Mon 15 Dec 2008
At the time of writing, the US motor industry is in critical condition. Both GM and Chrysler are running out of cash reserve and are likely to fall into bankruptcy soon if the US government refuse or fail to bailout. The chain effect could drag down hundreds of parts suppliers and eventually Ford as well. This is definitely the most serious crisis that US motor industry ever experienced.
GM, Ford and Chrysler have long and glorious history. They were the strongest car makers in the world and made Detroit the global center of car industry. Their achievement peaked at the 1950s and 60s, when American cars became the standards of the world. In the 70s they were hit by oil crisis. In the 80s they started losing to the Japanese car makers led by Toyota, Honda and Nissan. These foreigners stole the market firstly by imports, then by establishing factories in the US and localizing their cars. The Big 3 bounced back a little from the late 1990s to early this century, thanks to the popularity of their trucks and SUVs which the Japanese had yet to offer. Unfortunately, over-reliance on these thirsty vehicles led to another crisis since 2006, as international oil price surged to new height. In addition to the credit crunch in 2008, Big 3 recorded huge losses and simply found themselves unable to survive the economic crisis. In the end, they need to ask for government bailout.
As late as 1973, the Big 3 still owned 80% market share of their domestic market. Last year, it dropped to less than 50%, which means sales of foreign brands exceeded domestic brands for the first time. What is the reason behind the fall of American motor industry ?
It is easy to criticize American cars – poor quality, cheap materials, ugly, heavy and thirsty, low-tech – to name a few. However, let us be fair. American car makers changed a lot in the recent 3-5 years. Their cars ranked quite well in JD Power reliability and satisfactory surveys. They operate some of the highest efficiency assembly plants in the US, even better than their Japanese counterparts. Their new cars are normal sized and mostly well designed. Their new engines are as high-tech as imports, using multi-valve, VVT and direct injection technology like others. Whenever they get serious, they could produce very high quality and stylish products, like Cadillac CTS and Chevy Malibu. They are also capable of building fun-to-drive cars like Corvette ZR1, Cadillac CTS-V, Ford GT, Ford Fusion and Chrysler 300SRT-8.
Unfortunately, they fail to deliver good results consistently in all products. Although GM has the right expertise and technology to make Cadillac CTS and Chevy Malibu, they could not afford to do as well in other cars. Why ? There are two main reasons. First, GM has too many brands and nameplates which stretch the R&D and sales budget of each model thin. Killing half the brands – say, Buick, Pontiac and Saturn – will increase the budget on each model by around 50 percent, making their cars better engineered, better built and better advertised, thus greatly improve their competitiveness. However, that means GM will need to buy back hundreds of dealerships in the US, which is something it could not afford in the current situation of course. Suppose GM did that a few years back when the economy was good, it could have survived today’s crisis more easily. This problem reflects the lack of long-sighted vision of the Big 3 administration.
The second reason concerns their workforce. The majority of the Big 3 workers are members of the powerful United Auto Workers union (UAW). They enjoy much higher wages, health care and pensions than the non-union workers of Japanese-owned plants. In addition to the payment to their 540,000 retirees, the hourly cost of each functioning UAW worker is US$74, versus US$45 for the workers at Japanese-owned plants. This translate to a disadvantage of around US$2000 per vehicle. No wonder American cars try so hard to save money by using cheaper parts, older technology and spent less money on development. As a result, they are perceived to be second class and gradually lost the favour of their own people. In the past few years the Big 3 tried to negotiate for better terms – with limited success – but the position of UAW is still very stiff. Like the management of car makers, the leaders of UAW are short-sighted.
No matter what mistakes the American motor industry made, we are unwilling to see its bankruptcy, because AutoZine always appreciate the diversity of cars. Without American cars, the automotive world will not be the same again. 5 years ago we might be less regret to see those dinosaurs extinct, but seeing how much progress the new generation American cars have made in recent years, we think the Big 3 deserve another chance. Please give it !