I wrote this article in May2011..... When domestic auto industry bailouts are discussed, the tone suggests that punishment is appropriate. The Detroit 3 are roundly criticized for bad management and told that they deserve whatever nasty fate the economy brings them. The most common accusation is of building vehicles that nobody wants. They are also seen as lacking appeal in foreign markets, being poor in quality, and lagging in fuel economy. The facts speak otherwise.
Within the US, the world’s freest market, the Detroit 3 hold a 48% market share. The other 52% is split by over a dozen other carmakers. So it can’t be true that Detroit builds cars that nobody wants. On the other hand Volkswagen, the European leader, has less than 2% of the US market and is truly the car that nobody wants. But are Detroit’s products similarly dismissed in Europe? No.
Due to import restraints Ford and GM started manufacturing in Europe in 1911. Today the top three sellers there are VW with 11% of the market and Ford and GM, each with 8%. Toyota lags in 8th place with 5.1%. Ford and GM have outdone every brand except VW in hyper-nationalist and protectionist Europe.
The most popular vehicles in the US even after the financial meltdown were GM and Ford pickups, each selling about half a million per year. That’s about 50% more than the next two best sellers, Toyota Camry and Honda Accord. Before the meltdown the Detroit pickup numbers were nearly double, so it’s plainly wrong to claim that Detroit’s products are domestically unpopular.
Conversely, Europeans control a mere 7% of the US market but even worse, there is no representation from UK, Italy and France. With forty years of open market opportunity, Europe consistently built cars that America doesn’t want and has largely failed.
The situation in Japan is more strongly skewed. The Japan Auto Digest reports that Japanese carmakers hold 97.25% of their domestic market, while Europeans hold a slim 2.5% and Detroit a meager 0.25% (Korea sells nothing in Japan compared to 5% in the US). If one was to believe in the fiction of an open Japanese market it would seem that the entire Western world builds cars that nobody wants. But, for popularity in existing major export markets, Detroit generally fares as well as any other regional car producing group.
So why is Detroit’s domestic market share declining? Detroit has certainly had its share of blunders in labour relations, product focus and trust, but these are not at the root of its decline. The answer stems from the post war situation. After World War 2 every major car producing nation was near ruin except the US. Detroit’s domestic share peaked at about 95%, and import rules were liberalized to help rebuild bombed-out industries in Europe and Japan. There was literally nowhere for Detroit’s market share to go but down.
Of all the attempts to penetrate the open American market, the British, French and Italians utterly failed. Germany’s modest success lay in the luxury segment, Japan took the top prize and Korea now threatens to follow. A declining market share was Detroit’s involuntary contribution to rebuilding the industrial base of America’s future allies.
One quality ranking method used by JD Power is the number of their awards earned by vehicle models. Of the 18 awards for 2008, Asian carmakers received 9 while Detroit received 7. Hardly a landslide that could justify dismissing Detroit as unworthy of a buyer’s consideration.
The fuel economy situation is similar. The broadest measure of fuel consumption is Corporate Average Fuel Economy (CAFE). According to US EPA data, domestic car fuel economy has been within 5% of imports since 1992 and is now virtually equal (for 2008 it was 31 mpg vs 31.7 mpg). There are two key reasons for the convergence. First, Detroit reduced car sizes and improved fuel economy by 76% since 1977. Second, importers increased car sizes so their fuel consumption only improved 12% since 1977. Detroit’s innovations have resulted in CAFE that exceeded the imports in 5 of the past 9 model years.
Like firms in any other industry, autos are always consolidating. One of the Detroit 3 should be acquired in order to reduce excess capacity. The only point through the next year or so is whether to let the industry collapse or evolve more gradually. If the decision is based on ill will toward Detroit instead of on the facts then many viable jobs and valuable technologies will be unnecessarily lost in the ensuing chaos.
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