“The problem in the 1970s was not really the arrival of better, smaller, lighter Japanese cars; it was GM’s failure to respond in kind. Rather than hitting back with superior products, the company hid behind politicians who appeared to help it in the short term. Rules on fuel economy distorted the market because they had a loophole for pickups and other light trucks — a sop to farmers and tool-toting artisans. The American carmakers exploited that by producing squadrons of SUVs, while the government restricted the import of small, efficient Japanese cars. If Detroit had spent less time lobbying for government protection and more on improving its products it might have fared better. Sensible fuel taxes would have hurt for a while, but unlike market-distorting fuel-efficiency rules, they would have forced GM to evolve.”
— The Economist (2009)
RE:SOURCES
- The Economist, 2009. “The decline and fall of General Motors: Detroitosaurus wrecks.” (Subscription now required.) Posted June 4.
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- oldcaradvertising.com: Chevrolet (1974)
Also see ‘Bigger didn’t prove to be better for General Motors in late-70s and 80s’
Ed Cole thought he had singlehandedly coped with the VW Beetle, Toyota and Datsun invasion with the 1971 Vega 2300. What if he had redesigned the cast-iron Chevy II four-banger with balance shafts and a single overhead cam instead of the aluminum four. This Vega might have also been designed for the Chevy II 194 cu.-in. six. Better rust-proofing and time-in-development might have resulted in a car to address the competition from overseas, at least until the Honda Accord hit our shores in 1978.
That engine could have also been shared with the Chevette if the reduced 110 cu-in 4-cylinder built in Argentina is any indication, if not used more widely by other global GM divisions.
Btw is it known if the Chevette and Vega platforms are more related than anticipated beneath the surface, especially given on the fact both were said to have been spawned from the 1964 GM XP-813 prototype?
Ridiculous. Drive down the street today and count the Toyotas. Stop when you get to a Corolla. Toyota sells as many large SUVs and pickups as anyone. The Economist definitely has an agenda. And yeah, living in Northern Minnesota, rust sucks, but nothing rusted faster than early Hondas, except maybe Datsuns.
Matt, I had an early-80s Subaru that did fine until I moved from near the Pacific coast to Ohio. Within a few years my car turned into a veritable rust bucket. Thus, I know of what you speak.
Despite the weaknesses of foreign cars and trucks, their market share went up from 4.8 percent in 1965 to 24 percent in 1985. That’s a pretty big jump in just two decades. To give a sense of scale, by 1985 Ford had 21 percent of the market and Chrysler 12 percent. Why do you think that occurred?
As a point of process, the quote focuses more on the 1970s through 1990s. What the automotive fleet looks like today strikes me as irrelevant to The Economist’s core argument.
The core argument of the Economist is any kind of “protectionism” is bad. It’s a European market liberalism publication. There are lots of reasons for deindustrialization, many of which I’ve talked about on this website before. I’ll try two of the Economists points. The first ties into your comment as well. If we’re talking only about the 70’s, 80’s and 90’s, the US automakers certainly didn’t “exploit(ed) that by producing squadrons of SUVs.” That craze came later, and Japanese imports were at the forefront of it. Pathfinder, Highlander, Forester, 4Runner what have you. The second, and far more interesting point, is the supposed protectionist “sop to farmers and tool-toting artisans.” Take International, for instance. Probably the greatest truck produced for farmers and us tool-toting artisans (I guess I call myself a carpenter). CAFE and smog standards went a long way towards taking down that company’s light line. If our government wanted to promote light trucks over small cars, CAFE certainly wasn’t the way to do it.
Matt, newer readers won’t be familiar with your perspective so thank you for recapping.
The Economist can get squishy on its dates but I think it fair to say that SUVs were beginning to be a hot item by the early-90s. By that point the Jeep Cherokee was selling quite well and the Ford Explorer was ramping up in popularity.
As someone who grew up in Los Angeles during the 1960s, I personally think that smog standards were absolutely necessary. As for CAFE, I’m not familiar with anyone who actually likes it. The regulations are a band-aid solution to a problem that arguably could have been better addressed by gradually increasing the gas tax . . . which is one of the most unpopular things that an American politician can do. So they don’t.
Yes, deindustrialization is a big and complex subject that we can’t do justice to in brief comments. Corporate strategy is a more manageable topic. I’d suggest that International’s problems went well beyond regulatory hurdles. For example, Patrick Foster argues — rightly I think — that by 1969 the brand was surpassed in light truck sales by both Dodge and GMC because it didn’t do enough to cater to suburban buyers (go here for further discussion).
I have argued that the 1969 redesign of International’s big pickup was so weak that it became prematurely obsolete (go here).
In addition, a story about Studebaker’s potential in the truck market includes a graph with truck output by brand from 1960 to 1979 (go here). International’s volume tanked with the first oil embargo and never recovered. That was before CAFE kicked in.
Sure, you’re right about all of that, (absolutely agree on smog) but to the article, which specifically says the US used protectionist measures to hide a lack of quality in favor of big cars and trucks over small cars is, I think demonstrably false. I think that happens now, by the way, but I think it has very little to do with what happened to the American auto industry in the 70’s.
Sorry, I hit post too soon. We’ve had this discussion before, and our views on design and desirability differ (In that my automotive stable is, and no Im not kidding, a ’70 Chrysler Newport Custom, a ’70 IH 1010, a ’73 IH 1310, a 2001 Ford SuperDuty diesel and my daily driver a 2000 Eldorado), but CAFE definitely led to the inability of small manufacturers to adjust and none of this shows any degree of protectionism towards US manufacturers (except maybe AM General and Chrysler defense) and certainly not its workers.
Disruption in the auto business has come from innovation in manufacturing more than having the right product. Fordism (improved upon by Sloan) gave way to the Toyota Production System because in an extremely capital intensive industry, a more efficient higher quality way of building vehicles wins. In the last week Toyota has identified that Tesla’s manufacturing processes risk a similar paradigm shifting disruption (and I refer to that not as a Tesla fan boy, but rather someone who funds Musk repulsive). So personally I don’t think protectionism matters much in the end. The more efficient manufacturing system eventually will prevail anyway. What protectionism does is always the same, it enables a privileged class to extract rents from consumers for as long as the measures last.
Spoken like a true Economist reader! I think the “privileged” management “class” would like to believe they are the ones with innovative ideas, but I’m willing to bet Japan’s(or Germany’s or Italy’s) socialized health and pension system went a lot more towards reducing the price of their automobile compared to GM than any Just In Time manufacturing system. And that’s the first time Ive heard Tesla and Quality in the same sentence. Oh well, there’s certainly a lot more to it than any one or two things. I’ll hang up and listen.
In Japan, OEMs make contributions to social insurance equivalent to about 15% of pay. In Germany there is also a contribution by the employer of around 7.5%. By contrast, socialized medicine has come at no cost for GM workers in Ontario and Quebec since 1967 and there was no trade barrier to shifting production there.
Guilty as charged.
Hmmmmmmmmm
One of The Economist’s main points seems to be that tougher regulations – or a higher gas tax – would have somehow been GM’s savior. If only the federal government had closed CAFE loopholes or raised the federal gasoline tax, it could have saved GM from itself. Or something like that.
GM’s European arm operated on a continent where every country had high fuel taxes – along with an extensive mass transit system (due to much higher population densities than here in the U.S.). As a result of the high fuel taxes, European consumers have historically placed a higher priority on fuel and space efficiency than North American customers do. Yet GM’s European operations were in almost perpetual trouble after the early 1990s. The parent corporation finally – and happily – sold them to PSA in the 21st century.
Two different continents, two different approaches to fuel taxation and two different consumer attitudes regarding the importance of fuel efficiency. Yet GM essentially failed in both. The common denominator was GM’s management and its business philosophy…that appears to be the core problem. Tougher regulations won’t change that.
Contrary to the impression given by The Economist, GM DID respond aggressively to changes in the marketplace. It brought out the first Cadillac Seville in response to the rise of Mercedes-Benz. It brought out the thoroughly conventional but dead-reliable Chevrolet Chevette in 1976 when it became obvious that the Vega was a disaster. It developed the 1978 Oldsmobile Diesel to give customers much greater fuel efficiency in a standard-sized American car. It downsized its core full-size, intermediate and large personal luxury cars from 1977 through 1979. It brought out the 1980 X-cars to give customers roomy, peppy, fuel-efficient cars in hatchback, sedan and coupe versions spread over four divisions (and each one looked different from the other – these weren’t badge-engineered cars).
The success of those endeavors varied widely. The X-cars resulted in serious, long-term damage to GM’s image and market share. But how could tougher regulations have forced GM to more thoroughly engineer the X-car, use better quality materials and upgrade the often-awful build quality?
With the Seville, was the government going to force GM to develop an all-new Mercedes fighter instead of reworking the old Nova platform – and then not follow it up with the overdone 1980 bustle back model, which had zero appeal to import buyers?
(This also brings up another point – initially, GM lost the upper reaches of the market to the Germans, not the Japanese. And the attraction wasn’t fuel efficiency. Some large Mercedes-Benz models were subject to the gas-guzzler surcharge.)
Would tougher regulations have forced GM to more thoroughly develop the Oldsmobile Diesels, and then make sure that dealership personnel were properly trained to identify and competently repair problems?
How, exactly, would tougher regulations have prevented these fiascos? Or is the federal government supposed to micro-manage car companies via regulation?
Second, the claim that GM immediately relied on trucks and the CAFE loophole to avoid competing with the Japanese is a re-writing of history. First, the light-truck boom was well underway by the mid-1970s. Jeep was already keeping AMC afloat throughout the 1970s, and both Ford and Dodge had introduced club cab pickups by the mid-1970s (which was a big step in the development of pickups as personal-use vehicles). The Japanese had invaded the market with their smaller pickups before the first gas crunch in late 1973. The light truck boom had thus started before CAFE took effect.
Second, GM consistently lagged behind its competitors in catering to this market. Business press articles on GM in the 1990s consistently criticized the company for being behind the curve when it came to exploiting the light-truck market! I recall reading that, of the Big Three in the 1990s, GM was the most dependent on passenger cars sales.
GM didn’t bring out its equivalent to the Ford and Dodge club cabs until the late 1980s! It lagged behind Jeep and Ford in offering a smaller four-door utility, and when it did arrive, it was viewed as a step down in refinement. It never really countered the Chrysler minivans (which were initially classed as trucks, and thus part of the light-truck boom).
Again, read the business press articles on GM in the 1990s. They consistently noted that GM lagged behind Ford and Chrysler in developing medium-size SUVs and making its full-size pickups more appealing to people who weren’t using them as work vehicles. Instead, GM was focused correcting the W-body disaster, and then trying to develop luxury import fighters (which came about in the form of the Oldsmobile Aurora and fourth-generation Cadillac Seville).
As for a higher gas tax – not everyone lives in Manhattan or suburban D.C. Here in small-town and rural Pennsylvania, mass transit is not feasible (insufficient population density), and people still have to get to work or the store even if the roads aren’t plowed. A Honda Civic isn’t going to cut it, and drastically hiking the cost of fuel is going to place many of these people in serious financial difficulty.
To the list of GM’s attempts to compete with the imports I would add a big one – Saturn. GM spent/burned through a pile of money in an attempt to compete directly with the Japanese small cars. It developed an entirely new division to compete with the Japanese.
Let’s also add the all-new rear-wheel-drive platform dedicated to Cadillac that was introduced in the early 2000s. It was an attempt to match BMW and other smaller European sports sedans.
Again, GM spent billions trying to compete with the imported passenger cars. The problem was that it didn’t spend the money wisely, or didn’t get much bang for its buck, judging by the resulting vehicles. That’s not a lack-of-regulation problem. That’s an ineffective management problem.
Good comments, Geeber. The folks running GM in the 80s and 90s were junior execs in the late 60s when GM was so dominant some thought was given to breaking it up. To your comment about GM being behind the curve, these execs would probably respond ” We ARE the curve”. I did not know about GMs troubles in Europe. It’s a little OTS, but I would like to learn more.