Why the Coasts Hate Detroit

The east and west coasts were represented yesterday (3/30/09) in a discussion of the auto industry on NPR's Talk of the Nation.  Dan Neil, automotive critic from the L.A. Times was there, as was Micheline Maynard, senior business correspondent from the New York Times.  I was a little shocked when she said that "People in Detroit simply don't get why people outside Detroit hate the industry and resent them so much."  Hate is what its come to?  And is Detroit supposed to get it?  Is Detroit supposed to accept that its hated?

Is hate driving the decisions of the Obama administration?  It certainly appears that decisions made regarding GM's future are being made to please the "people outside Detroit", and not necessarily in the best interest of the corporation.  Threatening bankruptcy decreases consumer confidence in the company.  Ousting the CEO creates chaos within an organization already struggling to sort itself out.  It also reinforces the belief in eyes of  the american public that the leaders of these Detroit companies are incompetent.

So why the hatred?  Detroit represents the past.  The rust belt.  Manufacturing.  Unions.  Fat and lazy.  What's not to hate?  America wants to look forward, wants the latest greatest thing, optimism, growth, potential.   Detroit is like a big anchor left dragging behind the Goodship America.  Detroit let the american car buyer down in the 70's and 80's with poor quality, lack of innovation, and bad experiences.  And they haven't forgotten.  Well, actually they have.  A lot of car buyers don't even consider a domestic brand when shopping.  To them, the Detroit companies are irrelevant.  So they reason, why should my tax dollars go to prop up a company who's car I'll never even consider buying?  Cut the rope, anchors away!

Blame the CEOs?

Heads have rolled at GM.  The Obama administration has required GM CEO Rick Wagoner to quit his job in order for GM to receive additional government funds.  Is this the best move for the future viability of GM or for the short term stability of the company?  I don't know the answer to the first question, but its definitely going to cause a lot of turmoil in the short term.  I've experienced several changes in leadership in my automotive career and it always leads to months of uncertainty, lost productivity and  a lot of political maneuvering.  Typical of any large, bureaucratic organization, but certainly not the state GM needs to be in at this moment in time.

Was this done in the best interest of GM, probably not.  Was it done to placate the American public's feeling that "Detroit" doesn't deserve help (click Auto Industry), definitely.     

They All Need Help

There's a common notion that "Detroit" needs bailout money from the US government because they have been so bad at running their businesses.  That they somehow deserve to be taken down by the financial crisis striking the entire world.  Sure, they haven't been the best run companies and they have been up against the ropes for years.   But the reason they need help at this point in time is that sales of new cars have dropped more than 30%.  For all manufacturers.  No company can sustain that type of drastic, unexpected drop in revenue, especially when the cause has nothing to do with the way you run your business.   The car business is extremely competitive, resulting in an extremely low margins.  The best car companies in the world make 3 -5 % return on investment.    You'd be better of putting your money in a savings account at your local bank than trying to make money running a car company.

People are not buying cars because they've lost confidence in the economy, they don't know if they'll have a job in the near future, and the  banks are not lending money as freely as they once were.  It has nothing to do with whether that car is a Chevrolet or a Toyota.

"Detroit" is asking for help from the government, but so are a lot of the other so called successful car companies.  Toyota has asked for a $2 Billion dollar loan from a Japanese government-backed bank.  Nissan and Mitsubishi are following suit. Mazda, and Honda are rumored to also be working on  assistance from the Japanese government.  The French government is providing about $8 billion in loans to Renault and Peugeot-Citroen. The German government has committed nearly $2 billion dollars to scrapping bonuses, paying people to trade in their old cars and buy new ones.  And they are in the process of committing more money.

Its not just "Detroit" that needs some assistance to survive, its pretty much everyone in the business.  All of these companies don't deserve to fail, and neither does "Detroit."

Take a Look in the Mirror

As this is the introductory post to this blog, let me start with a quick discussion of the tone for this blog.  I'm trying present an even view of the american auto industry.  I was an industry insider, always a skeptic, and am now an outsider looking in.  I've seen the best and the worst of "Detroit."  I'm not trying to blame one group or the other, I'm not making a stand for any particular company or political group.   This is messy business, and the path that got the car business to this point is not a straight one, and the answers to the problems are not easy.

So lets look at ourselves in the mirror first.

Over and over you read and hear the comment that "Detroit" doesn't build the types of cars (and by cars I mean cars, truck, SUVs, etc) that Americans want to buy.    But in truth, Detroit responded to the consumer demand.  People wanted bigger, taller, faster, roomier, perceivably safer vehicles, and Detroit delivered.   The counter argument is that the Japanese were giving Americans what they wanted, smaller cars, and people flocked to them.  But what the Japanese were really giving was quality and the idea that you as a consumer were making a smart choice.  The reason their cars were small, is that these same cars were sold all over the world, including the home Japanese market, and these countries demanded, and in some cases require by law, smaller cars.  Small is what they built, so small is what the Americans got.  But for as long as the Japanese have been selling cars in America, their cars have been growing bigger, taller, faster, roomier and perceivably safer.  Just like "Detroit" cars.   Toyota now makes the largest pickup truck sold in America and is proud of it.  

Don't blame Detroit for giving consumers the choice to buy a large SUV.  The reason they built so many is that that was where demand was (and still is) and with demand comes the profit margin.  All companies, American, Japanese, German, are in the business of making money, and they are all chasing the most profitable markets.

If in the past consumers had put a high value on efficiency, meaning they were willing to pay a premium price for high gas mileage, all the car companies, "Detroit" included, would have been chasing that market.  But instead consumers demanded space, comfort, speed and luxury.   MPG was not a priority for the large majority of car buyers.  And who could blame them, living in a country with cheap gas.