US auto industry strategy failures

The amazing sight of America’s Big Three car bosses before Congress, begging for money cap-in-hand, drives in some harsh conclusions about the US and its industrial strength.

Make no mistake. The humiliation of General Motors, Ford and Chrysler is not just another event in the unfolding of the Credit Crunch. It marks the end of a long hill down which the Big Three auto leaders have been rolling, with little pause, for several decades.

‘Big Three’ itself gives a graphic illustration of how the mighty are fallen. Today, they are not so big. After World War II the trio ruled the domestic market, facing no competition at all until Volkswagen achieved big US success with the Beetle.

The 400,000 or so Beetles sold each year were dismissed as a fad by Detroit’s moguls, who had no intention of sacrificing the mighty profit margins made by the so-called ‘gas-guzzlers’.

Readers will recognise the syndrome. The rational way of reacting to new, unwelcome competition is to analyse the enemy’s strengths, to reappraise the whole market, and to form a plan that will protect your existing sales while widening your coverage to exploit the new trends. Instead, companies instinctively and irrationally favour denial.

The profit motive which animates capitalism is supposed to provide driving force. Competing bosses whip their troops along towards stretching targets, while the outside investors whip lagging CEOs – or sit back and reward the successes with bags of gold. The trouble with this method, taken for granted across the Western world, is that it simply may not work.

CEOs have turned their backs on the future and placed their faith in the old ways that have failed so conspicuously.

That’s a remarkable and far from promising strategy when you consider that Toyota’s market capitalisation is over 50 times the puny GM figure of $1.8 billion. The key strength of the Japanese firm is its ability to combine flexibility with strict control, moving to meet the market and staying in tune with the customer. GM, however, is still locked psychologically in the formula of its heyday.

The Congressional hearings on the Big Three auto giants and their pleas for bail-outs demonstrated the absurdity. The three CEOs turned up in separate corporate jets, with no documents or plans, giving the committee a field day. Would the trio accept a cut in pay to $1 a year? The Ford man reckoned that his massive $22 million was just about right.

Overpaid colossally, professionally incompetent, immensely conceited. That’s no way to run a car company – or the world economy.