Carnomics

I’m a car person as you may have gathered from previous blogs. But it actually makes good sense to be an economist who also happens to be a car person given the important role that the automobile industry has played and continues to play, for good or bad, in our economy. Right now it is certainly for good. It is once again a very positive time in terms of the domestic automobile industry and all three key manufacturers—Chrysler, Ford, and GM – are doing well, having demonstrated impressive growth for the 2011 model year. Automotive News reported that “U.S. light vehicle sales were up 10 percent to 12.8 million in 2011 after a similar rise the year before.” And the promise is there of even better times. Just look at three key domestic products introduced at the 2012 Detroit auto show. The three, in alphabetical order, are the Cadillac ATS, which has the promise of making the kind of impact on the entry luxury market, presently led by the BMW 3 class, that has never before happened with a domestic product. My brother had a Cadillac Cimarron. Saying the car was forgettable was the nicest thing that anyone could say about it. It was better than the Vega that I bought which was the pits but it was on the low side of mediocre which made it a strong catalyst for foreign cars sales. The second is the Dodge Dart which is a genuinely attractive, well designed compact car. It should be able to compete effectively with both foreign and domestic competitors in a way that the Dodge Caliber never could. And the third is the Ford Fusion. The Ford is a very attractive competitor to the Camry or the Accord. It looks better than both of the other cars and many other competing brands, and seems to have the functionality and the quality to be a major player in the major arena of car competition. There are other cars in the wings from all three manufacturers that have the promise of being just as successful and the evidence is clear and, in fact increasing, that Detroit can compete successfully with the best cars around the globe. At the same time that I am watching the latest Detroit success story unfold in the form of all these impressive products, I have also been reading and have just finished “Once Upon a Car: The Fall and Resurrection of America’s Big Three Automakers- GM, Ford and Chrysler” by Bill Vlasic who is the Detroit Bureau Chief of The New York Times. The book starts at a time (2007) when light vehicle sales were 3 million above where they are today and is must reading for a very comprehensive overview of what went wrong and what ultimately happened to these three automobile titans. What went wrong, and this was just a few years ago, was just about everything—building cars that weren’t responsive to what customers were looking for; building too many overly similar cars (with Mercury and Pontiac being just two examples); too many different platforms, engines, etc. around the globe undermining economies of scale; and labor costs including fringe benefits (and health care programs) that created a clear and very serious economic disadvantage. The failure was across the board— arrogant, isolated management together with myopic labor and this book chronicles it all in a well written fast paced and thoroughly absorbing volume. What went wrong was just about everything, and what is going right now is just about everything which I hope continues into the foreseeable future. The US government deserves great credit for engineering much of the turnaround (specifically the saving of GM and Chrysler), and the car companies (led by Ford) deserve great credit for designing a comeback which demonstrates the strength still inherent in American manufacturing and the US economy. We should all celebrate this success story but also remember for the automobile industry and all industries including higher education, that success taken for granted is just the first step toward devastating failure.