For the first time, the American automobile industry is in danger of losing its worldwide dominance.
Having lost $11.7 billion in value during 2005, General Motors may lose its status as the world’s top automobile manufacturer for the first time in 75 years. The company’s major supplier, Delphi, is in Chapter 11 bankruptcy, and GM plans to cut 30,000 jobs and close 12 assembly plants between 2006 and 2008.
After losing the claim of being the second-largest automobile manufacturer to Toyota in 2003, Ford is in no better shape. In 2005, Ford lost $12.6 billion in value, according to the Detroit Free Press. On Monday, Ford announced that it would close 14 plants by 2012 in addition to cutting 30,000 jobs.
The reasons for these cuts are complex, according to Ford and GM. Both companies cite the rising costs of gasoline, steel and health insurance for their employees.
Ford says its corporate culture has stifled innovation and the public’s distaste for SUVs grew faster than expected. However, neither company has addressed the underlying problem.
The bottom line when it comes to the automotive industry is product. Rising health care and material costs are certainly concerns meriting the company’s attention, but the reason the American automotive industry is losing billions and cutting a combined 60,000 jobs is simply because it spends money making cars that people do not wish to buy.
This loss of market share is not due to an unforeseeable confluence of events, but because the Japanese automotive industry more wisely deduced the future needs of consumers and more expediently changed its product lines to match those needs.
While Toyota, Nissan and Hyundai were developing hybrid engines that save gasoline and used innovation to enhance the desirability of their cars, Ford and GM continued to produce the gas-guzzling SUVs that are increasingly losing favor with consumers.
Ford and GM, for the past decade, have not engaged in real competition, but merely lowered prices to sell cars consumers simply didn’t care for. They sat on their laurels and allowed the competition to get a foothold on an industry that has historically been dominated by Americans.The solution they have proposed – to cut thousands of jobs – is merely an advancement of their previous errors. Making workers suffer for managerial incompetence is not sustainable or desirable. Unfortunately, it is a practice that is engaged in too frequently.
The good news is that unsustainable business practices are usually far less profitable than ethical practices that make for long-lasting businesses. The old stereotype of corporations that plunder and act without regard to the general welfare is dying due to the increased selection, competition and efficiency of communication brought about by globalization and technological advancement. Although Ford and GM may have only recently realized this, there are businessmen who do fully understand what it means to have successful and ethical capitalism.
In a speech that helped kick off the North American International Auto Show, Jerome York, aid to multibillionaire and largest single GM stockholder Kirk Kerkorian, said the cuts GM proposed are a necessary beginning to a corporate-wide change, but are insufficient. York proposed that GM must cut profit sharing by 50 percent. The reduction would save the company $566 million annually, $44 million of which would have gone to Kerkorian.
What York and Kerkorian are proposing is a plan for shared sacrifice with the United Auto Workers Union during times of trouble, rather than the burden falling squarely on the union as has happened frequently in the past. GM and Ford must, by law, bargain with the union in good faith, and the union would undoubtedly greet the Kerkorian proposal with far greater conviviality than the current Ford and GM plans.
But why would Kerkorian and York propose a plan that costs them $11 million a quarter? There are no altruistic billionaires.
The reason is the strongest, most influential human trait in existence: self-interest. Kerkorian has approximately $1.7 billion invested in GM. If he can take steps which satisfy the UAW (a prerequisite to GM functioning at all) as well as streamline GM in order to provide more desirable cars, he could emerge from this problematic situation with an amount of money far greater than the $44 million annually he is willing to lose. In the process, he might save an iconic American company, create thousands of jobs and deliver untold profits for any number of stockholders.
The management of Ford and GM would do well to listen to businessmen like Kerkorian. He proposes risks that could fail. His proposal might send GM stock into a freefall. But they are risks that at least one columnist thinks are worth taking.
Jordan Capobianco is a senior majoring in English education.