Future Index

The Big Three

Detroit's Big Three Headed for a Pileup?
    The September 1 issue of Business Week contains an article entitled, "Detroit's Big Three Are Heading for a Pileup" (by Jeffrey E. Garten, pg. 24). The subtitle reads, "Gridlock:  Fierce foreign rivalry may drive U. S. carmakers toward bankruptcy-- or bailout, which would be preferable." The article mentions that "Ford Motor Company lost $6 billion in 2001 and 2002. Chrysler Corp. hemorrhaged $1.1 billion in the last quarter alone." The article also observes that their principal source of profits is from car financing rather than from the sale of automobiles. Since the mid-80's, foreign market share of the domestic market has risen from 24% to 40%. The article continues, "Now, Detroit faces ruthless competition on the lucrative turf of pickup trucks, minivans, and sport-utility vehicles. Making matters worse, the global auto industry suffers from 30% overcapacity--amounting to as much as 20 million vehicles a year. That's more than all auto sales in North America. The crunch will get worse. Nissan Motors is planning to increase production by 1 million vehicles."
Unfunded Health Care and Pension Obligations
    The article then discusses the Big Three's unfunded health care and pension obligations, and concludes that, as much as the author hates to champion a bailout, it may be the lesser of two evils in order to protect the workers' pensions. He says,
    "It's not because the management and shareholders of the Big Three (General Motors, Ford, and Chrysler)  have any claim on the public purse, because they surely do not. After all, they failed to respond adequately to the challenge from Japan throughout the 1990s, and they squandered huge profits toward the end of the decade."
    This brought back to me our experiences with U. S.-made cars.
Personal Experiences with Automobiles
    My parents and grandparents never owned anything but U. S.-made automobiles. Ruth's and my first, second, and third cars were Volkswagen beetles, but they were no more dependable than U. S.-built cars and not as comfortable. In the early 60's, we switched to U. S.-built cars. We continued to own U. S.-constructed automobiles until 1980. Our U. S. automotive horseflesh would wear out at 70,000 miles, when many of the parts on the car, such as the fuel pump, the alternator, the water pump, the radiator, and other subsystems would wear out and would have to be replaced. This was part of the Big Three's publicly-understood policy of "planned obsolescence". You were expected to replace your car every two or three years, with the result that you paid more for your transportation over a lifetime than you did for your house.
    In 1980, we discovered that certain foreign cars didn't wear out on the U. S. schedule. We switched to Hondas and Toyotas. Then in 1991, I bought my 1987 Acura Integra, with 125,000 miles on it. It now has 260,000 miles on it, and is utterly dependable.
    In the meantime, we read about improvements in the reliability and durability of U. S. automotive products, although with parts that wear out at 70,000 miles, it's hard to see how they could be terribly improved. At the same time, we heard complaints from my relatives about their Big Three cars. A friend of ours who worked for Chrysler bought Chrysler-built products until finally, she had had it with them. "I see what happens on the assembly line," she said. "I know why they aren't better than they are."
    For decades, U. S. automakers were protected by high import tariff walls, but once foreign companies began assembling their cars in the U. S., the fat was in the fire. Now, unfortunately, they are seemingly locked into their profligate ways, and can't break out of the corporate culture (or so the author concludes).
Chinese Competition
    Another article in the September 1 issue of Business Week, "A Chill Wind Blows From the East" (pg. 44), reports on the loss of jobs from Eastern Europe to China. One of the articles in the Miscellaneous section of "Science News" addresses Mexico's job losses to China. That article observed that Mexican labor, including fringe benefits, has risen to about $2.60 an hour. They'll do the same work in China for 79 an hour (including overhead). This article in Business Week mentions that wages for unskilled labor in China runs about $100 a month.