Why Aren’t the Big Three Automakers More Successful?
Question/Comment: The Big Three seem to be successful in the rest of the world yet not here. Is it the fault of our government regulations, the costs associated with labor agreements here, or what?
Paul Solman: I sent your question to one of the foremost experts on the auto industry: David Cole of the Center for Automotive Research. Here’s his answer to the two of us:
I wish the answer were simple but here a couple of things. Legacy costs associated with an older workforce and retirees and dependents have resulted in about a $1,500 higher cost than international competitors for many years, The credit crisis is the 500 pound gorilla now since people can’t buy cars and trucks.
With the high fixed cost of manufacturing you cannot take cost out as quickly as the market has fallen (depression level sales) which translates into huge losses for all of the auto companies. The rapid increase in gasoline prices last spring resulted in a sudden market shift from more profitable products to less profitable ones. This was a 100 pound gorilla.
Quality, productivity, product and manufacturing technology and labor costs (excluding legacy costs) are close to on par with the internationals. Too many dealers is also an issue. It is better to have fewer, more profitable dealers since they are the face of the company to the consumer.
No company is without fault in this but the real challenge that they have all had is accurately forecasting the future and making decisions that are different than would have been required if they had guessed properly.
Editor’s Note: Michigan Public Radio has some great resources on the auto industry’s crisis, including personal stories from the auto workers themselves. Find them here.