North America’s Auto Capital - Yes I’m writing you from the Windsor side of the Detroit/Windsor border, the auto capital’s of the US and Canada. So you know i have a vested interest in this. This doesn’t make me an expert on the auto industry, but it does apparently mean i know a lot more about the topic than Senator Richard Shelby and NY Times commentator Tom Friedman. After listening to the two of them slander the US auto industry generally and the UAW specifically, I wanted to set the facts straight and let you decide.
The UAW is not the problem here. Toyota, Honda, Mercedes, BMW, Hyundai, Renault, VW, etc. all have Unions in their home countries. The problem here is the US Auto Company’s management. Detroit’s managers have had to manage their unions, as have their competitors, if the union is the problem, then management has failed to manage that part of their business. In fact, since 2005 the UAW has agreed to 2 major concessions in their contract. The first concession established a 2 tier wage system that allows the Detroit 3 to pay new workers at levels matching foreign owned plants in the US, while the second removed medical pension liability from the auto companies to the Union. The effect of these will be to reduce GM’s cost differential with Toyota by 80%, by 2010.
Now that the blame is being placed at management’s feet, just how bad are they? The Detroit 3 still holds about 45% of the US market, while competing against world class competitors that include Toyota, Honda, Daimler Benz, BMW plus companies including VW, Fiat and Renault who are world class in the small car markets. The Detroit 3’s 45% share is larger than that of Toyota, Honda and all 3 German automakers combined. How is this a failure? Does either Coca Cola or Pepsi have a 45% market? The Detroit 3 control 45% of the market against at least 15 large international competitors.
Friedman and Shelby chastised the automakers for not building what people want. Forgive my ignorance here, but weren’t pickup trucks and SUV’s the most popular vehicles in the US, before Oil skyrocketed and gasoline rose from $2 to $5.25? If Friedman or Shelby were right, the current financial panic should not have affected the sales of world beater Toyota? Well Toyota’s sales were down 26% while the US 3 were down 33-45%, the difference is based on the US companies being more focused on trucks and SUVs. So Toyota is down 26% and Ford is down 33% so Toyota is great and Ford is sub par? Let’s get real, whatever the problems the US 3 have, the financial panic which has wiped out sales, has had the effect of accelerating the costs of the US 3’s huge restructuring.
Finally, there is the repeated claim that Detroit is behind the times on technology, which is historically untrue. The Detroit 3 first introduced engine computers, overhead cams, fuel injection, etc. For years Detroit has led the way in spread safety technologies such as Airbags and ABS to mass produced cars. Yes Detroit has fallen behind on hybrids, but it’s important to remember that much of the success of hybrids have been their marketing as being greener than traditional cars. The reality, according to Toyota’s own numbers is that each Toyota hybrid reduces an average of 4.5 tons of CO2 over it’s lifetime (Hybrid Hype), about $5 worth of CO2 at current market prices: www.theccx.com. GM has been launching their Hybrids, which have focused on improving the mileage of their most popular and least efficient products: SUVs and trucks. Management in Detroit may have be unable to compete in small cars, pay themselves too much and lack forward thinking vision, but the truth is their products are demonstrating they still have a major impact in marketplace.
