Crash Course: The American Automobile Industry’

Crash Course: The American Automobile Industry’s Road from Glory to Disaster
http://www.ft.com/cms/s/2/78e355e0-06e0-11df-b058-00144feabdc0.html

Crash Course: The American Automobile Industry’s Road from Glory to Disaster
By Paul Ingrassia
Random House $26, 320 pages

Japanese car companies, which overtook US ones in the early 21st
century, leading to the bankruptcy of General Motors and Chrysler last
year, used a method of industrial innovation called kaizen, usually
translated as “continuous improvement”. From a humble start, the
Japanese companies had got better and better at making cars that were
economical and reliable.

Meanwhile, Detroit perfected the technique of occasional improvement. As
the Big Three – GM, Ford and Chrysler – slid deeper into trouble over
decades of complacency, union obstructionism and mismanagement, they
would occasionally stage a temporary recovery, with some new car or
initiative prompting books and magazine articles about a Detroit revival.

This all proved to be illusory, with Detroit’s detour from making cars
(ground that it had in effect ceded to foreign rivals by the mid-1990s)
to producing “light truck” sports utility vehicles as the biggest
deception of the lot. These were just upward blips on a long, steady
descent from technological dominance to global laughing stock.

This is a familiar story adroitly retold by Paul Ingrassia, a veteran
Wall Street Journal reporter who has written about Detroit over the
years but maintains his sympathy for the human beings whose lives were
crushed by this vast systemic failure.

In his effort to isolate what went wrong, Ingrassia goes back to the
early 20th century, when Detroit was a “Mecca for automotive
entrepreneurs” such as Henry Ford. Things had clearly gone downhill by
the 1970s, when Detroit’s quality standards suffered: cars such as the
Chevrolet Corvair and Ford Pinto had reportedly broken down and exploded.

There were, however, warning signs before that, when Detroit’s early
focus on technology began, by the 1950s, to give way to an obsession
with marketing and design. Ingrassia makes an entertaining journey into
the history of tail fins. In 1948, these were borrowed from a Lockheed
fighter by Harley Earl, GM’s chief designer, leading to a stylistic arms
race.

One could trace it back further. Ingrassia’s account led me to wonder if
GM was an aberration from the start. It sounds like heresy to even
suggest it: business schools still study how Alfred Sloan turned Billy
Durant’s rag-tag collection of brands into the epitome of the
professionally managed US corporation.

Sloan was, as Ingrassia says, “low-key, methodical and prudent” and
shaped GM into a portfolio of car brands, including Oldsmobile, Cadillac
and Buick, intended to serve “every purse and purpose” in the US postwar
market. He also pioneered techniques of marketing and design – the
latter under Earl – that lured customers away from the boring,
technology-oriented Ford, with its black-only Model Ts. GM overtook Ford
and became the car industry’s dominant institution.

Yet Sloan’s vision of turning cars into dream machines, embodiments of
their owners’ aspirations, left a gap that the Japanese, and later
Korean, automobile companies later exploited. Unfortunately, Detroit
came to believe that sizzle sold, while technology and reliability were
of secondary importance.

Two other factors made Detroit vulnerable. One was its provincialism.
Michigan became a one-industry state, dominated by the Big Three and
hundreds of auto parts suppliers. It became unthinkable that auto
companies could be run by anyone but Midwestern “car guys”.

A second vulnerability was the grip of the United Auto Workers (UAW)
union, led by Walter Reuther, who exploited the complacency of the Big
Three in the 1950s and 1960s, when money was flowing, to hammer out
labour deals that later produced vast pension and healthcare liabilities.

Such forces not only made Detroit underestimate the Japanese invasion
but also prevented it from responding effectively when it woke up. The
Big Three maintained the comforting mantra that the plain, reliable cars
being built by Nissan and Toyota – the Model Ts of their day – were
alien to American tastes.

Ingrassia describes the moment in 1979 when Detroit should have ceased
kidding itself: when Honda built its first US plant in Ohio and showed
that American workers could make high-quality cars. It was not a matter
of nationality, it turned out, but of good management.

The SUV boom of the 1990s brought a stay of execution, allowing the Big
Three to prosper by switching from a losing struggle to produce decent
cars and instead make bulky, highly profitable, light trucks. Eventually
this avenue would be closed off by surging oil prices.

The tragic figure in this account is Rick Wagoner, an amiable,
intelligent executive who was appointed chief executive of GM in 2000
and eventually led it to near-bankruptcy. Wagoner baulked at confronting
GM’s structural problems head-on, and instead tried to make the best of
them.

Such complacency in the face of trouble finally backfired at last year’s
disastrous hearings in Washington at which the Big Three’s chief
executives – and the head of the UAW – arrived on private jets to plead
for a bailout of $25bn and were unable to answer even basic questions.

Despite this, GM’s board continued to back Wagoner until he was fired by
Barack Obama as the price of a government bailout. “GM executives had
come to believe that solving their problems was impossible and living
with them was inevitable,” Ingrassia writes.

The question now is whether outsiders, helped by debt-shedding
bankruptcy (resisted by Detroit until the end) can do better. Fritz
Henderson, Wagoner’s successor, has been pushed out by Ed Whitacre, a
former chief executive of AT&T and now GM’s chairman. Ford is being run
by Alan Mulally, a former Boeing executive, and Sergio Marchionne, the
head of Fiat, has taken over Chrysler. The line-up in Detroit, redoubt
of the Midwestern “car guys”, is now one telecoms guy, one aerospace guy
and one Italian.

A changing of the guard may not be enough. Ingrassia shows convincingly
how Detroit’s problems built up, even during decades when it seemed to
be doing well. It allowed Asian and European companies to shove it aside
in its own heartland, and now the Chinese are coming.

Detroit was not always a basket case. It was the Silicon Valley of the
early 20th century, a crucible of US product innovation and flair. All
good things, however, come to an end.


--
Civis Romanus Sum

Jim Higgins wrote:
> Crash Course: The American Automobile Industry’s Road from Glory to
> Disaster
> http://www.ft.com/cms/s/2/78e355e0-06e0-11df-b058-00144feabdc0.html
> Crash Course: The American Automobile Industry’s Road from Glory to
> Disaster By Paul Ingrassia
> Random House $26, 320 pages
>
> Japanese car companies, which overtook US ones in the early 21st
> century, leading to the bankruptcy of General Motors and Chrysler last
> year, used a method of industrial innovation called kaizen, usually
> translated as “continuous improvement”. From a humble start, the
> Japanese companies had got better and better at making cars that were
> economical and reliable.
>
> Meanwhile, Detroit perfected the technique of occasional improvement.
> As the Big Three – GM, Ford and Chrysler – slid deeper into trouble
> over decades of complacency, union obstructionism and mismanagement,
> they would occasionally stage a temporary recovery, with some new car
> or
> initiative prompting books and magazine articles about a Detroit
> revival.
> This all proved to be illusory, with Detroit’s detour from making cars
> (ground that it had in effect ceded to foreign rivals by the
> mid-1990s) to producing “light truck” sports utility vehicles as the
> biggest
> deception of the lot. These were just upward blips on a long, steady
> descent from technological dominance to global laughing stock.
>
> This is a familiar story adroitly retold by Paul Ingrassia, a veteran
> Wall Street Journal reporter who has written about Detroit over the
> years but maintains his sympathy for the human beings whose lives were
> crushed by this vast systemic failure.
>
> In his effort to isolate what went wrong, Ingrassia goes back to the
> early 20th century, when Detroit was a “Mecca for automotive
> entrepreneurs” such as Henry Ford. Things had clearly gone downhill by
> the 1970s, when Detroit’s quality standards suffered: cars such as the
> Chevrolet Corvair and Ford Pinto had reportedly broken down and
> exploded.
> There were, however, warning signs before that, when Detroit’s early
> focus on technology began, by the 1950s, to give way to an obsession
> with marketing and design. Ingrassia makes an entertaining journey
> into the history of tail fins. In 1948, these were borrowed from a
> Lockheed
> fighter by Harley Earl, GM’s chief designer, leading to a stylistic
> arms race.
>
> One could trace it back further. Ingrassia’s account led me to wonder
> if GM was an aberration from the start. It sounds like heresy to even
> suggest it: business schools still study how Alfred Sloan turned Billy
> Durant’s rag-tag collection of brands into the epitome of the
> professionally managed US corporation.
>
> Sloan was, as Ingrassia says, “low-key, methodical and prudent” and
> shaped GM into a portfolio of car brands, including Oldsmobile,
> Cadillac and Buick, intended to serve “every purse and purpose” in
> the US postwar market. He also pioneered techniques of marketing and
> design – the latter under Earl – that lured customers away from the
> boring,
> technology-oriented Ford, with its black-only Model Ts. GM overtook
> Ford and became the car industry’s dominant institution.
>
> Yet Sloan’s vision of turning cars into dream machines, embodiments of
> their owners’ aspirations, left a gap that the Japanese, and later
> Korean, automobile companies later exploited. Unfortunately, Detroit
> came to believe that sizzle sold, while technology and reliability
> were of secondary importance.
>
> Two other factors made Detroit vulnerable. One was its provincialism.
> Michigan became a one-industry state, dominated by the Big Three and
> hundreds of auto parts suppliers. It became unthinkable that auto
> companies could be run by anyone but Midwestern “car guys”.
>
> A second vulnerability was the grip of the United Auto Workers (UAW)
> union, led by Walter Reuther, who exploited the complacency of the Big
> Three in the 1950s and 1960s, when money was flowing, to hammer out
> labour deals that later produced vast pension and healthcare
> liabilities.
> Such forces not only made Detroit underestimate the Japanese invasion
> but also prevented it from responding effectively when it woke up. The
> Big Three maintained the comforting mantra that the plain, reliable
> cars being built by Nissan and Toyota – the Model Ts of their day –
> were alien to American tastes.
>
> Ingrassia describes the moment in 1979 when Detroit should have ceased
> kidding itself: when Honda built its first US plant in Ohio and showed
> that American workers could make high-quality cars. It was not a
> matter of nationality, it turned out, but of good management.
>
> The SUV boom of the 1990s brought a stay of execution, allowing the
> Big Three to prosper by switching from a losing struggle to produce
> decent cars and instead make bulky, highly profitable, light trucks.
> Eventually this avenue would be closed off by surging oil prices.
>
> The tragic figure in this account is Rick Wagoner, an amiable,
> intelligent executive who was appointed chief executive of GM in 2000
> and eventually led it to near-bankruptcy. Wagoner baulked at
> confronting GM’s structural problems head-on, and instead tried to
> make the best of them.
>
> Such complacency in the face of trouble finally backfired at last
> year’s disastrous hearings in Washington at which the Big Three’s
> chief executives – and the head of the UAW – arrived on private jets
> to
> plead for a bailout of $25bn and were unable to answer even basic
> questions.
>
> Despite this, GM’s board continued to back Wagoner until he was fired
> by Barack Obama as the price of a government bailout. “GM executives
> had come to believe that solving their problems was impossible and
> living
> with them was inevitable,” Ingrassia writes.
>
> The question now is whether outsiders, helped by debt-shedding
> bankruptcy (resisted by Detroit until the end) can do better. Fritz
> Henderson, Wagoner’s successor, has been pushed out by Ed Whitacre, a
> former chief executive of AT&T and now GM’s chairman. Ford is being
> run by Alan Mulally, a former Boeing executive, and Sergio Marchionne,
> the
> head of Fiat, has taken over Chrysler. The line-up in Detroit, redoubt
> of the Midwestern “car guys”, is now one telecoms guy, one aerospace
> guy and one Italian.
>
> A changing of the guard may not be enough. Ingrassia shows
> convincingly how Detroit’s problems built up, even during decades when
> it seemed to
> be doing well. It allowed Asian and European companies to shove it
> aside in its own heartland, and now the Chinese are coming.
>
> Detroit was not always a basket case. It was the Silicon Valley of the
> early 20th century, a crucible of US product innovation and flair. All
> good things, however, come to an end.

The end was always in the cards with American style free trade
capitalism. Japan, to this day, exercises protectionism to protect
home industries.