Q&A: Can the 'Big Three' automakers survive?
American consumers have more car-choices than ever and might not even miss Detroit's demise
Michele Maynard is the author of 'The End of Detroit: How the big Three Lost Their Grip on the American Car Market' (Currency Doubleday). She discussed the intense international competion Detroit faces and the future of the US auto-market with csmonitor.com's Jim Bencivenga.
I guess you can't live in Michigan and not be interested in the auto industry and the Big Three automakers. Have you always been interested in cars?
No. I was an airline child. My dad worked for American Airlines. I grew up flying first class and having to dress neatly when I traveled with my parents (the inside term is "flying non-rev," short for non-revenue). In retrospect, that gave me a healthy appreciation for good customer service.
I began covering the auto industry in the early 1980s for United Press International. I was a legislative reporter in Lansing, Mich., when the auto writer's job came open in Detroit. I applied for it and was turned down, because the editors thought the United Auto Workers union wouldn't deal with me. I appealed the decision and got a six-month tryout. I am definitely not a "gear head" but I am very interested in all aspects of the industry, because it is so important to the American scene.
What is the root cause of the decline of the US auto industry?
Actually, the US auto industry isn't in decline. We now have two American auto industries: the traditional industry, led by Detroit's Big Three, and the new industry, dominated by foreign companies. It's sad to see the traditional industry lose ground, but the emergence of the new industry has only been to the benefit of customers. And I believe the traditional industry is getting more efficient, thanks to the presence of foreign competition.
In a global market, does it matter that the Big Three American automakers are not as dominant as they once were? Consumers have plenty of choices for the type of car they can drive. After all, isn't the prediction of the demise of one of the Big Three a little artificial now that Chrysler is already owned by Daimler?
In a sense, the American-based Big Three companies vanished when Daimler-Benz acquired Chrysler in 1998. GM, Ford, and Chrysler are the Big Three in terms of size only - and given Toyota's rise, that is being threatened, too. The great thing is that customers can buy vehicles made in America by American workers in some of the most advanced factories in the world. The problem for Detroit is that those vehicles are built by foreign companies, those workers aren't represented by the UAW, and those factories are for the most part in the South. One of the places that has benefited most is Alabama, which now has three automotive assembly plants, two big engine plants, and would love to land more.
When it comes to finger-pointing, who bears the most responsibility for the decline of the US auto industry: management, the unions, foreign carmakers doing a better job than US automakers, US government trade policies? Or, like a perfect storm, a combination of all of the above?
I'd blame the unions less than you might think. Remember that on every contract, there are two signatures: one from the company side, one from the union. Whenever you think that the unions are greedy, or that health care costs and pensions are too generous, well, somebody from the company had to agree. I don't think it's fair to lay blame solely at the unions' feet. They were protecting their members - with the companies' cooperation, despite their competitive challenge.
It is better to look at the situation as a combination of issues, just as you suggest. In my book, I say that Detroit companies are sometimes viewed as banks that make cars, run by MBAs. The foreign companies, by contrast, are generally run by engineers and manufacturing experts. Fujio Cho, who is CEO at Toyota, was in charge of its factory in Georgetown, Ken., in the late 1980s. Helmut Panke at BMW is a nuclear engineer and Carlos Ghosn at Nissan is another engineer who specialized in manufacturing when he was at Michelin and Renault.
I'm not surprised with the decline of the Big Three auto makers. I'm surprised they have been able to hold onto their markets for as along as they have given the last 25 years of stiff competition from quality cars from overseas. Isn't it fair to say: "In a global market, was it ever realistic to expect, for example, GM to maintain over 50 percent market share in the US?"
It was until the 1980s. But since then, the American market has been an incredibly competitive and wide-open market. I actually think the American market is going to evolve into something like Europe's. We might have room for one big player, like GM, with 20 to 25 percent of the market. Then the rest of it will get split up into smaller chunks. If sales trends continue, you could have Ford and Toyota both around 15 percent, Honda and Chrysler around 10 to 12 percent, and then single-digit shares for all the others. What that will mean will be fierce battles for consumers like we haven't even seen yet.
Which of the Big Three is likely to have a true, energy-efficient, mass-produced hybrid - gas/electric - car first?
It's a race between Ford and GM. Ford plans a hybrid version of the Escape; GM will have a hybrid Saturn VUE. But "first" is a consolation prize, because both Toyota and Honda are on their second-generation hybrids.
For patriotic-minded carbuyers, how big an effect does the purchase of a US-built Toyota have on the US economy compared with buying a GM? Once foreign car companies like Honda and Nissan started building cars in the US, didn't the Big Three lose their edge with "patriotic" buyers? Then once that happened, the next step had to be quality and price ruling the market, sealing the ascendancy of foreign-owned cars over Detroit-built cars?
Yes, the presence of the "transplant" factories has helped to eat into "patriotism" among car buyers. Now that they have been here for 20 years, one of my friends terms these companies "implants." First they were imports, then they were transplants, now they have "implanted" themselves into the American psyche. When I interviewed car buyers, I had numerous people mention the fact that Toyotas were built in Kentucky, Hondas in Ohio, Mercedes in Alabama, etc. This has permeated the car buyer's consciousness and I think these companies have scored valuable points because of those factories.
Why do you say the American automakers don't know their customers as well as the imports? The imports totally missed the light trucks trend for almost a decade, even after they'd been doing business here for 20 years? You win some, you lose some. When the market swings toward smaller cars, the imports are better positioned to take advantage of it. When it swings back to big cars it seems to me the Big "Three" talk to even more customers, but because of their size and cost structure are simply not in a position to be as responsive.
I agree that the imports missed the light truck trend. One reason is that their home markets - Japan, Korea and Europe - are very car focused. They didn't have the sensitivity to the truck market that Detroit had and they lost valuable time. But once they got into the light truck market, they have gobbled market share. In 1992, Detroit had 94% of all minivan sales. In 2003, that's down to 70 percent, thanks to vehicles like the Honda Odyssey and the Toyota Sienna. Same with SUVs: Detroit once had 95 percent of SUV sales; that's down to about 74 percent.
Size and structure have something to do with it. Between one-quarter and one-third of the vehicles that Detroit sells are to a) rental car companies; b) their own employees and retirees; and c) people with a connection to the companies, like suppliers, dealers, and their families. The imports, by contrast, sell 10 percent or fewer of their vehicles to these "captive" markets. They aren't producing vehicles by the pound, as Professor Gerald Meyers, the former head of American Motors, has said. They are targeting each sale at individuals. It is a much different approach. That said, Detroit has now had almost 25 years to deflect the inroads made by the imports. It has scored some successes, namely the Ford Taurus, and Saturn. And, had Ford and GM stuck with them, they would have solid competitors for the imports. It's still possible, but the bar has been raised.