Detroit: another American icon crumbles

Bangkok Post  |  Dec 13, 2008

By Sin-ming Shaw

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"These idiots don't deserve a dime," thundered Michael Moore on Larry King's show recently in discussing the Big 3 Detroit carmakers' plea for a financial bailout.
We knew Mr Moore only as an Oscar-winning documentary filmmaker. Yet, his credentials to discuss Detroit intelligently are solid, for he is deeply connected to the auto industry.
His grandfather and father both worked at the assembly lines in General Motors and his uncle was a co-founder of United Auto Workers labour union, the largest manufacturing union in the United States.
The "idiots" are, of course, the senior executives at the Big 3 auto companies that have taken three legendary companies - General Motors, Ford and Chrysler - to the brink of bankruptcy and are now begging Congress for money to avoid collapse.
The current auto leadership is not solely responsible for the demise of Detroit. A number of their predecessors over the past 30-odd years shared that infamous honour.
But those "idiots" have continued a failed policy to meet the challenge of a world that, since the first oil crisis in the early '70s, has increasingly accepted the necessity of energy efficiency, green technology as well as quality with near-zero maintenance.
Detroit has failed in each of the three areas despite clear signals from the global consumers as to what they want.
General Motors was once the icon of the mighty American manufacturing prowess.
Its former chairman Charles Wilson was secretary of defence under president Dwight D Eisenhower. He famously proclaimed in the early '50s "what was good for GM was good for the country and vice versa".
GM was the largest supplier of military hardware to the Allied armies during World War Two and emerged as the largest manufacturing concern in America as well as the single largest contributor to the country's gross domestic product in the 1950s.

GM not only stood for might but quality as well. One of its signature cars was the Cadillac, which for years represented engineering excellence, money and elegance.
Fast forward to the 1990s and now the 21st century.
The Cadillac, far from being a status symbol for the rich, famous and the powerful, has become has become a laughing stock for poor quality and bad taste.
In an attempt to recapture its premium position in the early '80s, GM came out with a Cadillac Seville sedan that was an awkward combination of a me-too, old Daimler front, and an imitation Rolls Royce flat trunk at the back, that also looked like something from an old 1940s French Renault. And its record of frequent breakdowns was the stuff of car legends.
By that time Japan and Germany were already making superbly engineered cars with high gas mileage and low maintenance records, while paying microscopic attention to ergonomics that make driving these cars a pleasure that GM could not match.
Today, GM's entire market value (Dec 9) is US$3 billion, a mere 3.3% of Toyota's $93.4 billion. Remember that not quite 60 years ago, Toyota's factories were reduced to debris by Allied bombing when the war ended, while GM was at the top of the world and at the top of its game in making quality cars.
GM today stands for utter incompetence and a failed company led for years by "idiots".
The motor executives famously flew to Washington DC in three separate company jets and then, after being reprimanded for their tasteless extravagance while seeking handouts from Congress, later returned to Washington in a pathetic publicity stunt driving in hybrid cars all the way from Detroit to Washington DC.
They must have thought the rest of us were idiots, unable to see through their stupid little ploy. Flying economy class would have made a lot more sense, thank you.
Unproductive American workers and their supposedly union-mandated higher benefits are usually cited as among the primary reasons for Detroit's failure. That is misleading. Non-US carmakers have proved that American workers can be just as good as Japanese. Indeed, going back at least 20 years, management at Toyota and Honda insisted that their US-made cars were every bit as good as those made in Japan.
The record speaks for itself. Nearly all Japanese cars sold in the US are made in the US. And their maintenance record is indeed just as good.

Higher wages are a factor, but only so because Detroit never attempted to compete on quality and innovation. Lower wages per se do not automatically translate into competitiveness. Conversely, higher wages do not necessarily mean your products are overpriced.
China has become the "factory of the world" not on lower wages. If only that were the case, low-wage countries anywhere - in Africa, Indonesia, the Philippines or Thailand - would long have captured the bulk of the manufacturing that is now done in China.
Productivity is the key to any manufacturing success. Wages are high only in relation to the products.
Detroit management has for too long ignored its own considerable engineering talents and designers. The most talented engineers and designers do not look to Detroit for work. They go to Detroit's competitors, who now include Chinese and Koreans.
Should GM be saved, then?
Mr Moore has put it well. Save the companies and the workers by all means. But throw out the "idiots" who have always acted arrogantly and ignorantly.
Unless that is done Uncle Sam, namely the American taxpayers, will be throwing good money after bad. The idiots will be spending the money so fast they will go back to Congress for more.
Sin-ming Shaw was a former stock analyst for a Los Angeles-based fund management company.

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