Detroit, Detroit

There is an old musical from Walt Disney called The Happiest Millionaire. It is about a wealthy eccentric and his family living in Philadelphia at the time of the first world war. Near the end a young enthusiastic couple set off to start their new life singing a rousing song about heading for that grand, exciting new world of unlimited opportunity - Detroit. Even in 1968 when the movie came out there was some rueful irony to that song. Detroit the city was already in serious decline. But Detroit the industry, if no longer quite such a place of opportunity or excitement, was still riding high. The four major domestic auto makers (the three we have now plus American Motors) controlled the American market , and their subsidiaries were among the largest manufacturers in Europe. The only high volume foreign competition came from Volkswagen, and that was at the very cheapest end of the market. Mercedes, Jaguar, Rolls Royce, and Porsche were around, but not selling in any quantity. BMW was a newcomer marketing only a few cheap, four cylinder sports sedans to a limited audience of enthusiasts. Some Japanese companies were selling cars here and there, but not too many and, like Volkswagen, only at the low end. Times were good in the American car business.

Forty years later extolling the American auto industry as a place of success and opportunity would seem utterly ludicrous, and a reminder that it once was so intensely saddening. For it was a great industry. It gave generations of Americans an unprecedented capability for mobility and created immense wealth and prosperity. It changed the world for the better. Now the companies are on the verge of failure. Their CEO’s are going hat in hand to grovel before assorted scoundrels in the Congress for a mite of the sort of largess recently doled out freely to AIG and various investment banks and not doing a very good job of it.

There are many reasons for the decline. The companies were caught building pickups and SUV’s when the customers wanted small cars that burn less gas. That has been a contributing factor in the last year or so, but it is not the source of the trouble. Pickups and SUV’s were in high demand for many years before that, and the American companies still lost market share continually. The monetary crisis and the difficulty some people have getting car loans has also had an influence recently. However, the American companies have been losing share in good times and bad, and sounder Japanese companies are weathering the monetary storms without a danger of going broke. It is clear that egregiously poor management and bloated corporate bureaucracies have done serious damage to the companies. Union contracts have increased costs unreasonably while union work rules reduced quality and productivity. There is also a problem of too much capacity, which is merely another way of saying that not as many people want to buy Detroit’s cars as used to.

This is the real, abiding problem. For years the cars haven’t been good enough, and not enough people have wanted to buy them. If eighty or ninety percent of American buyers still wanted their cars and trucks, the companies would be okay despite their workforce and their management. But they do not. Detroit has lost millions of customers, and many of the ones remaining loyal are so old that they will not be buying many more cars. This is not something that can be fixed by getting bridge loans from the government. It has nothing to do with the recession. It has been going on for decades. Customers left because they believed the competition offered better options. They stayed gone because they were pleased with the cars and trucks they bought from foreign companies.

The three American companies do need to reorganize and downsize. They need to cut costs. They need to change their cultures and replace bad and ineffective managers and executives. They need to escape from union contracts and work rules and become more efficient. They need to raise cash. However, unless they can win over customers and stabilize or increase their market share, these things will only buy time, not restore them to health.

The thing that could lure buyers back is the thing that likely lured them away. GM, Ford, and Chrysler should make vehicles that offer a more attractive combination of excitement, value, quality, durability and resale than their competition, and they should do it long enough and announce it loudly and clearly enough for people to overcome their skepticism and notice. That, not better ads or ditching the corporate jets or focus groups or OnStar or going “green” or appealing to nostalgia or patriotism, is what they need to do. It seems trivially obvious, but it also seems to be one of the things they have not tried so far. I hope they or their successors in bankruptcy do.