White has covered the auto industry for the Wall Street Journal since 1987, writes a weekly column about the business, and is co-author of Comeback: The Fall and Rise of the American Automobile Industry. Here are excerpts from his talk at Hillsdale:
With Alfred P. Sloan in charge, General Motors settled down to become the very model of the modern corporation. It navigated through the Great Depression, and negotiated the transition from producing tanks and other military materiel during World War II to peacetime production of cars and trucks. It was global before global was cool, as its current chairman used to say.
By the mid-1950s the company was the symbol of American industrial power—the largest industrial corporation in the world. It owned more than half the U.S. market. It set the trends in styling and technology, and even when it did not it was such a fast and effective follower that it could fairly easily hold its competitors in their places. And it held the distinction as the world's largest automaker until just a year or so ago.
How does a juggernaut like this become the basket case that we see before us today? I will oversimplify matters and touch on five factors that contributed to the current crisis—a crisis that has been more than 30 years in the making.
1. Detroit underestimated the competition—in more ways than one.
2. General Motors mismanaged its relationship with the United Auto Workers, and the UAW in its turn did nothing to encourage GM (or Ford or Chrysler) to defuse the demographic time bomb that has now blown up their collective future.
3. General Motors, Ford, and Chrysler handled failure better than success. When they made money, they tended to squander it on ill-conceived diversification schemes. It was when they were in trouble that they often did their most innovative work—the first minivans at Chrysler, the first Ford Taurus, and more recently the Chevy Volt were ideas born out of crisis.
4. General Motors (and Ford and Chrysler) relied too heavily on a few, gas-hungry truck and SUV lines for all their profits—plus the money they needed to cover losses on many of their car lines. They did this for a good reason: When gas was cheap, big gas-guzzling trucks were exactly what their customers wanted—until they were not.
5. General Motors refused to accept that to survive it could not remain what it was in the 1950s and 1960s—with multiple brands and a dominant market share. Instead, it used short-term strategies such as zero percent financing to avoid reckoning with the consequences of globalization and its own mistakes.
In hindsight, it's apparent that the gas shocks of the 1970s hit Detroit at a time when they were particularly vulnerable. They were a decadent empire—Rome in the reign of Nero. The pinnacles of the Detroit art were crudely engineered muscle cars. The mainstream products were large, V8-powered, rear-wheel-drive sedans and station wagons. The Detroit marketing and engineering machinery didn't comprehend the appeal of cars like the Volkswagen Beetle or the Datsun 240Z.
But it took the spike in gas prices—and the economic disruptions it caused—to really open the door for the Japanese automakers.
Remember, Toyota and Honda were relative pipsqueaks in those days. They did not have much more going for them in the American market prior to the first Arab oil embargo than Chinese automakers have today, or Korean automakers did 15 years ago. The oil shocks, however, convinced a huge and influential cohort of American consumers to give fuel-efficient Japanese cars a try. Equally important, the oil shocks persuaded some of the most aggressive of America's car dealers to try them.
The Detroit automakers believed the Japanese could be stopped by import quotas. They initially dismissed reports about the high quality of Japanese cars. They later assumed the Japanese could never replicate their low-cost manufacturing systems in America. Plus they believed initially that the low production cost of Japanese cars was the result of automation and unfair trading practices. (Undoubtedly, the cheap yen was a big help.) In any case, they figured that the Japanese would be stuck in a niche of small, economy cars and that the damage could be contained as customers grew out of their small car phase of life.
They were wrong on all counts.
Read the rest of Joseph White's insightful remarks here, to learn what doomed the American auto industry, and what the industry might expect from its new partnership with the U.S. Government.