On December 19, 2008, just one month before President Bush steps down, the White House announced a $17.4 billion rescue package for GM and Chrysler, two of the Big Three. President Bush stressed he signed the package because he did not want to “dump a major catastrophe” on his successor. President-elect Obama responded positively to the package on the day itself, evidence of a consensus reached by both outgoing and incoming presidents to keep the fire of economic crisis under control.
Pundits think that the American automotive industry is nearing its end. Bush’s package is simply a political gesture and there is no way the recipients can put the reforms required by the government in place by the March 2009 deadline. Officers in charge of GM and Chrysler also commented that the $17.4 billion dished out could do little to move them out of financial difficulties.
Many are of the view that the American automotive companies do not have a leg to stand on and they should be abandoned to bankruptcy. Take Chrysler as an example; its total annual sales are less than those of Toyota’s Camry alone. The company has neither the will nor the strength for restructuring and it is in no position to take on the intensified competition of the rest of the world.
Automotive culture that is out of sync with technology
How did the American automotive kingdom end up in this sorry state? To answer this, we must first admit that the steam engine heralded the industrial revolution, and the combustion engine brought the revolution into a new age. Automobiles are easy to operate, flexible and convenient and they have enriched our modern lives.
However, the American automotive culture has led the world on the wrong path. Among the modern forms of transportation, automobiles are the least efficient and the most wasteful. For example, lorries [trucks] could not be used to transport petroleum from Xinjiang to our inner cities because the vehicles would have consumed all of their loads (i.e. petroleum) by the time they arrived at their destinations.
Crude oil is the most valuable treasure of the Earth and it could be refined into many other useful resources. What a sheer waste to burn it away in automobiles’ combustion engines.
Hybrid cars that run on both gas and electricity were introduced not too long ago as an answer to the inexorable escalation of oil prices. The American automotive industry has been lukewarm to such cars. It still hangs on dearly to the over-100-year-old inner combustion technology, making it the most obstinate and languid of all modern industries.
There are three key factors behind this: first, the automotive culture could not be detracted from the American life, just like leopards that will never change their spots.
Second, the U.S. once monopolized both automotive production and oil resources that gave it access to cheap oil. American automotive culture has been spoiled by the availability of economically-priced oil.
Third, the American automotive culture helps to segregate the rich from the poor. The poor stay in the city while the rich stay in suburbs. The rich travel by luxurious cars while the poor and the blacks take public transportation.
As American automotive culture enjoys global fanfare, its automotive industry only manages little or superficial improvements, if any, to its product. Its lethargy has attracted new market entrants from other countries. When this happens, the American automotive players find it difficult to take on the competition.
American consumption-oriented culture advocates leisure and loathes work. To automotive workers, weekends and holidays are holier than working days. They get restless prior to holidays and find it difficult to settle back post holidays so much so that American consumers once refused to buy cars produced on Mondays and Fridays.
It is widely acknowledged that American automotive workmanship is below par and there are bound to be glitches with new American cars. Not only are American cars inferior to German and Japanese cars, but they are also worse than Korean cars.
Trickle-down effects of the loss of dual monopoly
Pre-World War II, the U.S. enjoyed a dual monopoly globally as both oil buyer and seller. After the war, a sense of nationalism and ethnicity swept around the world fueling independence of numerous new countries, which stripped the U.S. and its multinational corporations of their monopoly as a seller.
Nevertheless, the country still manages to retain its monopoly as a buyer. This is why it pays so little attention to energy self-sufficiency and has 65% of its oil consumption dependent on imports.
The recent soaring oil prices mark the end of the American monopoly as a buyer and it triggered ramifications in the U.S. economy.
When oil prices are low, the American automotive industry focuses on sport utility vehicles (SUVs), as it is no match against the Germans and Japanese in sedan cars. SUVs are tall, wide, stable and sturdy but they guzzle gas like nobody’s business.
Japanese and German makers specialize in luxury sedans while the American makers specialize in bulky models. As oil prices increase significantly, fuel-efficient cars from Japan gain popularity at the expense of SUVs, and this flings the American automotive makers into deep troubles.
The senile American automotive industry cannot take on its younger Japanese and Korean opponents. New Japanese and Korean factories do not face interference by strong labor unions as the old American factories do. Because of this, the Japanese and Koreans can better manage their workers.
GM used to be THE U.S. company, but it has lost much of its aura during recent years. Today, its shares are priced a mere decimal of its peak, and no one wants them. Chrysler has lost almost everything. Ford is holding on to its dignity with no immediate need for government aid but the question remains: how long can it last? According to market intelligence, President-elect Obama would make the rebirth of automotive industry the debut of his new policy. Let’s wait and see.
Oil-hungry China and India drove oil prices to their peak not so long ago. It is not feasible for countries like China and India to pursue the dream of the American “automotive kingdom.” In 2005, Xue Xu, an Economic Professor at Beijing University, urged the Chinese government to make the country a super automotive power at all cost. The government responded by campaigning for automotive culture through its absolute controls on the paper and internet media.
However, Beijing government had to resort to driving restrictions this summer to meet international air quality standards for the Olympics. These restrictions remain very much in force today. This clearly illustrates that China could not quite tackle the problem of car “over-population.”
The U.S is already besieged with difficulties, with 100% car ownership and a car population of 400 million. Increasingly, Americans are giving up their cars for public transportation.
What a mess would it create if China were to become an “automotive kingdom” with 100% car ownership and a car population of 1.3 billion?
China should wake up from its “automotive kingdom” dream and devote its energy to more mass-friendly transportation such as trains.
The author is a retired Professor from India. He wrote this article in Chicago.
as an organizational consultant and have worked with the big three it is about lack of leadership leadership leadership.
the leaders of these companies are completley out of touch with the factory floor. in america leaders give themselves raises for laying off workers.
americans can be very hard and effective workers with the right leadership which is rare in america.
we are a results oriented society in a world that needs to be process oriented.
the end is near for america with or without obama and the demos.
privitzed health care will bankrupt our country.
mega military industrial complex will also bankrupt america.
media fascism will help this decline take place.
capitalism american style must self destruct as communism did.
this is not a recession but a decline of wealth of a nation. most americans are in denial of this fact.
the world will be safer for our decline. our imperialism is not a good thing for the world.
few americans know they are imperialists. very few.
Good analysis. Most of these trends were obvious forty years ago, but neither unions nor management were flexible enough to adapt.
w edwards deming tried to tell america’s automotive they needed to change but they failed to listen at the very top.
his predictions have come true.
now the american taxpayer must continue to bail them out.
wont work must get rid of the existing leaders.
hire toyota retirees to take over for five years and train new managers and they will turn it around.
americans too arrogant and vain to do that.
worked with big three they are arrogant vain and out of touch.
quality quality quality and reliability.
toyota knows this big three does not.
the end is near america is about to become a second rate country.
mega military expense will take it down and two wars that cannot be won.