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Can Detroit Really Be Saved? History Isn't Good

As Detroit continues to beg Washington for immediate financial aid to avoid financial collapse, and both Nancy Pelosi and President-Elect Barack Obama seem very willing to offer this aid, the fact of the matter is that the history of rescuing ailing American automakers has never been very good.

At one time many American states produced an automobile brand by at least 1930, but with the huge 1929 crash on Wall Street, many american automobile brands faced their biggest financial survival challenges since their upstart history during the boom years of the American automobile industry of the early 1900's.

When Henry Ford was able to mass produce the Model T, he was able to drop the price to a mere $300 for these simple one door automobiles by 1920, while other car brands might have sold for an average near $3,000 only a few years earlier. Ford was even able to make additional profits by recycling the wood shipping crates that suppliers shipped the parts to his assembly factory in, creating the Kingsford charcoal brand. Henry Ford was a real master at low cost production and profit maximization. But since this time few ailing automobile brands have been nearly as fortunate.

During the Great Depression, the excellent car brand company of Auburn-Cord-Duesenberg was only able to survive for a while financed by a rescue plan from the Roosevelt Administration that had the company building kitchen cabinets for homes that the Roosevelt Administration was helping to be built under part of their NRA programs and other programs to build homes and get Americans home ownership. Despite building some very fine automobiles, this company just could financially survive the economic tailspin that it ran into after the start of the Great Depression, where celebrities such as Clark Gable and other customers simply did not purchase enough of their fine cars to keep them in business.

American steel tycoon, Henry J Kaiser, had failed in his bid to build small inexpensive automobiles known as the Henry J in the early 1950's despite a sales agreement with Sears to also market the cars under the Sears brand name, Allstate, that were sold in Sears stores. But in 1950, few American car buyers were all that interested in a $1,300 car with no glovebox, spartan interior, and just a 68hp 4 cylinder engine. The competing Chevrolet model 150 was unfortunately available for not much more money, which made it even more difficult for the ultracheap, but durable little Henry J cars to compete as well.

By 1954, the little cars were gone, when Henry Kaiser had formed a merger with the Wills-Overland Company to build the Jeep models, and created the Kaiser Jeep Corporation. It was one of the first of several desperate modern attempts for American brands to survive by merger. But by 1970, little American Motors Corporation had purchased the Jeep brand. Eventually, Chrysler purchased AMC by 1987. Jeep is the only example of an American automobile brand that has outlived several owners and manufacturers in American history that still survives today. The Jeep product turned out to be a product so good that it remains around today while the manufacturers of the brand have struggled since the 1950's to actually make enough money with the product to survive in business. It is an amazing story of the difficulties of the American automobile brands to survive in business, even with a great product.

American Motors, which purchased Jeep, is also another important story of the sheer struggle of some American automobile brands to remain in business. During the early 1950's despite postwar auto sales where Americans were buying cars, smaller American car brands struggled to compete with larger companies such as General Motors, Ford and Chrysler, and the four remaining smaller car companies, Hudson, Nash, Studebaker and Packard entered into negotiations to merge to not only survive financially, but also have the capital available in order to keep developing new brands in order to keep up with the rapid product development over at Chevrolet and Ford for example. However, the very sick financial state of Packard, as well as the financial weakness of Studebaker, it really was a real concern of Hudson and Nash, and instead only these companies formed what was at the time the largest corporate merger in American history, although it only involved just $188 million in capital in January 1954.

Sadly, Packard and Studebaker were forced to create their own troubled merger for survival sake in 1954. While Studebaker was financially the stronger of the two companies, it was the real financial problems of the very troubled Packard company that would help to doom this company in the long run. These two companies were even compared to two drunks attempting to hold each other up, because of the sheer weakness of both companies. Although the beautiful 1953 Studebaker models were greatly admired, by 1958, the large luxury Packard brand was simply doomed by poor sales. The 1958 Packard models were no longer a large car body of their own, but merely a dressed up version of the 1953-era Studebaker models. It was the last of the Packard brand ever.

And Studebaker struggled along to survive into the 1960's with declining car sales with attractive car models still based off the 1953 design, along with the compact Lark models, and the beautiful Avanti sportscar brand. The problem with the Avanti was that it was another beautiful Studebaker design that was greatly admired, but once again sold poorly. Ironically, Studebaker purchased the Chemical Compounds Company in 1960, and the STP brand engine additive was to become what was left of the Studebaker company after the company ceased automobile production in 1966. Studebaker went from a blacksmith business formed in 1952 to becoming an automobile manufacturing company, to becoming merely a company that produced an additive for automobiles. It was a classic nearly Shakespearean tale of the tragic rise and fall of an great American automobile company.

1974_Gremlin.jpg

Meanwhile, American Motors Corporation struggled on to survive years after Studebaker despite tightening finances as well. The early 1960's Rambler models were a huge success, but the desire of little AMC to compete model for model with larger American companies such as GM really strained the finances of little AMC. And although they built some durable cars that sold for lower prices than most comparable models from the larger brands, the sales at AMC continued to weaken after the early 60's sales success of the small Rambler models. AMC hoped to recapture some of it's early success with the introduction of the 1970 Hornet models which were tooled for just $40 million in production costs, and for only a mere $6 million more, the little subcompact Gremlin models were introduced in April 1970.

But little AMC never realized that the 1970 Hornet, which was based off a 1966 design prototype car called the Cavalier, would become it's longest running car platform ever. From the 1970 model year until 1987, American Motors produced some sort of car based off the 1970 Hornet in some way, including four wheel drive models. This long model run for a platform ever exceeded the long run of the failed Checker Motors which produced cars from 1958 until 1974. Checker also proved that even though an American car company could build cars capable of running up to a million miles, it simply wasn't enough to stay in business.

Little AMC was acquired by Chrysler in 1987, but only because Chrysler really wanted to own the Jeep brand, and certainly wasn't interested in owning the AMC cars. The last AMC cars were part of a failed attempt by French automaker Renault to have a 49% ownership in AMC in order for the company to survive. However, few of the Renault designed cars ever sold, and most of the Renault designed Eagle models were actually produced by Chrysler as their own products before very poor sales forced Chrysler to drop the Eagle brand cars from the Jeep dealers they owned.

But Chrysler has had it's own difficult history. By the late 70's, Chrysler's sales were terrible due to Chrysler's failure to offer smaller cars to deal with the gas crisis of the 70's, and the company needed it's own federal government bailout by 1979 in the form of $1.5 billion loan guarantee to avoid bankruptcy. Chrysler's easrly history as an industry innovator that once created new ideas such as the automatic transmission, power steering and brakes, was so challenged that French carmaker Peugeot helped to design the subcompact Plymouth Horizon and Dodge Omni models, and numerous models based of the K-car design that was produced after the loan guarantee, helped Chrysler to limp along until German auto brand Daimler purchased Chrysler, but even with the introduction of numerous new innovative models, Daimler sold to American investors only in recent years.

The fact of the matter is that no matter how important it may be to make the American automobile industry survive, the real history is that nothing has really worked to ensure their long-term survival. Most every attempt at mergers, foreign investors or government loans has only bought American car brands a little more time, and only delayed the inevitable collapse of these American brands.

The American television industry ran into similar problems as well with better and stronger and more innovative foreign competition from Japan, where American brands like Magnavox, Emerson, General Electric, RCA, Quasar and Zenith all failed. While RCA was purchased by an European company, Zenith continued as the final holdout in the American television industry until they owed so much money to a South Korean bank to finance their losses in business that they were taken over by the bank and became a South Korean brand, and no American television brands exist today.

Detroit may also be on the same bad side of history as well. It is highly likely that nothing, not even a large multibillion dollar bailout of the American automobile industry will guarantee the survival of General Motors, Ford or Chrysler for too many more years. The financial stresses of this huge recession, a lack of technology as modern as Toyota or Honda, and huge financial losses might mean the eventual loss of at least American car maker, where only Ford might be the most likely to survive of the three remaining American auto brands. The reality here is certainly frightening.


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Comments (7)

Mike:

Seems to me that the best thing for GM would be bankruptcy followed by breaking up the company into a couple of smaller auto manufacturers and the giant Delco auto parts manufacturing business. There are enough GM cars on the road to keep Delco in business while it is retooled or redirected into other manufacturing sectors.

The smaller GM car companies could negotiate new contracts with the UAW that eliminated some of the obscene, ridiculous compensation given to union workers, and could probably then afford to produce better, more fuel efficient cars that could directly compete with Toyota and Honda.

The only problem would be stockholders (would they get shares in the new companies in exchange for their GM shares?) and retirees and other legacy employees. But such problems can be solved -- maybe a government loan or grant can be used to create a fund for pensions and retirement benefits?

Whatever the solution, it seems highly unlikely that GM will continue much longer in its present form.

By the way, nice job with the car history, Paul.

Mike, thanks so much for your thoughts here. This is such a difficult question here. And as I noted, various attempts to bail American auto brands out of their problems haven't done much more than delay the inevitable in nearly every case in history.

I love automobile history, and used to spend entire days at the Harrah's Automobile Museum in Sparks, Nevada at one time in my life. I've always felt that the automobile was one of the most important parts of this nation's history as well as industry and job segments. That's why these issues at hand here are so painful to me.

GianiD:

Det-riot is what happens when you let Libs and unions run things.

GianiD, Detroit actually has made a great deal of money through many years of Democratic administrations such as the LBJ years when full size Chevrolet models sold as many as 800,000 units a year, and with unions as well.

But American industry has run into a great deal of management and decision making issues over the past couple of decades, where less new innovative products have been developed comparable to vehicles such as the Toyota Hybrids, etc.

The American television industry has witnessed similar problems when it fell to better foreign competitors such as from Japan.

The problem might just be that maybe American companies are just not as talented as some firms from Asia at product development. But why many Americans are not buying American goods has nothing to do with either Democrats or unions.

Alan:

Detroit has a double problem of crippling union costs and a byzantine dealership system. If they are to ever be profitable they have to reform both.

The unions once had their place, but now that their allegiance is to money instead of the best interest of their members they've contributed more to the problem than any recession. (Acting in the best interest of their members would include the long-term viability of the company, but it doesn't seem like that is the case.)

The dealerships are so layered and grandfathered and overlapping and costly that a complete overhaul there alone would probably ensure the viability of the big 3 automakers.

Bankruptcy would allow them to renegotiate both.

Allen:

Labor costs are not the big problem a lot of people make them out to be. Compare the labor wages against the CEO & CFO etc wages and parachutes, labor is NOTHING.

It is outdated CEO's and board members who refuse to change their ways. The big 3 could have had vehicles out there getting twice or three times the mileage they now get. Ford is a good example of that with their 65+ MPG vehicle they won't sell here in the US.

Are they in bed with the oil companies because they haven't produce the high mileage vehicles? If so, let the oil companies bail them out, not us taxpayers.

One of the first things Bush did was roll back the mileage that vehicles were suppose to get. WHY DID HE DO THAT? Well, he's involved in oil, so guess what. One hand washes the other. Plain and simple.

And from 2000 to 2006 the GOP could have fixed this problem, but didn't. Now they spout BS that the Demo's had control for the last two years and it's all their fault. BS. Both parties have screwed us.

E.Grim:

Just been Googling info re. automakers. Have had trouble coming up with search terms that don't return too many or too few hits. Wiki has some info, for what it's worth.

GM: 266,000 employees. Average hourly wage of hourly workers is $71.28 per hour. GM provides benefits to over 1 million people (present employees, dependents, and retirees) according to a 2006 article from Forbes.

Not much on Wiki re. Ford or Chrysler's financial data, and I don't have time to read annual reports. But Allen's claim that labor costs are "NOTHING" compared to executive compensation is not supported by the evidence I see. It looks more like the plight of American automakers is the result of mundane factors like lack of innovation and higher legacy costs that overseas competitors.

The conspiracy theories about auto makers conspiring with oil cos. to keep efficient cars off the market have been around for 20 years that I know of, and maybe longer. "One hand washes the other"? Not credible without some evidence.

Re. mileage requirements (CAFE standards, for Corporate Average Fuel Economy) - if memory serves, those aren't popular with automakers, adding to the problems they already have in abundance. They have enough trouble trying to built cars as desirable as those from Toyota etc. without having to comply with mileage standards set by politicians.


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Publisher: Kevin Aylward

Editors: Lee Ward, Larkin, Paul S Hooson, and Steve Crickmore

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