UK past = US future

[enzl]

http://www.autoobserver.com/2007/07/detroi...FTOKEN=47935534

Guest Commentary: Detroit's Big Three on the Road to Oblivion

July 23, 2007

By Richard Feast

Oh, how my old colleagues in the U.S. liked to tease if the topic of the decline of the U.K. auto industry arose.

The derision was deserved. The U.K. automotive industry was second in scale only to that of the U.S. in the 1950s. It was the world’s leading car exporter, putting bread on hundreds of thousands of tables across the country.

Today, the U.K.’s indigenous manufacturers have either vanished or been taken over by foreign competitors. No other country so nonchalantly kissed goodbye to so much potential wealth-creation in so short a time.

But events in the U.S. auto industry, where the Big Three's share is nearing less than 50 percent, parallel those in the U.K. a couple of decades ago.

Whisper it, but Detroit is now on that same road to oblivion.

In the U.K., it happened across the board – to cars, medium and heavy trucks, buses, motorcycles, components suppliers and most of the machine tool industry.

Names like Austin and Morris, Triumph and Rover, Hillman and Humber, Leyland and Foden, BSA and Lucas succumbed to Darwinian extinction. They and scores of others were condemned to their fates by inept managers, poor products, meddling governments, pathetic quality, Bolshie employees, failed promises and (most important of all) disillusioned car buyers.

They did not deserve to survive.

Coventry foreshadows Detroit’s future

The city of Coventry was the country’s equivalent of Detroit, the cornerstone of its auto industry. It paid a terrible price for that importance in World War II bombing raids. One history of Coventry’s famous car marques lists 110, including Alvis, Armstrong-Siddeley, Chrysler, Daimler, Hillman, Humber, Jaguar, Lanchester, Lea-Francis, Peugeot, Riley, Rover, Singer, Standard, Sunbeam and Triumph.

But where metal was once cast, forged, bashed and welded to create cars, trucks and tractors, there are now housing developments or shopping malls.

The only surviving automaker produces the iconic London taxis in small numbers.

The good news is that the U.K. found a new role when its domestic automakers withered. High quality volume production continues in the country thanks to a trio of transplants (Honda, Nissan and Toyota) and BMW’s Mini factory. Whoever they are, the new owners of Jaguar and Land Rover will probably also continue to make cars in the country, just as Aston Martin, Bentley and Rolls-Royce do.

But, for Coventry today, read Detroit tomorrow. There is a growing conviction on this side of the Atlantic that U.K. history is repeating itself in the U.S. The U.S. auto industry is much bigger, so it will take longer to drive down the road to oblivion once taken by the U.K.

Have no doubt, though. The journey has begun.

Home defeat

One microcosm from the U.K. provides a portent of what is likely to happen in the U.S.

Rover, Triumph and Jaguar were once the aspirational brands for every successful businessman, banker and lawyer in my country. For years, no one took foreign firms seriously. Slowly but surely, though, premium sector buyers began to learn to appreciate Volvos, BMWs and Mercedes-Benz.

The word spread, and the rest is history. Rover and Triumph are nothing but footnotes in history books and Jaguar was comprehensively screwed up by Ford. No one should have been surprised.

Cadillac and Lincoln are the U.S. equivalent of Rover, Triumph and Jaguar. For years, they were the automotive gold standard. Even as recently as the mid-1980s, Americans bought more than 300,000 Cadillacs each year and around 175,000 Lincolns. Annual sales of BMWs and Mercedes-Benz at that time were well under 100,000. Toyota’s Lexus did not then exist.

These days, Cadillac sells a fourth fewer vehicles each year than it did a couple of decades ago. Lincoln sales are off by a third. Meanwhile, well in excess of 300,000 Americans choose Lexus each year, and sales of the German brands are in the 250,000 to 275,000 range.

Does anyone except Detroit boosters believe the rival sales graphs will change direction any time soon?

The talk now at General Motors and Ford is of the need to produce ‘Lexus fighters.’ Good idea. But that’s just PR spin that conveniently ignores how GM and Ford lost their home turf advantages in the first place.

Meanwhile, as those Cadillac and Lincoln advantages were squandered, GM and Ford self-confidence told them to add European trophy brands. As that was nearly two decades ago, one might have expected positive results by now. Instead, Ford’s ownership of Jaguar brought nothing but grief, and GM went nowhere with Saab.

In spite of the untold money and manpower thrown at Cadillac/Saab and Lincoln/Jaguar, buyers are losing faith.

All this happened, remember, during the longest and strongest global sales expansion in automotive history. Sales of Audis, BMWs and Mercedes-Benz soared as those of GM’s and Ford’s premium brands atrophied.

It was not just bad luck on the part of GM and Ford. It was bad planning, just as it was by the British Leyland and Rootes groups in the U.K. all those years ago.

Where have all the buyers gone?

That’s just one sector. The problem for Detroit is that the same is happening across its home market. Excuse the statistics, but they’re necessary to understand the scale of the problem.

Car and light truck buyers in the U.S. were intensely loyal for years. Even by the end of the 1960s, imports accounted for no more than 10 percent of the market. The light truck sector, accounting for 15 percent of the total, was 95 percent loyal to local products.

Everyone knows what happened after that. In 1986, the year I went to work in Detroit, consumers in the U.S. bought just over 16 million cars and light trucks, a record that would stand for many years. Even if import brands had by then achieved a market share of 26 percent, what did it matter? The combined annual sales of GM, Ford and Chrysler still approached 12 million.

Fast forward a couple of decades. Car and light truck sales in the U.S. last year were at a similar level, around 16.5 million. The problem for the Big Three was that import brands took 46 percent of the total. In other words, the domestics were responsible for fewer than 9 million of the vehicles bought by Americans.

And the figures are falling. This could be the year the Big Three fall below 50 percent of U.S. market. In June, Big Three market share stood at 50.3 percent. Some experts, including David Cole, an industry analyst whose father was once a president of GM, predict Big Three share eventually could fall to 40 percent.

That’s a mighty drop. With the exception of South Korea, imports gained in popularity in other countries with well-established domestic auto industries – in Japan, Germany, France and Italy. But America’s warm embrace of import brands is as loving as it was in the U.K. – and we saw where that led.

Along the way, the U.S. also proved as careless as the U.K. in abandoning famous nameplates. The post-war automotive casualty list includes De Soto, Edsel, Hudson, Kaiser, Nash, Oldsmobile, Packard, Plymouth, Rambler, Studebaker, Willys and probably more I’ve forgotten.

All this helps to explain the numbing financial losses, the factory closures and job cuts now taking place at GM, Ford, Chrysler and across the components sector. It doesn’t explain why the U.S. industry got things so wrong.

Certainly the infamous legacy costs are an issue, and so from time to time are exchange rates. But, just like the U.K., the root cause of the Big Three’s woes is a consistent failure to connect with enough customers. If Detroit offered enough products consumers wanted, legacy costs would not be the problem they are.

Management mystery

It’s clear that top managements, then in the U.K. and now in the U.S., are not as clever as they think they are. It is one of the great mysteries of commerce.

Automakers recruit the brightest and the best. They hire great engineers and designers, creative product planners and marketing people, solidly reliable financial and legal experts. These big decision-makers carry full complements of MBAs and industry accolades.

They are talented people who work hard and are handsomely rewarded. Their task is to create products that consumers want, and in many cases cannot live without. To do so, they are provided with budgets that are exceeded only by national defense departments and aerospace companies. How hard can the task be?

Time after time, though, these ever-so-clever people collectively screw up.

Despite historically high levels of demand, the Big Three last year failed to make hangar-loads of profits. It is no way to run a hot dog stand, let alone a major industrial corporation.

It is therefore frightening to imagine how Detroit will fare when the next sales slump arrives, if it isn’t here already. Whole communities seem destined to suffer. The results will go beyond the thousands of employees, shareholders, suppliers and dealers directly involved. The ripple effect will reach into regional shopping centres, the housing market and as far as pumped up politicians in the nation’s capital.

It’s what gradually happened to the U.K., auto industry a generation ago. From this side of the pond, it looks as if the same is happening in the U.S.

You have been warned.

[Camino LS6]

This author needs an update.

Also, one major difference is that the UK market is tiny by comparison forcing their carmakers to rely on exports.

Apples and oranges.

[enzl]

This author needs an update.

Also, one major difference is that the UK market is tiny by comparison forcing their carmakers to rely on exports.

Apples and oranges.

I'm not advocating the entirety of this piece, by any means...I just thought it was thought-provoking & the parallels are somewhat frightening...an overreliance on the domestic (US) market could be the inverse situation, but analogous to an overreliance on exports...

[AxelTheRed]

So many things need to change in the American auto industry it isn't even remotely funny.

[Oracle of Delphi]

Americans need to put the same protections on their vehicles as Japan does, then watch what happens.

Edited July 24, 2007 by Pontiac Custom-S

[ZL-1]

An interesting point of view, thanks for posting. Edited July 24, 2007 by ZL-1

[FAPTurbo]

I think there is one key difference... and that is the British couldn't build a car to save their lives.

[Camino LS6]

If nothing else, the editorial points out what cannot be permitted to happen here.

The situations are quite different, and I believe that our own domestics do "get it", so I expect far different results.

But, the piece does point out the importance of keeping the industry in place and prosperous.