My friend Greg, a resident of Santa Monica, California, recently asked my opinion about prospects for the Detroit Three auto manufacturers, and in response to my gloomy forecast, he seemed rather defensive, almost as if it were personal. I had to think about why that might be. Now in his late 60s, Greg is a true-to-your-school type of guy who still likes to recall his Purdue Boilermakers’ being number one in the country in 1966. (He grew up in Logansport, Indiana.) On my wedding day in 1981, Greg chauffeured my bride and me around L.A. in his ’62 or maybe it was a ’63 Chevy, which was a pretty nice car. It served as his daily driver until around 1988, when he acquired a ’78 AMC Eagle, and he still tools around in that.
Greg says that he sees lots of Chryslers out there, so it’s hard for him to believe things are really so bad for that company. He might indeed see lots of examples of the Chrysler 300, which was initially popular but hasn’t sold well lately. Maybe he sees some minivans (the whole segment has declined). But nobody buys the Sebring, and what else does Chrysler have to offer? The Aspen, which is a Dodge Durango in high heels. I’ll bet there aren’t too many ungainly Aspens in fashion-conscious Southern California. Anyway, the West Coast has been Detroit’s weakest market for twenty years.
Maybe I asked Greg if it really makes any difference to him whether the Detroit Three survive. After all, a huge domestic industry exists outside Detroit. Yeah, Greg said, but aren’t they just assembling kits that come over from Japan or Germany? I patiently explained that a huge network exists, supplier firms that support the assembly plants, companies the average guy hasn’t heard of but are nevertheless employing lots of people. One reason Volkswagen decided to build its new plant in Tennessee is because of the extensive supplier base that supports the BMW plant in South Carolina and the Mercedes-Benz plant in Alabama. VW reckons on 80-percent domestic content at job one.
Another reason VW chose Tennessee is that there’s no union. Not yet. The UAW has a big hard-on for those plants, though. And with the “card check” legislation (The Employee Free Choice Act) likely to emerge from Congress, they might finally be organized.
To digress a bit, I have timidly mentioned to a couple of people that I think Toyota might have peaked in this country. A whole series of events leads me to say so:
· There was a charge of sexual harassment against a top executive in Japan
· Quality issues with some new vehicles and a lot of discussion about Toyota’s overexpansion in this the United States
· The Tundra pickup has been a bust
· Toyota flopped in open-wheel racing and its 2007 debut in NASCAR was embarrassing
· Some key Toyota Motor Sales, U.S.A. managers have defected to other companies
· Toyota keeps turning out boring vehicles, no one really cares about them, and they’re being outperformed by the competition (drive a spongy Camry and a taut Accord back to back and see for yourself)
· Despite the wonderful aura cast over the organization by the Prius, it turns out Toyota is almost as dependent upon truck sales as the Detroit Three; the recent downswing related to high fuel prices caused Toyota’s sales to drop by 32.3 percent in September, and sales are down 10.4 percent for the year.
So it was authenticating to see the October 27 Automotive News commentary headlined “Take a good look: Toyota is losing its halo.”
As far as the Detroit Three’s problems, I mention that they’re stuck with too many brands and far too many dealers, thousands and thousands of them. This vast network used to be a great way to distribute products throughout the hinterlands, but today it makes no sense. How many Chevy dealerships are within twenty miles of my house? Seven, maybe. Import brands typically have a few hundred dealers nationwide, and each sells a lot more units and has a regional monopoly on profitable service work, too.
The other thing Detroit is stuck with is a bad reputation. Yeah, they make much better cars today, but younger people could care less. They don’t aspire to move up the ladder from Chevy to Buick; they don’t want Buicks, but the Hyundai Genesis sure catches their eye. It’s a fact that’s confounding to my older friend Greg, who cherishes the heritage of the Detroit Three.
Labor and management have collaborated to bring the Detroit Three to the current low point. The government hasn’t helped much, either. Next thing, they’re all going to jump into bed together in a consolidation and bailout that’s designed not only to save the Detroit Three but also the union. When Barack Obama was in Detroit early in the year and lectured the automakers about building more hybrids. I can just imagine how much more unsuccessful the industry will become if the government starts designing cars (even more so than they already have) and dictating the product mix. What if an activist group were to succeed in getting Congress to mandate that, say, twenty percent of all cars built must be hybrids? Endless bailouts are conceivable.
My friend Greg, a stubborn cuss, is highly independent and deplores welfare. But the car industry is going on welfare, and anyone buying a car from the Detroit Three will be a welfare recipient. If no one buys them, the government might just start giving them out. I wonder if Greg would ever get in line. His 1978 Eagle won’t run forever.