Why the big three automakers failed relationship

US auto industry: how the Big Three got going again | Thomas Noyes | Opinion | The Guardian

Though the responsive public became restive over Tucker's failure to produce a What about the role of the Big Three auto-makers? . a dream does not excuse a person from exercising prudence in business relationships. Earlier this week I wrote about how many jobs might initially be destroyed in a major contraction of the Detroit Three auto companies. Too Big To Fail, Too Big To Bail: A Plan to Save the U.S. Auto Industry If all of the Detroit Three failed each of the other two industry segments would be .. relationship between railroads and their employees for a three year period, after .

Labor costs make up only 10 percent of the cost of a typical automobile. Recent efforts by U. What happens to a corporation that sells its products at a low price while losing market share for 30 years?

The Decline of the 'Big Three' U.S. Auto Makers : NPR

Badge-engineering is a common practice in the auto industry where the same vehicle is essentially marketed and sold under different names and brands. The companies failed to fund retiree pension and health benefits on an accrual basis and loaded those costs onto current employee contracts.

Any measure constructed so that the hourly compensation of workers rises as the ratio of retirees to workers increases, even though the wages and benefits of the workers do not increase, is misleading. A car with a U. The Detroit manufacturers also chose to focus on the very profitable SUV and truck market, ceding the small-car market to the foreign competition. Also important are the cost of installing that part, of fixing production problems as they arise, and of repairing finished cars should the parts fail while still under warranty.

They are part of a tightly integrated machine — they must be designed for a particular car model, and often a problem with one part will mean that several other parts have to be redesigned to make everything fit.

These automakers make very strenuous performance demands on suppliers. But they do so in ways that reduce defects, improve design features to make products more attractive to consumers, and yield profits that sustain suppliers throughout the business cycle.

I think that's very fair, certainly at General Motors. If you look at the market share of the company back in the '60s, it was 50 percent. Now it's hovering around 25 percent, a little bit over.

So there's been a straight-line decline for about some years and management has shown no real ability to reverse this. And I think, ultimately, it is a management issue.

There are some other aspects to it. You mentioned the medical costs and the pension costs. That's a huge problem and a bigger one for GM than for anyone else because they have an enormous number of retirees, someAnd a lot of these retirees were created when they had 50 percent of the market, and they're now trying to support them from the revenues of 25 percent of market.

But if they hadn't lost that market share, that whole retiree situation would be a whole lot more favorable and it is, in fact, more favorable for Ford and Chrysler because they've lost less market share since the '60s than GM has. Jeffrey McCracken, what can be done, when you look at the continuing slide of what is known as the big three in this country, to try to shore up their position and remain as strong?

That's a good question. I think, as Csaba pointed out, back in the '90s they were--the three automakers got out in front of the Asian automakers and found the truck and SUV segment as a way to protect themselves. I think what they need to do now is probably get back--first of all, they need to get back to building some cars that people actually would like. And that's one of the things that's helped Chrysler, is Chrysler alone among the big three is actually doing reasonably well, mostly on the back of products like the Chrysler and the Magnum.

It sounds pretty simplistic, but a lot of times it does just come back to building product that people are going to want to buy. When you look at, Csaba Csere, the totality of all of what the automobile industry has meant to America, this is to a great degree a sad indictment, perhaps, of America's some would call laziness in sleeping on its laurels.

Well, there's no question about it. This industry is absolutely critical to the country. It's not--when you look at the car industry, it isn't just the car manufacturers, but all the suppliers; to some extent you can look at the oil industry as being part of it, the transportation industry. Over the years, people have done calculations suggesting that, directly or indirectly, one in six people in the United States are employed in some way by the transportation industry here.

So it has a huge impact. And furthermore, you know, over the years, the auto industry has offered very high-paying jobs to people who didn't necessarily have a lot of education. The auto industry was one of the places where somebody with a high school degree could go in, get a union factory job and make a lot of money and earn a very, very good living.

And this was critical to an awful lot of people in the middle class. And if those jobs start going away, it really does affect the fabric of the country. And it certainly does so here in the Midwest where a lot of the big three's plants and operations are concentrated. And, Jeffrey McCracken, Csaba Csere beat me to my next point--the idea that these industries did provide that, and also provided minorities the opportunity to get into corporations and start to climb ladders where, heretofore, they had not been allowed in.

When you look at all of these opportunities falling by the wayside, are we going to have to see, as we saw with Chrysler some yeas ago and Lee Iacocca trying to salvage that corporation--are we going to have to see outside intervention to eventually save the foundation of what we know as the automobile industry today? I think these companies can turn it around. If there needs to be outside intervention it would probably have to be in an area like health care. I think, increasingly, people realize that General Motors and Ford and, to a lesser degree, Chrysler, are going to need some outside help or need something to hold back these rising health-care costs.

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The one thing I would caution is, on the issue of health care, these automakers talk a lot about health care. But you do--you have to note they make a lot of their own bad decisions that are wholly unrelated to health care.

It wasn't GM that--or it wasn't health care that forced GM to really miss out on hybrids, to miss out on another--on crossovers, which is another popular segment. I guess I would say that intervention sounds like a good idea. I'm just not sure who it would necessarily be. Csaba Csere, a lot of people suggested that patriotism had a lot to do with the burgeoning market for years, and that that has fallen by the wayside, as we've already suggested, to a superior product in terms of quality and, some will say, style.

How much do you believe that patriotism no longer plays a part in loyalty in buying? I think it's been a diminishing factor for a long, long time. I was around back in the '70s when we had the first fuel crisis in '73, '74, and the Japanese car makers first really got established because they had the high-fuel-economy cars that Detroit wasn't building.

And a lot of people in Detroit thought that Americans will never buy Japanese cars or, if they do, they'll buy them temporarily and get back to the Detroit cars as soon as gas gets cheaper.

Well, gas got cheaper again, but people learned not only that these cars were not evil, but they actually had higher quality than the domestic cars. And ultimately, most American customers buy quality.

They buy what is best for their own uses and where they get the most value for their dollar. And patriotism doesn't enter into it that much. That may be your going-in position, but it gets worn down if the patriotic choices don't really deliver what the customer wants.

Jeffrey McCracken, with about a minute left, as you look at the automobile industry for North America and the landscape, are we seeing a cold or do we see pneumonia? I think it's probably somewhere closer to pneumonia. Even if General Motors pulls itself out of this spiral, the question is: Will they ever get back to even what they were just a couple years ago, when the goal of the company was to have about 29 percent of the US market?

It's now dipping down below 26 percent, closer to 25 percent.