“…GM, Ford and Chrysler tried to improve: by 2006 they had almost caught up with Japanese standards of efficiency and even quality. But by then, GM’s share of American market had fallen go below a quarter. Rounds of closures and job cuts were difficult to negotiate with unions, and were always too little too late. Gradually the cars got better, but Americans had moved on. The younger generation of carbuyers stayed faithful to their Toyotas, Hondas or Mercedes assembled in the new cheaper factories below the Mason-Dixon line. GM and the other American firms were left with the older buyers who were, literally, dying out.
GM’s demise should not be read as a harbinger of doom for the car industry. All around the world people want wheels: a car tends to be the first big purchase a family makes once its income rises much above $5000 a year, in purchasing-power terms. At the same time as people in developing countries are getting richer, more efficient factories and better designs are making cars more affordable. That is why the IMF forecasts that the world will have nearly 3 billion cars in 2050…
… Yet although the long-term prospects for ales growth look excellent overall, the car industry has a problem: it needs to shrink dramatically. At present, there’s enough capacity globally to make 90m vehicles a year, but demand is little more than 60m in good economic times. Even as the big global manufacturers have been building new factories in emerging markets, governments in slow-growing rich-world markets have been bribing them to keep capacity open there.
Because the industry employs so many people and is a repository of high technology, governments are easily lured into the belief that car firms must be supported when times are tough. Hence Mr Obama’s $50 billion rescue of GM; and hence, too, the German government’s financial backing for the sale of Opel, GM’s European arm, to Magna, a Canadian parts maker backed by a Russian state-owned bank. German politicians have made it clear that they plan to keep German factories open even if others elsewhere in Europe have to close. At least the American rescue recognizes the need to remove capacity from the market: GM will, as a result of the deal, lose 14 factories, 29.000 workers and 2.400 dealers
It could still be a great business
For all its peculiarities, the car industry is no dinosaur-Toyota, for instance is a byword for manufacturing excellence. But the unevolved GM deserves extinction. Detroit employed so many people and figured so large in American culture that governments felt they had to protect it; but in doing so, they made it vulnerable to less-coddled competitors from abroad. By trying to keep their car industry big, America’s leaders ended up preventing it from becoming good. There is a lesson in that which all governments would do well to learn”
The decline and fall of General Motors. Detroitosaurus wrecks. The Economist. June 6th-12th 2009. Pp 10. Ed. The Economist Newspaper Ltd.