What the auto industry bailout says about US industry

Jan 14 2009 by Robert Heller Print This Article

The incredible sight of America's Big Three car bosses going to Congress cap-in-hand for the auto industry bailout reflects the harsh reality of the US and its industrial strength.

Be in no doubt: the humiliation of General Motors, Ford and Chrysler is not simply another event in the long-running Credit Crunch saga. It represents the dead end of a long road down which the Big Three auto leaders have been driving, without much pause, for quite a few decades.

The term 'Big Three' actually offers a vivid illustration of how the mighty are fallen. They are not so big any more. The trio ruled the domestic market after World War II, and faced no competition whatsoever until Volkswagen's Beetle achieved big success in the US.

However, despite sales of 400,000 or so a year, Detroit's moguls dismissed the Beetle as a fad. They signalled no intention of adapting and sacrificing the profit margins made by the so-called 'gas-guzzlers'.

It's a familiar syndrome. The most rational way to react to new and unwelcome threat would be to analyse the competition's strengths, reappraise the entire market, and form a plan that to safeguard existing sales while extending coverage in order to exploit new trends. Too often, though, companies act irrationally in such situations and instinctively favour denial.

The driving force that is supposed to animate capitalism is the profit motive. Competing bosses are meant to push their people towards stretching targets, while outside investors push along lagging CEOs Ė or sit back and reward the successes with bags of cash. However, it could be that there is a flaw in this method that's taken for granted across the Western world: it simply might not work.

CEOs have shown a disregard towards the future and instead put all their faith in an old approach that has proved to be a conspicuous failure.

That's an incredible and frankly misguided strategy when you consider that Toyota's market capitalisation is over 50 times the relatively meagre GM figure of $1.8 billion. The ability to combine flexibility with strict control is the key strength of the Japanese firm. It moves to meet the market and stays in tune with the customer. Meanwhile, GM remains psychologically locked in the formula from its heyday.

The absurdity of the situation was demonstrated by the Congressional hearings on the Big Three auto giants and their pleas for bail-outs. Turning up in separate corporate jets, with no documents or plans (giving the committee a field day), the three CEOs were asked whether they would accept a cut in pay to $1 a year? No, a massive $22 million was just about right, reckoned the Ford man.

Colossally overpaid, professionally incompetent, hugely conceited; it simply isn't the way to run a car company Ė or the world's economy.

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About The Author

Robert Heller
Robert Heller

Robert Heller, who died aged 80 in August 2012, was Britain's most renowned and best-selling author on business management. Author of more than 50 books, he was the founding editor of Management Today and the Global Future Forum. About his latest title, The Fusion Manager, Sir John Harvey-Jones wrote: "The future lies with the thinking manager, and the thinking manager must read this book".