King of the Roadkill

Share this article

In Joseph B. White’s article “How Detroit’s Automakers Went from Kings of the Road to Roadkill,” White explains five factors that contributed to the fall of Detroit’s big three, General Motors (GM), Chrysler and Ford. White is a senior editor in the Washington, D.C., bureau of The Wall Street Journal.

White says “first, Detroit underestimated the competition, second, GM mismanaged its relationship with United Auto Workers, third, GM, Chrysler and Ford handled failure better than success, fourth GM, Chrysler, and Ford relied too heavily on a few, gas hungry truck and SUV lines for all their profits and last, GM refused to accept that to survive it could no longer remain what it was in the 1950s and 1960s, with multiple brands and a dominant market share.”

Expanding on his first point, White said “the Detroit automakers believed the Japanese could be stopped by import quotas alone. They initially dismissed reports about the high quality of Japanese cars.” Detroit didn’t believe competition from overseas would hurt them, because “they assumed the Japanese could never replicate their low-cost manufacturing system in America.” White then explained a series of presentations executives gave on why Japanese cars were more superior. White said “at GM, an executive named Alex Mair gave detailed presentations on why Japanese cars were superior to GMs, lighter, more fuel-efficient and less costly to build.” White said “GM took too long to learn the lessons from these experiments.”

White then went on to explain how GM mismanaged its relationship with the UAW. White explained that Japanese automakers and others could build cars in the U.S. with young, non-union labor forces. White said that “being new has enormous advantages in a capital-intensive, technology-intensive business like automaking.” Honda, Toyota, and Nissan had new factories, often subsidized by the host state, that were designed to use the latest manufacturing processes and technology. White believes “this was an advantage because the new, non-union companies didn’t have to bear costs for health care and pensions for hundreds of thousands of retirees.” White said “in testimony before Congress this December, GM’s CEO Rick Wagoner said that GM has spent $103 billion during the past 15 years funding its pension and retiree health-care obligations.” That is nearly $7 billion a year, more than GM’s capital spending budget for new models this year.

Quality is another factor White listed as a reason for the big three’s fall. White said “poor design and bad reliability records led to customer dissatisfaction, which led to weaker demand for new Detroit cars as well as used ones.” White said customers wanted discounts on new and used cars, which drove down the resale value of used Detroit cars. White said “GM, Chrysler and Ford tried to compound this problem by building more cars than the market demanded, and then selling them to rental car fleets.” White believed this was a mismanagement of supply and demand.

Depending too heavily on SUV’s and trucks is another factor White believed contributed to the current crisis. White said “when gas was cheap, big gas-guzzling trucks are exactly what GM customers wanted.” When the economy began to collapse consumers no longer wanted or could afford the big gas-guzzlers and they opted for smaller fuel-efficient vehicles and Detroit’s cars averaged 27 miles per gallon. White said “the irony of the current situation is that the only vehicles likely to generate the cash GM and the others need right now to rebuild are the same gas-guzzlers that Washington no longer wants them to make.” White also believed there are two contradictory energy policies, “the first demands cheap gas at all costs and the second demands Detroit should substantially increase the average mileage of its cars to 35 or even 40 miles per gallon.

White believes in order to improve the situation that GM is in it has to develop new strategies. White said “since 2001, GM’s marketing strategy has come down to one single idea, zero percent financing.” He said this was the automotive version of the addictive, easy credit that ultimately destroyed the housing market. White said “during the 1980s and 1990s, GM leaders refused, and I believe some still refuse to accept the reality of the presence of so many automakers in the U.S. market, more than at anytime since the 1920s.” He said that will affect the U.S. market share and to be suspicious if GM predicts anything higher than a 15 percent market share going forward.

Alanna Hultz is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.