From today's FT:
Sir, Your excellent account of the events unfolding with the car manufacturers of Detroit reminds me of Russian government protection for AvtoVAZ, maker of Lada cars. The Russian story lacked the flamboyance of publicly staged performances - but then who can beat the Americans in this department?
For the last decade Russian officials levied taxes on the importers of passenger vehicles with a view to helping AvtoVAZ. Guess the result? AvtoVAZ continues to produce the cars that are slight variations of the Fiat 124 that itself was a decent motor car for the early 1960s.*
Anton Krylov, London.
* My Dad bought one of these in the mid-1970s, it was still pretty decent then. But I doubt they export very many, i.e. Russians get poor value for money and the overall net increase in Russian exports is probably nil.
Thursday, 11 December 2008
Reader's letter of the day
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The Americans have the car industry they deserve.
Car design & technology cycles are very long and change takes a long time and takes a lot of money. To develop and tool an ordinary car model takes about $1billion, and that does not include a new engine. The uncompetitivness of US cars derives from decisions taken in the 70s and 80s. Back then cars were produced by national companies to suit national customers' demands. The US consumer demanded large cheap cars and trucks. With a captive market and a growing economy, Ford & GM were making money. The unions wanted a slice of it, which they got, with contracts that in hindsight were very lucrative. Meanwhile the Japanese were producing small, high quality cars, as demanded by their market and the Germans were producing mid size cars of high quality. In the UK, we were making shit cars, which were satisfying UK consumers.
Then globalisation started to happen and Japanese and German cars started to show up in the US and UK. They picked up market share as the customers liked the improvement in quality over domestic products. Japanese small cars were cheaper than American small cars, due to the high labour costs of the unionised US workforce. US car companies reached the point where passenger cars were sold at a loss but trucks were highly profitable. Japnese and Gernmans didn't make trucks because they had no domestic market for them and there was a tariff barrier against them. By the early 90's Ford made no money on any normal size car and only made profit on very large cars, SUV's and Trucks. (Lincoln's Wixom plant made more money than the rest of Ford in the 80s)
Then two things changed: Japanese trucks started to arrive when the tarrif barrier was dropped - they were not as good as US trucks for maybe 10 years but by now they are very similar to the domestic trucks. US buyers started to buy more and more small cars and the US companies had no development in small cars (they had some in the showrooms from Korean partners, but quality was poor) They started to leverage their European designs, but the process of transferring manufacture to the US reduced quality, and US manufacturing costs were still high compared to the Japanese, who by now were building cars in the US in non-union plants in the southern states.
So, US cars are poorer quality and more expensive to make because the US consumer demanded cars that were different from the rest of the world. As consumer tastes changed to be more in line with the rest of the world, US makers were left behind. If US consumers had a German or Japanese expectation of quality & technology, they would now have a car industry that is competitive.
I'm not sure I put that very well, but I hope you catch my drift. Yes, I do work in the car business and I worked in Detroit in the early 90s. The situation unfolding was obvious to all back then, but it was already too late to catch up, to fix the union cost problem and to fix the product portfolio and quality.
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