Guest Commentary: Detroit's Big Three on the Road to Oblivion
July 23, 2007
Oh, how my old colleagues in the U.S. liked to tease if the topic of the decline of the U.K. auto industry arose.
The derision was deserved. The U.K. automotive industry was second in scale only to that of the U.S. in the 1950s. It was the world’s leading car exporter, putting bread on hundreds of thousands of tables across the country.
Today, the U.K.’s indigenous manufacturers have either vanished or been taken over by foreign competitors. No other country has so nonchalantly kissed good-bye so much potential wealth-creation in so short a time.
But events in the U.S. auto industry, where the Big Three's share is nearing less than 50 percent, parallel those in the U.K. a couple of decades ago.
Whisper it, but Detroit is now on that same road to oblivion.
In the U.K., it happened across the board -– to cars, medium and heavy trucks, buses, motorcycles, components suppliers and most of the machine tool industry.
Names like Austin and Morris, Triumph and Rover, Hillman and Humber, Leyland and Foden, BSA and Lucas succumbed to Darwinian extinction. They and scores of others were condemned to their fates by inept managers, poor products, meddling governments, pathetic quality, Bolshie employees, failed promises and (most important of all) disillusioned car buyers.
They did not deserve to survive.
Coventry Foreshadows Detroit’s Future
The city of Coventry was the country’s equivalent of Detroit, the cornerstone of its auto industry. It paid a terrible price for that importance in World War II bombing raids. One history of Coventry’s famous car marques lists 110, including Alvis, Armstrong-Siddeley, Chrysler, Daimler, Hillman, Humber, Jaguar, Lanchester, Lea-Francis, Peugeot, Riley, Rover, Singer, Standard, Sunbeam and Triumph.
But where metal was once cast, forged, bashed and welded to create cars, trucks and tractors, there are now housing developments or shopping malls.
The only surviving automaker produces the iconic London taxis in small numbers.
The good news is that the U.K. found a new role when its domestic automakers withered. High-quality volume production continues in the country thanks to a trio of transplants (Honda, Nissan and Toyota) and BMW’s Mini factory. Whoever they are, the new owners of Jaguar and Land Rover will probably also continue to make cars in the country, just as Aston Martin, Bentley and Rolls-Royce do.
But, for Coventry today, read Detroit tomorrow. There is a growing conviction on this side of the Atlantic that U.K. history is repeating itself in the U.S. The U.S. auto industry is much bigger, so it will take longer to drive down the road to oblivion once taken by the U.K.
Have no doubt, though. The journey has begun.
Home Defeat
One microcosm from the U.K. provides a portent of what is likely to happen in the U.S.
Rover, Triumph and Jaguar were once the aspirational brands for every successful businessman, banker and lawyer in my country. For years, no one took foreign firms seriously. Slowly but surely, though, premium sector buyers began to learn to appreciate Volvos, BMWs and Mercedes-Benz.
The word spread, and the rest is history. Rover and Triumph are nothing but footnotes in history books and Jaguar was comprehensively screwed up by Ford. No one should have been surprised.
Cadillac and Lincoln are the U.S. equivalent of Rover, Triumph and Jaguar. For years, they were the automotive gold standard. Even as recently as the mid-1980s, Americans bought more than 300,000 Cadillacs each year and around 175,000 Lincolns. Annual sales of BMWs and Mercedes-Benz at that time were well under 100,000. Toyota’s Lexus did not then exist.
These days, Cadillac sells a fourth fewer vehicles each year than it did a couple of decades ago. Lincoln sales are off by a third. Meanwhile, well in excess of 300,000 Americans choose Lexus each year, and sales of the German brands are in the 250,000 to 275,000 range.
Does anyone except Detroit boosters believe the rival sales graphs will change direction any time soon?
The talk now at General Motors and Ford is of the need to produce "Lexus fighters." Good idea. But that’s just PR spin that conveniently ignores how GM and Ford lost their home turf advantages in the first place.
Meanwhile, as those Cadillac and Lincoln advantages were squandered, GM and Ford self-confidence told them to add European trophy brands. As that was nearly two decades ago, one might have expected positive results by now. Instead, Ford’s ownership of Jaguar brought nothing but grief, and GM went nowhere with Saab.
In spite of the untold money and manpower thrown at Cadillac/Saab and Lincoln/Jaguar, buyers are losing faith.
All this happened, remember, during the longest and strongest global sales expansion in automotive history. Sales of Audis, BMWs and Mercedes-Benz soared as those of GM’s and Ford’s premium brands atrophied.
It was not just bad luck on the part of GM and Ford. It was bad planning, just as it was by the British Leyland and Rootes groups in the U.K. all those years ago.
Where Have All the Buyers Gone?
That’s just one sector. The problem for Detroit is that the same is happening across its home market. Excuse the statistics, but they’re necessary to understand the scale of the problem.
Car and light truck buyers in the U.S. were intensely loyal for years. Even by the end of the 1960s, imports accounted for no more than 10 percent of the market. The light truck sector, accounting for 15 percent of the total, was 95 percent loyal to local products.
Everyone knows what happened after that. In 1986, the year I went to work in Detroit, consumers in the U.S. bought just over 16 million cars and light trucks, a record that would stand for many years. Even if import brands had by then achieved a market share of 26 percent, what did it matter? The combined annual sales of GM, Ford and Chrysler still approached 12 million.
Fast-forward a couple of decades. Car and light truck sales in the U.S. last year were at a similar level, around 16.5 million. The problem for the Big Three was that import brands took 46 percent of the total. In other words, the domestics were responsible for fewer than 9 million of the vehicles bought by Americans.
And the figures are falling. This could be the year the Big Three fall below 50 percent of U.S. market. In June, Big Three market share stood at 50.3 percent. Some experts, including David Cole, an industry analyst whose father was once a president of GM, predict Big Three share eventually could fall to 40 percent.
That’s a mighty drop. With the exception of South Korea, imports gained in popularity in other countries with well-established domestic auto industries -– in Japan, Germany, France and Italy. But America’s warm embrace of import brands is as loving as it was in the U.K. –- and we saw where that led.
Along the way, the U.S. also proved as careless as the U.K. in abandoning famous nameplates. The post-war automotive casualty list includes De Soto, Edsel, Hudson, Kaiser, Nash, Oldsmobile, Packard, Plymouth, Rambler, Studebaker, Willys and probably more I’ve forgotten.
All this helps to explain the numbing financial losses, the factory closures and job cuts now taking place at GM, Ford, Chrysler and across the components sector. It doesn’t explain why the U.S. industry got things so wrong.
Certainly the infamous legacy costs are an issue, and so from time to time are exchange rates. But, just like the U.K., the root cause of the Big Three’s woes is a consistent failure to connect with enough customers. If Detroit offered enough products consumers wanted, legacy costs would not be the problem they are.
Management Mystery
It’s clear that top managements, then in the U.K. and now in the U.S., are not as clever as they think they are. It is one of the great mysteries of commerce.
Automakers recruit the brightest and the best. They hire great engineers and designers, creative product planners and marketing people, solidly reliable financial and legal experts. These big decision-makers carry full complements of MBAs and industry accolades.
They are talented people who work hard and are handsomely rewarded. Their task is to create products that consumers want, and in many cases cannot live without. To do so, they are provided with budgets that are exceeded only by national defense departments and aerospace companies. How hard can the task be?
Time after time, though, these ever-so-clever people collectively screw up. Despite historically high levels of demand, the Big Three last year failed to make hangar-loads of profits. It is no way to run a hot dog stand, let alone a major industrial corporation.
It is therefore frightening to imagine how Detroit will fare when the next sales slump arrives, if it isn’t here already. Whole communities seem destined to suffer. The results will go beyond the thousands of employees, shareholders, suppliers and dealers directly involved. The ripple effect will reach into regional shopping centers, the housing market and as far as pumped-up politicians in the nation’s capital.
It’s what gradually happened to the U.K., auto industry a generation ago. From this side of the pond, it looks as if the same is happening in the U.S.
You have been warned.
About the Author
Born in Cambridgeshire, England, in March 1945, Richard Feast trained with a local newspaper group before joining Autosport, a weekly international motor sport magazine based in London. After a number of short-term assignments, he rejoined Autosport, by then owned by Haymarket Publishing, in 1970 as editor. In 1973, he was the launch editor of Haymarket’s What Car?, at the time a new concept in consumer journalism. Feast left Haymarket at the end of 1979 to become a freelance writer, specializing in the international automotive industry. Increasing work as European editor of Automotive News led to a four-year assignment at Crain Communications in Detroit where he became international editor of Automotive News and editor for a period of the same publisher’s AutoWeek magazine.
Feast returned to England in 1990 to become a freelance writer once more. Since then, he's worked regularly at different times for Automotive News Europe, Automotive Industries, FT Automotive World, Car, Top Gear, Motor Industry, International Fleet World, Supplier Business, Automobile, New York Times, Wall Street Journal, Daily Telegraph, The Independent and others.
Feast is the author of Kidnap of the Flying Lady (MBI, 2003), an investigation into how Vickers sold Rolls-Royce and Bentley to BMW and Volkswagen respectively, and The DNA of Bentley (MBI, 2004), a history of the Bentley marque.
Feast is now semi-retired.
Posted by Michelle Krebs at 3:22 PM under Analysis , Commentary , Featured | Comments (11) | digg this | Seed Newsvine
as a retired domestic dealer, i feel this is the best article on the fall of the domestic car business. i think gm will have the hardest time surviving because they are jugling way too many brans and their board is incapable of good decisions thanks tim p
Posted by: tim parra | July 24, 2007 at 6:53 AM
I believe the 3 auto makers here make products that the general public don't want here.
They push their products without asking the customer what he or she wants in an automobile at a fair price, the expect to profit at a greedy sum. If they would build a product to suit the customer without pushing them on the general public they could recover. Maybe they should all take a general survey and ask us, what kind of product we would like to see on the road without them pushind an overprice one with all the options for a helfty price. They used to make products for all segments of society. Now they make products for the very rich, now how many are filthy rich here when we have an erosion of the middleclass and the poor can not even buy a car. How many rich folks are going to buy a new product every year???
Posted by: Ernest Lujan | July 24, 2007 at 10:35 AM
There's a flaw in this comparison: in the UK, both domestic and global sales declined, which led to extinction. US manufacturers are growing overseas. GM recently began selling more vehicles outside the US than inside, and the increase more than offsets declines in the home market. Buick's biggest market is now China, not the US. If you say that GM is headed for failure, how do you explain that total global sales are increasing?
Posted by: Dan | July 24, 2007 at 11:31 AM
Good point, Dan. There are many differences between then and now .... stay tuned.
Posted by: Michelle Krebs | July 24, 2007 at 11:58 AM
Real estate is location, location, location; automobiles are styling, styling,styling. The last time Detroit had any idea of automobile style was the 1930's when E L Cord and Edsel Ford/Bob Gregorie oversaw the creation of truly world-class design that interpreted and equaled that of the leaders, Italy and France. With the passing of the Lincoln Continental, the Packard Clipper and the Cadillac 60 Series cars, Detroit entered the design wilderness in the 1950's, populated by flash-in-the-pan "rocketship cars" and other chrome beasts that no one could love long term.
Cord forever had problems with his innovative engineering, but they did not prevent his order backlog to number in the thousands. No one ever bought a Jaguar because of its low maintenance. They flew out of the showrooms for one reason: world-class style.
The surprising thing is that Jaguar and Ford-Europe styling ability does not rub off on Ford domestically. Ford says the "Way Forward" is through engineering, but styling is what saved the company in the past. If the Model A had not been introduced in 1928 nor the Custom in 1949, Ford would have joined Packard, Hudson et al at that great car lot in the sky long ago.
U.S. carmakers can take back 10-15% of the domestic market anytime they choose. Simply a matter of getting in step with Italian/European classic mainstream design. All the German car makers ( and the Japanese who follow them) understand this truth and present a retro, Italian look to their cars. Look at the success Hyundai has had in the last decade following this formula. Will the "lost city" of Detroit find its way back? Hard to say, but the way is clear.
Posted by: William Patch | July 25, 2007 at 11:11 AM
The US auto industry competes with IT and the space/defense industries for top talent, and probably is losing more than they are winning. In Germany, Daimler, Porsche, Audi, and BMW are regarded among the country's most desirable employers. That makes all the difference in the world when it comes to securing the brightest minds. Also, engineers there love just being engineers, so they tend to stay more involved with nuts and bolts even if their talent eventually takes them more into mgmt. Ferdinand Piech as VW CEO could still sketch the solution to a suspension component problem on a napkin, to the utter amazement of the American supplier CEO he was having dinner with.
Also, I believe a far lower percentage of US auto engineers actually desire to drive the vehicles they are engineering, maybe except for pickups and Mustangs or Camaros. Conversely, drive a Mercedes or Audi wagon, and you'll see engineering details that only somebody who wanted one desperately for himself could come up with.
The German and US auto industries however both share the insular mentality that leads them to dismiss Japanese and Korean competitors until its too late, I'm sorry to say. So, while the US side has painted itself into an unsustainable ecological niche, the German side is fast doing the same in its own little niche. That would make for the next chapter, maybe in 10 years.
Posted by: Roger Kluever | July 26, 2007 at 9:38 AM
I'm pretty sure that more cars are now being built in the US than at any time in history. The problem for GM, Ford, and Crysler is that Asian car manufacturers have moved into the US and started building cars here too. How is my Honda Accord built in Ohio less American than a Ford Fusion built in Mexico? In what way is a V8 powered Nissan Titan full size pickup truck Japanese? Unlike the UK, the huge size of the US market tends to attract domestic manufacturing of cars in sizes and shapes Americans like. The US consumer doesn't need GM, Ford, and Chrysler to exist to have a good selection of made in USA cars, SUVs, and even pickup trucks.
Posted by: George B | July 26, 2007 at 2:40 PM
Having worked for a former GM component division, I found the article pretty spot on. The bottom line, the vast majority of the blame must be placed at the feet of the auto industries' former management teams. Starting in the late 60's, unions pretty much got away with murder. Who let them get away with murder? Management. All decision making was focused on keeping the assembly lines running at all costs; and all of those costs have nearly sunk the ship. I was lectured while working on the platform that produced the Cavalier, "People don't want small cars. GM means big cars, alway has, always will. You guys are just wasting money." Our budget was cut, time and time again. Those cars had no prayer of ever being successful. Customers, if considered at all, were taken for granted. For example, I heard, first hand, Senior Management people at GM laughing at their bread and butter Cadillac Customers who had unfortunately bought both the cars with the diesel engines and the 4-6-8 V8's. Internally generated quality ratings were systematically doctured to the extent that Management was forced to implement a program of what was known as "rail head audits" where cars were literally hijacked from car carriers after they left the factory, taken back to engineering and QC'd by a team of indepentdent engineers to provide real data on the quality of the cars. Often the rail head audits showed 5-6 times the error rates as those coming from the factories. But nothing changed. It was well known that your career would be ended if you purchased a foreign car. This, in the name of company loyalty, left those of us in management that really cared no way of gauging how bad our products really were. I was reprimanded for being seen at the wheel of my friend's Mazda RX7 over a weekend and asked to consider "what kind of message I was sending to the community." I am not making this up. But, the people that are truly responsible for this incredible failure got their bonuses, have their 100% company paid health care, and get their nice fat pension check every month from good old Generous Motors. I started at GM right out of college in 1979 and by 1988 I couldn't take it anymore and quit. My peers admired my guts to stand by my convictions that we were sailing into oblivion. All but one have since left or been terminated. My parents, both GM retirees, told me " I would regret the decision for the rest of my life." Both have since tearfully begged my forgiveness. And the proud, once bustling facilities in Warren, Ohio that once employed 15,000 employees, will have less than 600 by the end of the year. 8 out of the 10 plants will be permanently closed. In my worst fears for the company, reality has in fact turned out to be worse than I ever feared. All due to bad management.
Posted by: Cliff S | July 28, 2007 at 1:54 PM
This is a well-written article, and it informed me a lot about the demise of the British car industry. But the article made one fatal assumption: the competition never makes mistakes. Let's face it, if the car companies that made the best products always made the best decisions, none of us Americans would ever have heard of Honda, Toyota, or Nissan. Somewhere along the line, GM, Ford, and Chrysler got screwed by poor products and management. The same thing can happen to the untouchables, (Honda and Toyota). Need proof? Look no further: the Toyota Yaris, which Edmunds.com, usually favorable to to Japanese brands, thought was forgettable.
Posted by: Ryan C | July 28, 2007 at 9:42 PM
Iam a retired employee of Gm. Yes, we've had some pretty sad designs over the years ,especially the eighty's come to mind. That period of time was during Roger Smith's reign when he drove the company in the ground. In the early 90's Robert Stempel was the Chairman, he was a " Car Guy " NOT A BEAN COUNTER. Unforturnatley he was ousted after only 2 years in that position. I get tired of hearing about bad design. Are you telling me that a Toyoto Camary design is better than say a Pontiac Grand Prix or the Chevy Impala, No way! ! And the new Cadilliac's more than hold there own and some against their European competition. The American public seems to have a misguided view of the domestic auto's. Try reading reading the Harbour report on the great strides in quility that have been made.I would never ever think of buying anything but an American brand car
Posted by: Fred Shinavier | August 07, 2007 at 12:23 PM
I think the reason Detroit is where it is was that it took the average American buyer for granted and for many years, gave us boxy, uninspired cars that made the models they made in the mid to late 50's as sci fi stuff and lost they're styling lead of the 60's as regulations, and oil prices wreaked havoc in the 70's and 80s. They kept giving us boxes, look alike models, and with few exceptions, let their car lines get longer in the tooth while at the same time, kept increasing their base prices. Case in point? Cadillac's ElDorado coupe! It's last re-style was in 92... and was basically the same for the next decade, while the price kept going up. Who in their right mind is going to pay premium for a new car with a decade old design??? GM and Ford let their car lines lag while they invested on SUV's... so where did the consumers flock to? They fled to foreign cars in droves because they re-designed their cars in short cycles compared to Detroit. So... if Detroit wants us to buy their cars... I suggest they get a clean sheet of paper, and let their designers do their stuff... and not the bean counters or market research groups.
Posted by: Tomas Rosales | October 17, 2007 at 10:59 PM