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The Big Three have dug their own grave with mismanagement, greed, and bad quality. There is an old saying: Screw me once and shame on you, screw me twice and shame on me. Lets take a look at how the Big Three have opened the doors and literally invited in foreign competitors by deceiving and cheating the American car buying public.
Sometime in the fifties they concocted a fabulous money making scheme: Planned Obsolescense. They engineered cars to start breaking down sometime after the warranty expired. Parts that were hard to get to, and expensive to replace, failed first. When people got tired of spending money on repairs, they would opt for another new car, or so the theory went. Since all of the U.S. car companies did the same thing, if you got sick of a Ford, and bought a GM, it would not matter, because someone who was sick of their GM constantly breaking down would buy a Ford.
Then they tried to increase profits by applying pressure to vendors who supplied parts. They wanted cheaper, cheaper, cheaper. The only way parts manufacturers could cut costs was to cut quality. They bought cheaper materials, made people produce more, and cut inspection. When I was at Ford I saw a steady decline in the quality of purchased components. At one point I had to assign men to cull through purchased parts to find good ones, and what passed for a “good” part kept declining until we used everything Ford purchased, because none of the components met written quality specifications.
Then there was the war in the auto plants. The war between management and labor. Management used techniques from the 1920s, and the UAW fought them at every step. Both quality and productivity were casualties of these in-plant battlegrounds. Sabotage was sometimes passive, where bad quality was let go out of indifference. Other times it was intentional, active sabotage because producing bad quality was seen as a blow against the enemy: dictatorial managers, some of whom belonged behind bars.
Finally, there was benign neglect of maintainance. Machines were patched up and made to run, even if they were not running right, or could not run to the quality specifications. In Department 251 at the Sharonville Transmission Plant there was a machine that would run only if the operator put a gigantic rubber band on an arm that wobbled as it made up and down strokes. In Department 285 there was a machine that would not run parts that met specs unless the operator inserted the back of a paper match book between two slides whose bearings were completely shot. In the Press Room sometimes round parts came out of the presses round, and other times they came out egg shaped. In either case they were used to make transmissions.
So what was the result of all this mismanagement, greed, and indifference to the quality of cars being produced? In the seventies and eighties we had the largest recalls in automotive history. We had deadly cars that killed people in fires. We had transmissions that jumped out of park, into reverse, and killed hundreds of people. Consumers Report magazine stated that, in the seventies, the United States of America produced the worst cars of any industrialized nation. Bad automotive quality became an international disgrace to America, and 33 states passed “Lemon Laws” to protect consumers from the Big Three.
This, or course, gave a giant green light to foreign auto companies, who were selling so many cars in the United States that there was, at least in the case of Volkswagen, a three month wait to get your VW. In the meantime, Ford, GM, and Chrysler had their first near death experience, and Chrysler offered $50 to anyone who would even test drive one of their cars. I was in the new car market in 1980, went to a Chrysler dealer to test drive one of their cars, and the salesman could not even get it started. Needless to say, I passed on the $50 prize to test market the car.
The Big Three spent 30 years trying to undo the mistakes that would ultimately cause their collapse. Finally, after decades, American cars are now on a par with Toyota, Honda, VW, and others. Will it make any difference? If you had friends or relatives killed in poorly built American cars, or simply were disgusted with the junk Detroit pawned off on us, are you likely to switch from a Toyota, Honda, or VW that was top quality, to go back and try one of the cars from Detroit? My answer would have to be that this is highly unlikely.
That is why I am predicting that over the next several years Chrysler will fail, as will GM, and both will go back to the government to ask for more of our tax dollars. Ford stands a fighting chance of survival, but it will be an uphill battle all the way. Americans have long memories, and the competition for your car dollar is not going to get any easier going forward.
According to the New York Times, and Ford’s advertisements, quality is now equal to Toyota. I have two questions: Why did it take so long, and what has changed? Let’s look at that first question.
When Toyota first began to make significant inroads into our markets, it was because of quality. But that was 35 years ago. During the 70s the Big Three, and especially Ford, made the worst junk we have ever made. In fact, Ford received the largest recall in automotive history because of defective transmissions, and narrowly avoided bankruptcy. I helped make those transmissions, and was so disgusted that I was compelled to take notes, keep internal memos on bad quality, make an extensive collection of defective parts routinely assembled into Ford transmissions, and then write “A Savage Factory” based on what I had experienced.
Of course bad transmissions was not all that Ford made. They also made Pintos that exploded on impact and burned people alive. Later they made vehicles with defective ignition switches that caught fire and burned people alive. And that is not even getting into their SUVs that tended to roll over on sharp turns.
I do not want to just pick on Ford here. According to Consumer Reports, Chrysler made the worst over all quality of any American vehicle, and they advised against buying used ones, because people were dumping them and buying Toyotas. A discussion of GM quality would take too much space, so lets just say they made junk as bad, or worse, than Ford.
Why was quality so bad in American made vehicles in the 70s and 80s that 33 states passed Lemon Laws to protect consumers from the Big Three? There are three reasons, in my opinion. Reason number one, some high level manager, who no doubt received a bonus that would choke a horse, came up with a brilliant plan to increase sales: Planned Obselescence . They would engineer the cars specifically to break down sometime after the warranty expired, and keep on breaking down until people got sick of putting out money for repairs, and they would theoretically buy a new car. The specific parts engineered to break down were not necessarily expensive parts, but they were hard to get to. You might have to spring for $800 for a mechanic to rip your car apart to replace a $15 part.
Reason number two was pressure on vendors to cut costs, cut costs, cut costs. The vendors with the lowest priced parts are the ones who got the business. How did they cut costs? By cutting quality. They cut costs by going from 100% inspection to “statistical inspection” where every 20th, or 50th part was checked for quality. They cut costs by not maintaining their equipment. They cut costs by buying the cheapest raw materials on the market. They cut costs by upping the work load on their employees. The net result was the quality of component parts purchased by the Big Three steadily declined from the mid sixties to the mid eighties.
Now lets get to that third reason, which is covered in great detail in “A Savage Factory.” That reason is the never ending war with the work force. People were treated with contempt and disrespect. They were expected to be a machine, not a person. The work atmosphere in the auto plants was, argueably, the worst of any industry in the United States. There were periodic outbreaks of violence in the auto plants, including shootings, stabbings, and fist fights. I was attacked by a man slashing at me with a knife, and was a planned murder victum. Fortunately, the employee came to work so drunk he forgot to bring the gun into the plant.
UAW workers were not bad people. They were mostly good, hard working men who built up so much rage at the way they were treated that they fought Ford every way they could think of. And they thought of plenty. Sabotaging production. Sabotaging quality. Cutting wires on machines. One guy dropped a bolt into each transmission and it exploded on the test stands, like a bomb. He was terminated, proscecuted, and sent to jail. Sure, they made lots of money. In fact, some auto workers who never graduated from high school took home as much as a lawyer, or a doctor. But big money can only compensate for a short time when you hate the thought of having to to into work, and you phantasize about “getting back” at your employer.
So by the early 80s even the Big Three understood that they were losing the market to better built, more reliable foreign cars. They made half hearted attempts to improve quality, but ten years later American cars were still at the bottom of the quality charts, and Toyota, Honda, and Nissan were building plants in the U.S. and selling so many cars that they could not keep up with demand.
Ford paid Toyota to advise them on improving quality. They hired Dr. W. Edwards Deming to improve quality. But Dr. Deming, in his biography “The Father of Quality” stated that Ford management was the worst he had ever tried to work with, and he had worked with Xerox, IBM, Procter and Gamble, Toyota, and many others. He said they were like warring street gangs, and he walked out on Ford, unable to work with the incompetent management. By the turn of the century Ford, GM, and Chrysler quality was still at the bottom of the charts, and Japanese quality was at the top.
So what has changed? Several things. For one, the old, hardcore managers have retired, died, or taken buyouts, and been replaced by younger, better educated managers. The UAW has responded favorably to a better qualified management group. The classic example here is Allan Mulally, the CEO. Mr. Mulally is a top notch, no nonsense professional who started making changes immediately, and improvement at Ford, as a result, was immediate.
Of course there is the fear factor. Everyone is well aware that the U.S. Auto Industry is close to extinction, and fear keeps people working, and cooperating. Then there is the purchased component problem. Many components are now imported from China, Japan, and other low wage nations, which can compete pricewise, and still turn out a quality product.
Will it last? Will the U.S. Auto Industry come roaring back? I do not think so. I think Chrysler is a goner, with GM not far behind. Ford may survive, but it will be a hard, uphill fight. They will have to convince millions of Americans that they produce top quality, and will continue to produce top quality. The survival of Detroit is still an open question.
There is a bitter dispute, in the auto world, about “buying American” versus “buying imports.” So we need to take a close look at exactly what an “American” corporation is and what a “foreign” corporation is. On one side of the dispute are the super patriot flag wavers. To them an “American” company is a company with a recognized name that they grew up with. Read Ford, GM, Chrysler.
But go to a Ford, GM, or Chrysler auto plant. What do you see? You see machines made in Germany, France, Italy. You see cars being assembled with components made in China, Taiwan, Mexico. You may see a Plant Manager or an engineer that talks funny because he is not from America. You may see fork trucks running around with “Toyota” on the label.
The super patriots say, yeh, o.k., but at least the profits stay right here in America. Not so fast. During the heyday of Detroit, when billions were rolling in, how much of it stayed in America? I cannot tell you to the penny. What I can tell you is all three auto companies spent billions in foreign countries building plants so they could abandon the American worker and exploit low cost foreign labor. They set up foreign plants manufacturing components and vehicles, and brought them to this country to deceive people that they were buying “American” products because they had American names.
Who owns these “American” companys? Do rich guys who live in big mansions on a lake somewhere, like Henry Ford and Andrew Carnegie used to, own these companies? No. Corporations today are multi national giants, owned by stock holders, mutual funds, hedge funds, etc. So people in Japan, France, or Brazil may own as much of what used to be an “American” company as people who live in the U.S. Stocks are traded like baseball cards. The “owners” of Ford yesterday are not the same as the “owners” today or tomorrow. So where do the dividends of these “American” companies go? France, Germany, Japan, or wherever the owners live. So is there a neat economic model showing that companies with American names, that USED to be exclusively in this country, provide jobs here and retain profits here. No, there is not.
Now let us take a look at “foreign” car companies. Go to a Honda, Toyota, or VW auto plant. What do you see? You see machines made in Germany, France, England. You may see fork trucks with an American name on the side. You will see mostly American supervisors. You will see American workers assembling components made in China, Japan, Taiwan, and Mexico. Who owns these “foreign” car companies? Some rich guy living in a mansion by a lake in Japan?
No. These, like all multinationals, are owned by stockholders, mutual funds, hedge funds from the United States, France, Japan, and countries all over the world. The “owners” trade stocks like baseball cards. The “owners” today will not be the same owners tomorrow. An “owner” may only be an “owner” for two hours, until the stock price reaches his price goal, and he sells to some other “owner.” Where do the dividends go from these “foreign” car companies.
A fair chunk of them go to American pensioners whose mutual funds and pension funds own the stocks. Ironically, the United Auto Worker pension fund has a lot of “foreign” auto stocks in the portfolio, and dividends from these “foreign” car companies, so hated by the UAW, go toward paying the pensions of retired U.S. auto workers.
How about the “profits”? Do they go back to the country of origin? Yes, some of the profits do. But billions have gone into American communites in the form of paychecks in areas where “foreign” auto plants are located. Not to mention the billions that were invested here to build the plants, employing construction workers, road crews, purchasing American concrete, steel, copper wire, and all the other materials that go into building an auto plant, and paying taxes to the communities.
So what is an “American” company, and what is a “foreign” company? These terms have little meaning in the real world of the 21st century. Multinational corporations, regardless of where they originated, or where they are headquartered, roam the planet like predatory vultures, searching for the lowest cost production areas. They want to sell their wares in countries with the highest standard of living, because they have the biggest markets and command the highest price.
Are any of these multinationals loyal to any particular country? No they are not. Ford will move production offshore at the first sign of a lower cost structure. Toyota will do the same. Both will try to sell in the United States, because that is where the money is. If you think that a company will be loyal to you because you are loyal to them, you live in a dream world. Buy the car that best fits your needs and wallet, no matter what name is on the dashboard. You are a fool if you don’t.