Big Three blues

Jan. 26, 2006
The North American International Auto Show recently wrapped up in Detroit.

The show is where automakers unveil many of their big ideas for the coming model year. This year's event had its share of fancy iron. But it differed from previous years in one big way: There was an undercurrent of hand wringing about the fate of North American automakers. It's clear that officials from the city of Detroit and the state of Michigan fear they'll lose their biggest employers if Ford and GM don't straighten themselves out soon.

Well, I could have warned them this was coming a long time ago. And in fact, I did. One of the first editorial viewpoints I wrote for MACHINE DESIGN in the 1980s could have been Detroit's wake-up call. It concerned my shock when, after growing up in Motown, I moved to the suburbs of Washington, D.C., in the mid-1970s and discovered that foreign cars outnumbered domestic brands on the roads there.

Detroit automakers were losing touch with their markets as far back as 30 years ago. Of course, I wasn't the only one to make this observation. Many industry observers were wondering even then how bad things would have to get before Detroit automakers woke up and did something about their downward spiral in market share.

Now we know the answer to that question. Things had to get so bad that Tier One suppliers start going bankrupt; so bad that there is a possibility of bankruptcy even for the automakers themselves.

Back in my 1980s editorial, I figured a lot of Detroit auto executives were fooled by the fact that most cars on Michigan roads came from the Big Three. If auto companies instead had their corporate offices in Los Angeles, their execs would have driven to work daily in a sea of Japanese cars, even in the early 1980s. The experience would have brought home the lost market share to Big Three executives in a way that was more compelling than mere entries on financial spreadsheets. It would have been hard to keep blinders on in the face of such overwhelming evidence.

Now I'm not so sure that even immersion in West Coast culture would have been enough to shake up Ford and GM top management. A lot of the troubles in Detroit are being blamed on labor costs. To my mind wages and benefits aren't the real culprits. If the Big Three still commanded the same market share as in days of old, no one would be worried about high costs.

But as long as we are on the subject of labor rates, here are two figures to consider: In 2004 the CEOs of Ford and General Motors earned over $22 million and $9.9 million, respectively. With that kind of compensation, they'll do just fine regardless of what happens to the companies they run. It is hard to imagine anyone in their shoes able to convey a sense of urgency about the fate of their enterprise.
—Leland Teschler, Editor

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