Why the auto industry's plight is your fault

Posted By Blake Hounshell Sunday, November 16, 2008 - 10:20 AM Share

There's a lot of talk, in Thomas Freidman's columns and elsewhere, about how the U.S. auto industry deserves its current plight. I have some sympathy for this view, since I do believe GM and Ford have largely failed to innovate, fought hard against gas taxes or mileage standards, and generally managed their brands into the ground.

However, a couple points to consider:

The industry was in trouble before, but it's the drying up of consumer demand due to the financial crisis that is threatening to destroy it at present. Even the innovative Toyota is feeling the pain right now.
Who bought all those "gas-guzzling S.U.V.s and trucks" Friedman is ranting about? Martians?
I must have missed the groundswell of grassroots activism in favor of the higher taxes that would have put a floor under the price of gasoline and made for a stable environment that could make technologies like plug-in hybrids viable even when market prices for crude oil collapse.

As oilman T. Boone Pickens put it this morning on Meet the Press, "If you want to blame somebody for it... all of us in America used the oil. The reason we did? The gasoline was cheap." Watch him here:

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RSADJ

11:54 AM ET

November 16, 2008

Innovation

Mr. Freidman is wrong. The truth is that Ford, and to a lesser extent, GM, are quite innovative. Only those innovations were for the European market because stricter rules reqired them. As for the management, you simply cannot lump the big three into one. Mr. Mullaly is a brilliant manager.

The US government must ensure that these companies have access to credit. In the end, Chrysler will likely fail, GM will likely shrink, and Ford will take market share from both, but return as a global car company rather than an American one.

VICTOR TREMBLAY

12:59 PM ET

November 16, 2008

Blaming the wrong people

I think you are missing the point here by saying that it was basically the consumer's role to ensure that the Big 3 innovate or simply realize that gas prices would increase in the long term. That responsibility falls solely on those companies. It was (and still is, despite recent fall in price) obvious that world demand for oil increases faster than the output and, especially given limited reserves, the long term trend for oil price would be up. The Big 3 totally failed to see this reality.

While gas-guzzlers might have been profitable in the short term, it was the role of the directors of the companies to realize that to be competitive in the long term they would have to invest in fuel-efficient cars, not only because of government regulations but because of long term economic trends. It is in no way the fault of consumers that they bought them for a short period, while oil prices and the economy was good; the fault lie on the total lack of vision of the upper management of those companies.

Foreign automakers managed to foresee this trend and reacted accordingly, so this was by no mean an impossible thing. Also, while you claim that Toyota is feeling the pain, which is true, there are no signs that they are close to collapse; so the blame for the current crisis can not fully explain the desperate situation at the Big 3.

Foreign companies invested in the right places while American automakers closed its eye on reality. End of the story.

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VICTOR TREMBLAY

1:04 PM ET

November 16, 2008

From my previous

From my previous comment:

"so the blame for the current crisis can not fully explain the desperate situation at the Big 3."

I meant:

"so the current crisis can not fully explain the desperate situation at the Big 3. "

SAM

4:25 PM ET

November 16, 2008

I doesn't make any sense

I think I can't buy this comment of yours Blake, So tomorrow if Cheetos fall I have to pay because I used to but their Crunchies?

RWB

9:49 AM ET

November 17, 2008

Sympathy for the Auto Industry

Victor Tremblay wrote: "While gas-guzzlers might have been profitable in the short term, it was the role of the directors of the companies to realize that to be competitive in the long term they would have to invest in fuel-efficient cars, not only because of government regulations but because of long term economic trends."

I think this point of view, which I have heard expressed frequently recently, compresses the history of cheap gas. Remember that the price of oil collapsed in the mid 80s and stayed cheap until the early 2000s. From the point of view of executives at the big 3, that's a really long time to place a bet on fuel-efficient cars that not enough people wanted. It seems crazy now, but in say 1997, it wasn't entirely crazy to think that oil and gasoline would be cheap for a long long time into the future. Why? Because the cost of the stuff had been low for over a decade and was still going down.

Indeed, the European and Asian carmakers started pumping out their own gas-guzzling SUVs and full-sized trucks in response to this era of cheap gas.

So yes, in hindsight it is obvious that U.S. carmakers should have invested in smaller vehicles and gas-conserving technologies. But I think making those decisions when they would have counted was much much harder, and involved much more risk, than people are willing to admit. We know the outcome of oil price movement now, so with hindsight bias, it seems obvious that this outcome was inevitable. In 1997, it was far from obvious.

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