Wednesday, June 4, 2008


In still more bad news from U.S. automakers, General Motors announced that they were shutting down four plans that primarily produced trucks and SUVs. It would be nice if these carmakers would do their employees and shareholders a favor and start operating with some long-term vision rather than chasing short-term profits. For those of you under 35 years old, don't think this is anything new. We've had this rodeo before.

Even after the oil embargo of 1973-74, when people had to sit in lines for hours to fill their tanks and maybe even get turned away once they finally reached the pump for lack of gas, the American "Big Three" automakers continued to build gigantic, gas-guzzler, V-8 powered cars for the masses. Meanwhile, German and Japanese companies like Volkswagon, Honda, Toyota, and Datsun (now Nissan) quietly introduced small, economical, and dependable compacts to a very grateful market. My father traded in his Ford Comet for a Mazda RX-3 in 1974, causing a bit of a stir in the neighborhood. His olive green coupe with the barrel-shaped rotary engine was quite the novelty sitting next to the Impalas, Bonnevilles, and Torinos on the block. While it wasn't as fuel efficient as some of the other imports, having a car that still got over 20 miles to the gallon highway was a revelation, and the smooth-running rotary engine produced far more horsepower than your typical four-cylinder putt-putt motor of the day.

There were lots of innovations being bandied about at the time from solar to electric to bio-fuels (sound familiar). Still, most Americans were leery of giving up their cushy land yachts and, once OPEC started getting the price they wanted, the oil started flowing again and the furor died down for a few years. But in 1980 when gas jumped from around 60 cents a gallon to one dollar a gallon, that's when most Americans had had enough and raced to the foreign car dealerships for the latest Tercel or Corolla. The shockwave was permanent and caused The Big Three to shut down auto plants across the country, particularly in Detroit, and lay off thousands of workers. As a teenager growing up in Dundalk, Maryland, where we had a once thriving GM plant, the lay-offs were devastating. The laid-off workers survived, re-trained, and moved on, but the psychological damage to the once proud community was permanent. And as I saw those little, efficient sub-compacts zip around the streets of Dundalk, I couldn't help but think this could've been avoided if they had only heeded the market change five or six years earlier.

And it wasn't only the blue-collar autoworkers who were affected. The shareholders also had to suffer the impact of this boom-and-bust business approach. Chrysler was nearly driven out of business altogether in 1979, saved only by a federal government bail out. They quickly shifted to building smaller cars (the much-maligned K-Cars being their first foray into front-wheel-drive efficiency), and eventually stabilized. Ford and GM also scrambled to jump on the front-wheel-drive bandwagon in the early 80s, and they too started to see a turnaround.

By the mid-80s, virtually all new cars were front-wheel-drive and the vast majority carried four- or six-cylinder engines under their hoods. The once standard V-8 was relegated to a handful of sports cars and trucks. Little wonder gas prices started to drift back down below the dollar mark by the mid-80s. It seemed we had learned our lesson and adjusted. I even recall reading an article by veteran auto journalist Brock Yates in 1991 where he chastised Chevrolet for having the nerve to build Caprices since it was not socially responsible to encourage people to drive gas guzzling cars.

By the mid-90s, while I was working for a large investment firm, I started to see more and more trucks and SUVs popping up on the parking lot. I was bewildered as to why young, white-collar suburbanites would need such big ugly vehicles as their everyday transportation. The response was that they were so roomy and good for carting their rugrats around in. I didn't see why a Taurus wouldn't fit the bill just as well (and burn less fuel), but I knew there was something else at work here. They bought them because it made them feel rugged. It was manly to drive a Yukon. It was wimpy to drive a Caravan. SUVs made them feel like masters over all those turds in their Honda Civics. They were truly Kings of the Road.

Of course, the American automakers would not disagree with them. This was easy profit since they already had the truck chassis designed and rolling off the assembly lines. All they had to do was slap on a cushier interior and a flashier body shell and their target market was sold. Who cared if they drank gas like water? Gasoline was cheaper than bottled water in the 90s. Still, all I could think was "We thought the same way in the 70s and it bit us in the ass." Didn't we learn anything from that horrible decade? Oh, that's right, we Americans don't bother to look at the past. History is for pussies! Each generation is smarter than the last and will always do everything better, right?

About 10 years after I read that commentary by Brock Yates on how Chevy was committing a sin by building Caprices, I read a commentary where he defended all those soccer moms who loved their SUVs and chided those tree huggers who thought they should give them up because of their poor gas mileage. He cited the same excuses that my co-workers cited a few years earlier: they are some roomy, so versatile, so...utilitarian. I guess wasting fuel was no longer a sin, eh Brock? Great writing on Cannonball Run, btw.

So here we are with gas near $4 a gallon and those magical SUVs have suddenly lost their charm. Once again, the new big automakers of Honda, Toyota, and Nissan foresaw the end of the SUV boom five or six years ago and started introducing cute, affordable sub-compacts like the Scion and the Yaris. Honda even brought out the popular hybrid Prius long before GM or Ford ever thought of one. Now Ford is scrambling for survival and GM is closing plants. Chrysler is practically irrelevant in the auto industry. Maybe its not enough to pander to the market in search of the next quarter's profits. Perhaps it's better to anticipate the future, show that future to your target market, and convince them that its a future they need. Of course, when you choose to ignore your past, you have no skills for forecasting the future.

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