in excess of that for a Toyota or Honda.”
I can accept that this may be your personal experience, but what is the evidence that this is true across the board? I had a ’75 Dodge pickup that was poorly put together, but it went 100k and 15 years before I let it die. Then a ’90 Dodge pickup that went 190k and 13 years, and was still in great running order when I sold it. Then an ’07 GM van that went 90k and 5 years before a deer killed it. I put VERY little money in these in total. OK, this is one person’s experience and proves nothing, but I remember checking at some point in the past on the Edmunds site about cost of ownership of domestic vs. Japanese products and finding to my surprise that the Japanese stuff cost more to run. I know that locally, the per hour rate at the local GM shops is $44 vs. I think about $80 at the Toyota shop. In my experience, a domestic just needs an oil change at specified intervals, now 7k+ for GM, and you’re good to keep going, whereas the transplant service people seem to want owners to often do this and do that which adds a lot to the cost to operate their stuff. Aside from CR’s suspect and very imprecise output, do you know of any data that support your point?