What destroyed the US car industry?

For those with little interest in cars, this is the post to skip completely.

I have however been fascinated by cars since I was a child. Nothing, for me, could beat the thrill of driving an automobile for the first time in my life. This country has now declared war on the car owner with obnoxious taxes and all manner of hidden charges (and to top it all those skyrocketing oil prices) with the result that the Car seems to be headed for oblivion.

The first real Auto “industry” was undoubtedly born in America. It was the birth-mother of the auto revolution. It is a history that is forever etched in the history of the nation coinciding with a rise in American power.

Back in the day, before the first Oil crisis hit headline news, the US car industry accounted for 15-20 percent of GDP – a staggering figure. Automobiles were a symbol of American prosperity. American cars reflected a confident, ebullient country – the designs were cutting edge, the engines growling and overflowing with raw power and with speed and handling among the best. The Mustang became a record breaker and set the stage for the golden age of American cars. One cannot but watch in awe and amazement at the sheer boldness in designs that powered American cars. While the rest of the world made dour little wagons, Americans powered ahead in cars that were the envy of the world.

But then something went wrong along the way. The industry did not die a sudden death – it simply entered a long, slow and very painful decline which would destroy it completely (by the car Industry I mean the American automakers – not the Japanese or European car makers that now have plants all over America). It is almost symbolic for the country is in decline too and what better analogy could there be for it.

But the question that continues to trouble us is – why? How did the most powerful corporations on earth controlling the world’s largest car market end up destroying themselves? Many explanations have been posited to account for this phenomenon.

Here is my little list:

The Government

The decline of the US auto industry coincides with the decline in American manufacturing. The decline in American manufacturing was caused by a deterioration in American education (for one), by burdensome labour and environmental regulations (not to mention devastating class action suits, anti-discrimination suits, race baiting of the basest kind etc) that imposed added costs which in the face of staggeringly lower costs and far fewer regulations abroad simply destroyed the industry. The process had begun in the 1970s with the Japanese beginning to take away little chunks of market share. The one thing that has amazed me every time I have tried to study the industry (for investment purposes which I won’t bore our readers with) is that market share of the big three always fell every single year. Even in the boom-times of the 1990s with the “big three” posting record profits, their market-share actually fell!

I believe the “big three” were slow to move manufacturing off-shore. While the Japanese already had plants all over Asia cutting into the margins.

Unions

The Unions were the greatest culprits in this collapse. At the height of the boom they managed to squeeze unbelievably “cushy” benefits and pay packages from the car-makers. In the halcyon days of the 1960s with no competition in sight and no troubles looming on the horizon with oil crises or the Japanese, the car makers chose the path of little resistance. They caved in. The result in the long term has been devastating.

These companies are now paying healthcare and pension costs that are much higher than anything the Japanese pay workers in Japan! The result is that the “big three” have been stuck with costs that are fixed. They can come up with good designs, better cars and so on but the opposition is in a win-win situation because their fixed costs will always be lower.

There is nothing the “big three” can now do. Their future is sealed. My own guess is that they will go bust. Then the US government will step in to foot the bill for the car-workers. I doubt if any sensible car corporation would buy any of the big three (or the big two now with Chrysler owned by Daimler Benz), given the fact that they would be saddled with these costs.

The most efficient car company in the world is Toyota and they haven’t yet made the mistake of buying any sinking car-makers to gain market share. They gain it the hard way – by simply beating the opposition with better cars.

Arrogance

There was a mixture of arrogance and complacency in the defeat of the big three. This is not difficult to fathom. When you stand at the top of the food chain, you are bound to be caught up in it. Humility was not their forte. Henry Ford was not a humble man but he was a pioneer, a genius whose lack of humility could be forgiven. But for the bean-counter types that have been running these companies since, their arrogance was their death knell.

Their sheer size and power blinded them to believe that they could never ever be beaten. There was perhaps a bit of racial arrogance in believing that the Japanese could never produce anything quite as good. Once proved wrong, they have been playing catch-up since.

JD Power, the famous founder of the consumer satisfaction index was thrown out of Detroit in 1980 for daring to suggest that the Car companies pay some attention to consumer satisfaction. At the same time, the Japanese embraced him with open arms. Not surprisingly, every single year the Japanese have dominated the index because they had their heads in the right place.

White Flight

The Auto Industry was heavily based in Detroit. Detroit meant cars until the 1960s. Then the “civil rights” movement hit the headlines. Blacks began moving north in ever larger numbers from the South. The resident blacks in northern cities soon caused havoc. The economic devastation caused by black migration could be a subject for a thesis in itself. Entire neighbourhoods and cities soon became violent, deadly, blighted places where no sane man would tread.

The whites in Detroit, like the whites in Chicago, the whites in Atlanta or whites anywhere else fled in a hurry. The effect of this was two fold. The first and most disastrous effect was that the US automakers were stuck with plants that were located in regions with large minority populations. With race-discrimination law suits hitting one industry and company after the next, it was a matter of time before they too would get hit. Their response was to close plants and try to relocate. This imposed enormous costs on all corporations that did this. Staying put meant having to hire large numbers of blacks to prove to the Feds that they weren’t discriminating on the basis of race (there have been studies that a good one third of job applicants for car factory jobs in Detroit couldn’t read). Trying to prove that you don’t discriminate by race is like trying to prove you didn’t beat your wife, didn’t commit adultery – guilty until proven innocent.

Note that the Japanese established plants all over the whitest parts of America – in the whitest areas of the Deep South where there would be little fear of lawsuits from cantankerous lawyers representing blacks. Those factories are actually among the best managed and run in the world.

The future

The destruction of the US auto industry was caused by governmental interference and demographic changes that show no signs of abating. It is getting much worse. Many ask me why the US has a $600 Billion trade deficit. Its not because of “Free Trade” no matter what many of us may think. It is not because American companies have become the epitome of all evil on earth. The US runs a massive trade deficit because of the innumerable and onerous costs the US Government imposes at its whim and fancy on businesses. A company establishing a plant in China doesn’t need to worry about junk law suits, race baiting, ill-educated workers (many of whom can’t even read), anti-discrimination suits, etc etc etc. The result is that if you wish to survive in the Darwinian world of business, you move your establishment to China, to Taiwan or Malaysia.

But it doesn’t have to be that way. It is the remarkable mismanagement and runaway wastefulness of American government that is the root cause of every problem you see today with the US economy. Trade Deficits are not the disease, they are the symptom of the disease. Hiking tariffs wont cure the disease, it would only temporarily “cure” the symptoms. Which is why all American Paleos beginning with Buchanan need to look beyond the trade deficit and look at what causes it. The US automakers may be finished but the US may still be saved.

Posted by Phil Peterson on Tuesday, April 19, 2005 at 04:48 PM in Business & Industry
Comments (16) | Tell a friend

Comments:

Posted by Geoff Beck on April 19, 2005, 05:15 PM | #

My father refused to own a Japanese car, being a WWII Pacific Theatre veteran. But, who is he against the forces you outlined?

Phil, I think

you left off the international trade deals, which are nothing but elites wheeling-n-dealing for selected industries. These deals are not about competition or free trade.

These pacts like NAFTA, and others through WTO, GATT have aggravated the decline of American manufacturing.

But I think the international rootless cosmopolitans see America is one big virgin the can rape at will - leaving their bastard children on our soil.

In 50 years this country will be looted, no different than Haiti!

Posted by Phil Peterson on April 19, 2005, 05:21 PM | #

Geoff,

The decline in American manufacturing began a long time before NATFA and GATT. The US Auto industry had already begun to decline by the 1970s. Chrysler almost went bust in the late 1970s and Ford had all kinds of problems too. GM was in deep trouble in 1992.

NAFTA and GATT may have aggravated the problem (as you suggest) but they are not, I think, the root of the problem. The real root of the problem is the wastefulness of American government, taxation, suffocating regulations, ridiculous class action law suits, massive demographic changes brought about by immigration and civil rights etc etc etc.

In 1986, Prime Minister of Japan, Nakasone said, “America could become efficient like us if it didn’t have so many blacks and hispanics”. It caused an outrage in the American Press.

Posted by Martin Hutchinson on April 19, 2005, 05:23 PM | #

You put the government as a cause, but miss their most important ill effect: the Corporate Average Fuel Economy (CAFE) regulations. Once upon a time, the Big Three made the best and most comfortable automobiles in the world, which were driven by real people, while imports were small, uncomfortable and dangerous, and therefore confined to pointyheads and foreigners.

Then the 1973 oil crisis happened, and the government got involved. Instead of raising taxes on petrol, as anybody sane would have done, they passed the CAFE regulations, limiting the average fleet fuel consumption for each manufacturer. This gave a huge advantage to the Japanese and the mass-market Europeans, who made wimpy cars and thefore had good fuel consumption, and penalised Big Auto (it also penalised luxury car importers, but they just imported a few wimpy cars and sold them below cost, jacking up prices on their good stuff.)

Detroit repsonded first by raising the price of their good cars and selling rubbish at below cost and then, when this didn’t work, downsizing their good cars, thus removing their advantage over imports and giving them sluggish engines that were no fun to drive.

Then they found the solution: the SUV, which counts as a truck, and thus wasn’t subject to CAFE. They piled into SUVs, but since a percentage of their customers (including me) didn’t like SUVs they lost market share, as well as producing vehicles that were even more fuel-consuming, and dangerous on the roads (both through rolling over and through totalling ordinary cars.) I currently drive a 1998 Buick, the nearest I could find to a real car, but it’s nothing like as much fun as my old 1973 Cadillac was.

Now petrol prices have gone up again, and nobody wants SUVs. But Detroit is still hampered by CAFE, and anyway has produced very few real cars for 25 years, so have lost their market. The result is disaster.

NEVER, EVER let bloody politicians interfere in the market. I am NOT a liberal, I am a Pitt/Liverpool Conservative, but this is a MUCH more important Conservative principle than worrying what colour the population is becoming.

Posted by Phil Peterson on April 19, 2005, 05:31 PM | #

Martin,

I hinted at that by the “suffocating regulations”. You have, of course, hit the nail on the head because this is the most important of all the suffocating regulations.

That said, I doubt if we could overestimate the costs imposed on the auto industry by all manner of class action lawsuits etc (you won’t find their equivalents anywhere else on earth).

but this is a MUCH more important Conservative principle than worrying what colour the population is becoming.

The two are not mutually exclusive as I see it.

My own feeling is that the “racial minority” cost on the US economy is too enormous for any of us to begin to guage its true effect. I hope some day a respectable economist calculates the costs. And the costs are enormous I think- not simply the billions that are wasted on welfare and rotten schools that have little hope for them but the enormous dislocation caused by “white flight”.

The Japanese and the Germans, benefitting from a completely homogenous work-force, never had these problems.

Posted by Phil Peterson on April 19, 2005, 05:32 PM | #

I currently drive a 1998 Buick, the nearest I could find to a real car

I have heard fulsome praise for the new Cadillacs with their bold designs. You may wish to give one of them a try.

Posted by Phil Peterson on April 19, 2005, 05:44 PM | #

My father refused to own a Japanese car, being a WWII Pacific Theatre veteran. But, who is he against the forces you outlined?

I understand those feelings. Many in my family served in WWII. Feelings about all things German ran high.

However, sixty years on, I have patched it up in my mind. I own a German car and it is, I can assure you, better than anything Rover will ever build!

Posted by Guessedworker on April 19, 2005, 06:24 PM | #

We don’t all receive your annual bonus, though!

Posted by Geoff Beck on April 19, 2005, 07:03 PM | #

Can American manufactured cars be purchased in UK? Can one buy a Buick, Cadillac, or similar cars.

I thought most folks drive cracker boxes over there?

PS: We’ll be driving cracker boxes real soon, too. Even Hutchinson thinks oil is going to $75 per barrel.

Posted by Lurker on April 19, 2005, 07:32 PM | #

Geoff - its pretty much cracker boxes for us over here!

GM’s British division - Vauxhall - used to sell a model called the Senator, the largest in the range at the time which I think was actually a Buick. Very popular with the police. But that was discontinued a few years back. GM then tried selling a Cadillac, actually badged Cadillac not Vauxhall, as its luxury model here but Ive not seen many around, think they might have given up on that.

Posted by Lurker on April 19, 2005, 07:39 PM | #

Geoff - didnt really answer did I. Most larger US models are not available from the manufacturers dealer networks, they can be bought from private dealer operations though.

Posted by Dan Dare on April 20, 2005, 01:51 AM | #

Phil Peterson - In 1986, Prime Minister of Japan, Nakasone said, “America could become efficient like us if it didn’t have so many blacks and hispanics”. It caused an outrage in the American Press.

Isn’t it not also the case that the Japanese (and the Germans) have also put their money where their mouth is in the sense that the plants they have established in the US are predominantly in areas whare blacks and Hispanics are comparatively sparse?

Perhaps they know something we don’t.

Posted by Phil Peterson on April 20, 2005, 02:39 AM | #

Can American manufactured cars be purchased in UK?

Geoff,

It is possible to get some American models though I cannot imagine why anyone would want to buy them really. Petrol costs four times more here. Owning a car here is just much more expensive. Also, we drive on the left of the road and the cars here are right-hand drive. So buying an American car causes all sorts of new problems.

Posted by Phil Peterson on April 20, 2005, 02:42 AM | #

I thought most folks drive cracker boxes over there?

If you ever come to London and see the width of the roads here, it wouldn’t surprise you.

That said, you can get decent sized cars (though nothing like the bigger SUVs you have in America) but they cost more obviously.

Posted by Phil Peterson on April 20, 2005, 02:44 AM | #

I pointed that out in my post:

Note that the Japanese established plants all over the whitest parts of America – in the whitest areas of the Deep South where there would be little fear of lawsuits from cantankerous lawyers representing blacks. Those factories are actually among the best managed and run in the world.

Posted by Phil Peterson on April 20, 2005, 02:54 AM | #

This BBC documentary looks at some the causes behind the destruction of Detroit.

Amazingly, it does mention blacks in passing. After seeing it I couldn’t understand why Americans would abandon a beautiful city and just flee to the sub-urbs. I do now!

Posted by James Bowery on April 20, 2005, 08:15 PM | #

The Worst Generation is responsible. It happened on their watch.

However much the GI Generation is touted by the Jewish media as “The Greatest Generation” for coming to their rescue in WW II, the fact is that the GI Generation ate their grandchildren. Served their grandchildren as the main course labeled “real estate boom” and “stock market boom” by the government butchers, they are “The Worst Generation” in history to have hit any European-descent nation.

They squandered virtually every bit of social and intellectual capital given them by their ancestors—failing to pass that legacy on to their children even as their children were virtually sterilized by the social and economic movements arising from The Worst Generation.

For an aspect of the economic genocide, see “The Decimation of the Boomer Generation” at:

http://www.geocities.com/jim_bowery/dotbbg.html

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