On the Failure and the Future of the US Automobile Industry

The American automobile industry was once a national source of pride; now it is a national disgrace.  When the Ford Mustang launched in 1964 (and 1/2) it seemed like Detroit could do no wrong.  They were making money hand over first, their innovations were celebrated by the press and consumers had big cars and big smiles.  Hardly anyone noticed when the VW Beetle was introduced to the US market in the 1950s.  By 1968 it was selling 400,000 cars a year in the US.  Instead of taking a hard look at this phenomenal seller, US industry executives effectively ignored it, instead patting themselves on the back for their most recent (and much cooler) muscle cars.

The VW Beetle and first Toyota Corolla were completely different than anything coming from Detroit.  Indeed, Big Three executives laughed at their meager proportions, anemic engines and functional style.  The laughter ended in 1973 when the first major fuel crises forced Americans to consider that silly little mpg number.  Suddenly, the American public realized that these foreign cars made sense and they never stopped buying them.

By the mid 1970s, the Big Three automakers realized they were unprepared for this new marketplace that valued fuel efficiency over horsepower, functional design over superficial styling, reliability over new gadgets.  After three decades of building cars (and car companies) for the booming post war marketplace, they were unprepared for a belt tightening future.  They panicked because the task ahead seemed too frightening.  Indeed, it would have required admitting their competitors were producing better products, it would have required reorganizing their entire companies around new objectives and purging a large portion of their executive management to make room for new people who could change the company.

By 1980, Toyota was producing cars with 90% less defects than American manufacturers.  (I’ll provide citations on Monday.)  This wasn’t because the Japanese were superior car makers: it was because they had a superior car making process. The Toyota Production System (TPS) deindividualized the manufacturing process: allowing teams of workers to be responsible for and solve problems concerning a section of a car instead of having each individual simply perform the next step in the manufacturing process.  By the mid-1980s the Big Three realized they needed to adapt lean production principles and retool or they would actually die.  At great embarrassment and expense, Big Three executives traveled to Japan to learn this new process.  By the time they implemented it so had nearly every other manufacturer of first world consumer goods.  In other words: too little, too late.

…I could continue on this history of the collapse of the US auto industry (and I may continue later) but the real question of the day is what do we do about GM?

The fact of the matter is that the US automobile industry is different than the airline industry because it plays a significant role in our national security.  Cars are weapons of war.  Thus, we cannot simply let free market forces destroy our capacity to create them.  However, if the government wants to get involved with GM, it shouldn’t throw good money after bad and invest in a team of people who cannot produce a decent car.  They should buy the company outright and commit to investing an exact amount of money into it’s revival: no more, no less.  Obama should get the smartest people possible to evaluate GM’s assets and create the paradigm of 21st century automobile manufacturing.  Indeed, they should pioneer a cooperative automobile company that builds good military vehicles (economical, reliable and green) and sells them to civilians.  That’s more or less how the VW Beetle was birthed.

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