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This is copied and pasted, just thought it was an interesting article.
Shape up or ship out.
11 October 2003
The Economist Newspaper Limited, London 2003.
America's car industry
For the first time in August, Toyota sold more cars in America than Chrysler. Can anything be done?
THE last big book about Detroit was "Comeback: The Fall and Rise of the American Automobile Industry" by Paul Ingrassia and Joseph B. White. Published in 1994, it chronicled how Bob Lutz and others masterminded the recovery of Chrysler from its second brush with bankruptcy, and how Ford and General Motors (GM) learned from the Japanese how to make cars of quality more efficiently using "lean production".
Sure enough, Detroit did look to be cruising along smoothly. Ford, in particular, was making bumper profits by the late 1990s. But the wheelnuts, unnoticed, were loosening and by the end of the decade the wheels had started to come off. In August this year, Toyota sold more cars in America than Chrysler. A fluke, maybe. But the fact is that Detroit is steadily losing ground to its Japanese competitors. The shift also reflects how much the city has declined in importance in the past decade. Chrysler realised it could not survive as an independent company and sold out to Daimler-Benz, makers of Mercedes.
Ford is still reeling, after a crisis that saw its chief executive dumped and the young great-grandson of Henry Ford take the wheel. Ford's profits were $7.2 billion in 1999; by 2001 it was losing $5.4 billion. GM has picked up some momentum, gaining market share, but mainly by discounting. GM started a price war to keep sales going after September 11th 2001, when car showrooms emptied of people. The trouble is, as its chief executive, Rick Wagoner, admitted earlier this year, discounts soon stop being effective sales boosters and suck down profitability.
Micheline Maynard's crisply written book coolly analyses the causes of the latest fall of Detroit. Whereas "Comeback" was replete with colourful stories set in smoke-filled rooms with big personalities and swashbuckling deals, her book digs out the underlying story that was gnawing at Detroit's entrails even as it proclaimed its revival. No fewer than 200 pages are devoted to the plodding professionalism with which the big Japanese, South Korean and European manufacturers planned their assault on the American industry. Inevitably it is a less colourful read than the comeback book, but it provides a more valuable analysis of what has really been going on.
Many in the American car industry have been slow to appreciate how serious the problem really is. The big three manufacturers were used to hard times; they just hoped to make more money in booms than they lost in busts. But their current problems are different. Car sales are still at historically high levels; it is just that Detroit's share of these sales has slumped. Japanese, South Korean and German models (whether imported or made in the 17 car factories that foreigners have opened in America in the past 20 years) account for half of car sales, and are advancing onDetroit's last redoubt - the gas-guzzling minivans, sport utility vehicles and pick-ups so beloved of suburban cowboys.
In 1960, GM alone had 60% of the American market; today it can count on barely half that and the foreigners' share of the light-vehicle market is already 40%. Ms Maynard pinpoints the difference between the men who run the big three and the leaders of successful foreign car companies. She contrasts the financial background of those at the top of GM and Ford with the car knowledge of Toyota's boss, Fujio Cho, who cut his teeth running one of the company's first American factories. Similarly, the bosses of German car companies, such as Volkswagen, BMW and Mercedes, are all engineers, passionately interested in everything to do with cars.
But there is more to Detroit's weakness. The big three manufacturers have to deal with the powerful United Auto Workers Union, which has won its members great benefits while employers are saddled with pension and health-care costs that top $1,200 per vehicle. Ms Maynard concedes that Detroit is fighting back, with a new emphasis on the quality and attractiveness of the products. But she still sees Toyota becoming the biggest car company in the world, overtaking GM, and probably having no less than 15% of the worldmarket, its stated aim. She is right: Toyota will prevail. Detroit's choice is between shrinking or sinking.
Shape up or ship out.
11 October 2003
The Economist Newspaper Limited, London 2003.
America's car industry
For the first time in August, Toyota sold more cars in America than Chrysler. Can anything be done?
THE last big book about Detroit was "Comeback: The Fall and Rise of the American Automobile Industry" by Paul Ingrassia and Joseph B. White. Published in 1994, it chronicled how Bob Lutz and others masterminded the recovery of Chrysler from its second brush with bankruptcy, and how Ford and General Motors (GM) learned from the Japanese how to make cars of quality more efficiently using "lean production".
Sure enough, Detroit did look to be cruising along smoothly. Ford, in particular, was making bumper profits by the late 1990s. But the wheelnuts, unnoticed, were loosening and by the end of the decade the wheels had started to come off. In August this year, Toyota sold more cars in America than Chrysler. A fluke, maybe. But the fact is that Detroit is steadily losing ground to its Japanese competitors. The shift also reflects how much the city has declined in importance in the past decade. Chrysler realised it could not survive as an independent company and sold out to Daimler-Benz, makers of Mercedes.
Ford is still reeling, after a crisis that saw its chief executive dumped and the young great-grandson of Henry Ford take the wheel. Ford's profits were $7.2 billion in 1999; by 2001 it was losing $5.4 billion. GM has picked up some momentum, gaining market share, but mainly by discounting. GM started a price war to keep sales going after September 11th 2001, when car showrooms emptied of people. The trouble is, as its chief executive, Rick Wagoner, admitted earlier this year, discounts soon stop being effective sales boosters and suck down profitability.
Micheline Maynard's crisply written book coolly analyses the causes of the latest fall of Detroit. Whereas "Comeback" was replete with colourful stories set in smoke-filled rooms with big personalities and swashbuckling deals, her book digs out the underlying story that was gnawing at Detroit's entrails even as it proclaimed its revival. No fewer than 200 pages are devoted to the plodding professionalism with which the big Japanese, South Korean and European manufacturers planned their assault on the American industry. Inevitably it is a less colourful read than the comeback book, but it provides a more valuable analysis of what has really been going on.
Many in the American car industry have been slow to appreciate how serious the problem really is. The big three manufacturers were used to hard times; they just hoped to make more money in booms than they lost in busts. But their current problems are different. Car sales are still at historically high levels; it is just that Detroit's share of these sales has slumped. Japanese, South Korean and German models (whether imported or made in the 17 car factories that foreigners have opened in America in the past 20 years) account for half of car sales, and are advancing onDetroit's last redoubt - the gas-guzzling minivans, sport utility vehicles and pick-ups so beloved of suburban cowboys.
In 1960, GM alone had 60% of the American market; today it can count on barely half that and the foreigners' share of the light-vehicle market is already 40%. Ms Maynard pinpoints the difference between the men who run the big three and the leaders of successful foreign car companies. She contrasts the financial background of those at the top of GM and Ford with the car knowledge of Toyota's boss, Fujio Cho, who cut his teeth running one of the company's first American factories. Similarly, the bosses of German car companies, such as Volkswagen, BMW and Mercedes, are all engineers, passionately interested in everything to do with cars.
But there is more to Detroit's weakness. The big three manufacturers have to deal with the powerful United Auto Workers Union, which has won its members great benefits while employers are saddled with pension and health-care costs that top $1,200 per vehicle. Ms Maynard concedes that Detroit is fighting back, with a new emphasis on the quality and attractiveness of the products. But she still sees Toyota becoming the biggest car company in the world, overtaking GM, and probably having no less than 15% of the worldmarket, its stated aim. She is right: Toyota will prevail. Detroit's choice is between shrinking or sinking.
