Crash Course

Reading about the decline of the U.S. auto industry is like watching a Hitchcock suspense film.  The camera lingers on the murder weapon.  We know what is going to happen, but the apparent victim remains unaware of her fate.  You want to yell: "Watch out!"  Unfortunately, it's too late.

Hopefully, it's not too late for Detroit's Big Three car companies.  In "Crash Course: The American Automobile Industry's Road from Glory to Disaster," author Paul Ingrassia depicts how an endless series of poor decisions seriously impaired General Motors, Ford, and Chrysler.  As a Detroit native, it is a particularly sad tale. 

There is plenty of blame to throw around.  Jonathan Yardley of the Washington Post succinctly describes the self-destructiveness and insanity of both management and the unions: "This isn't a story about good guys on one side and bad guys on the other, because for decades there was more than enough badness on both sides -- arrogance, incompetence, tunnel vision, irresponsibility, selfishness..."

There were bright spots.  The parties achieved significant accomplishments during their long history.  The union protected workers from often dangerous working conditions and obtained a solid middle class life for its members.  Management built large businesses that had periods of huge success.

But times changed and the leadership did not.  The union demanded ever more benefits and rights, greatly hampering the auto industries' ability to compete globally.  Victories at the bargaining table were pyrrhic -- the current members benefited, but future workers' jobs were put at risk due to the financial burdens placed on their employer. 

One egregious example is the "Jobs Bank," which was established in the 1980s to provide temporary assistance to hourly workers who had been laid off.  This admirable arrangement became absurd in the 1990s when laid-off workers could participate in the program for an unlimited period of time, making 95% of their wages while unemployed.  This lead to "inverse layoffs" -- senior workers volunteering to be laid off, bumping junior workers back to the assembly line.

On the other side of the equation, the Big Three automakers became, according to the Wall Street Journal, "lazy and arrogant in their assumption that their pre-eminence would go unchallenged" and they "allowed their budgets to bloat and their designs to stagnate."  They completely underestimated the impact of rising gas prices and the threat of Japanese imports.

Management failed to take the necessary actions to make their companies more competitive due to their desire not to do battle with the union, car dealerships, and their own entrenched bureaucracy.  Thus, no action was taken even though a 2001 "deep dive" study by General Motors "concluded that the company had far too many U.S. brands, too many dealers, too many factories, and too many workers, all of which added huge layers of unnecessary costs."

The antagonistic labor/management battles and dubious decision-making by all involved are painful to read about.  Yet reading the book is an excellent cautionary tale.  It reminds us of certain truths.  Paying attention solely to immediate gains without acknowledging future consequences may lead to treacherous results.  Ignoring important decisions because they are difficult can just prolong the agony until bankruptcy becomes one of the only viable solutions. 

Words of Wisdom

However beautiful the strategy, you should occasionally look at the results.
-- Winston Churchill