Profits or Market Share?

The oddest thing about living in Michigan is the way the big three automakers grip everyone's attention. It's a rare day that both of Detroit's newspapers don't have a front-page, above -the-fold article about the auto industry (and around here, the phrase "the auto industry" means only GM, Ford, and Chrysler).

But oddest of all is the way the journalists who write about them focus so obsessively on market share. For two years now there's been a sort of death-watch as Toyota comes ever close to selling more vehicles throughout the world than GM. But apparently it's not just the journalists--it appears that the auto industry execs themselves have been more concerned about market share than actually making money on each unit sold. They seem to have convinced themselves that if they just sell more vehicles, they'll end up in the black--a strange idea, particularly at GM, which takes a loss on almost every vehicle it sells.

But an article today (sorry, I can't find it in the online edition, so no link, at least for now) suggests that Chrysler's new owners are focused on being smaller, rather than bigger, and looking for non-traditional ways of being more profitable. Such as building minivans for VW in Canada, and trucks for Nissan in Mexico, and having Nissan build a small car for Chrysler. Apparently this is happening because Chrysler's new owners, Cerberus, isn't familiar with the auto industry.

And a little child shall lead them, it seems.

It's amazing that after two decades of full-bore competition from "foreign" cars, auto execs still don't get the basics of how to run a business.

The Enduring Myth of American Steel

If you don’t live in Michigan, you may not know the term “American Steel.” It’s not a company name, but a term referring to American cars. Well, not all American cars, just General Motors, Ford and Chrysler—what we call “the big three.”

Problem is, the big three are shrinking. Daimler eagerly dumper Chrysler recently, for far less than it had bought it for not so long ago; Ford is bleeding money; and GM—also a money bleeder—recently lost its place as the largest auto seller in the world, by volume. (Ironically, since GM loses money on each car it sells, it’s probably better off selling fewer cars.) Their struggles are a big casual factor in Michigan’s long-term economic malaise, as they have collectively shed hundreds of thousands of manufacturing jobs in recent years. And everyone here knows the cause of the problem—all those traitorous Americans driving “foreign” cars and our free trade laws, which make those foreign cars so cheap, destroying American jobs.

The Detroit Free Press—which almost never fails to have an auto industry story above the fold on the front page—inadvertently highlighted the perversity of this myth recently. The front page of the business section had a column using the phrase American steel,* while the back page had two brief articles that an alert business reporter ought to have highlighted.
· One was about Volvo laying off workers at its truck plant in Virginia;
· The other was about demand for Honda’s new corporate jet, made in California

So, just what counts as American anyway?

This all reminds me of a conversation I had with my brother-in-law back in the ‘90s when I was looking for a new car. It went something like this.

B.I.L. “What kind of cars are you looking at?”
Me: “Oh, I was looking at a Toyota.”
B.I.L. “Why don’t you buy an American car, like I did?”
Me: “What do you drive?”
B.I.L. “A Geo Metro. It’s made by GM”
Me: “Hmm, you ever noticed how much that looks like the Suzuki Swift?”
B.I.L. “Yeah, they are kind of similar.”
Me: “Yeah, because it’s the same car, built at the same plant in Japan.”
B.I.L. “Oh.”
Me: “You know where most of the Toyotas sold in the US are built?”
B.I.L.: “No.”
Me: “Tennessee.”
B.I.L. “Oh.”

For the record, I bought a Saturn, also made in Tennessee, by GM, but with God only knows how many imported components. Now I drive a Subaru, a nominally Japanese car built in Indiana. And I have no idea where the actual steel came from in any of the cars I’ve driven.

Now it turns out that that Subaru’s Indiana plant has begun producing Toyota Camrys (apparently Toyota owns a stake in Fuji Heavy Industries, which is the parent company of Subaru Indiana Automotive). And of course Ford actually owns Volvo. And GM’s new sedan is being designed in China.

So what is American steel nowadays?

Just a phrase trying to guilt trip me into buying a car built by hard working men and women in Michigan, instead of one built by hard-working men and women in Indiana, Tennessee, Kentucky, California, etc.