Summary
Is there one single common thread that weaves its way through the abysmal performance of the American OEM automotive industry in the twenty-first century? Yes, there is. It is ego and hubris, which manifests itself in a total lack of long term planning to manage the risks of things not going as the industry's 'leaders' say they are going to go. Canada's Canadian Auto Worker's union proposes that no company be allowed to sell more in Canada than it reciprocally buys. But the CAW leader does not realize that Canadian natural resources are buoying the Canadian economy at levels which simply drown any possible earning from manufactured goods. No Canadian government is going to interfere with Canada's massive earnings from the export of natural resources to save a few obsolete overpriced manufacturing jobs in foreign owned car plants.
Analysis
The stage was set for the OEM North American automotive industry to fail when it crystallized and ossified its attitudes towards its markets, its customers, and its suppliers more than 40 years ago.
The industry's managers in those days decreed that:
1. The domestic North American market would grow indefinitely, and it would reach a level requiring the production of 28 million new cars each year by 2000,
2. Raw material and finished goods prices would always be set by the, always the world's largest ,domestic American, market,
3. Increased labor costs could simply be passed on to the customer , so just give the UAW and CAW what they want without regard to future liabilities,
4. Increased environmental costs, if any, could always simply be passed on to the consumer,
5. Foreign car makers would never be able to penetrate the domestic American market, because they could never achieve the necessary volumes to reduce their costs sufficiently to compete,
6. No foreign car market not now served by the OEM American industry either through local production or export from the US is worth pursuing (circa 1970),
7. We will build what we want, and they will buy them,
8. Technical innovation can only come from us, and, more recently,
9. Green is just a optional exterior color; it will never be a factor in the consumer's decision to buy a car.
Long term planning to insure against fluctuations in currency was discouraged, because it was thought that it would require capital intensive building of inventories of raw materials, for example.
The Ford Motor Company never even hedged foreign currencies, because it was assumed that by operating in country or region contained profit centers overseas Ford would zero out the need for such hedging operations.
General Motors developed a large program to hedge exchange traded raw materials such as copper, tin, lead, zinc, and the platinum group metals in the late 1980s, but the program was allowed to die in the late 1990s when a new purchasing manager with a myopic view of the global raw materials market took over from the man who had pioneered the long term planning strategy.
Chrysler never did anything with hedging until Daimler stepped in, and when Daimler left so did long term planning strategies to hedge raw materials and currencies.
No one at any of the Detroit Three has even considered that shortages of natural resources should be considered before embarking on costly product development.
The Detroit Three have therefore lost tens of billions of dollars on parts and processes requiring ready access to magnesium, rare earth metals, nickel, cobalt, lithium simply by ignoring the soaring costs and limited availability of these materials until the program was too far gone to retreat.
OEM automotive suppliers of plastic based parts are now failing due to being unprepared for the price volatility of plastics, oil, gas, and coal as well as of all of the metals including steel, which this year (2008) will soar by 22% in price.
GM recognizes that the single biggest problem with battery dependent power trains is the unknowable costs of the batteries, yet the company does nothing at all to contain those costs.
Nothing has changed except the credit ratings of the OEM American automotive industry.
The CAW president is probably right; it is most likely too late to avoid the bankruptcy of the American automotive industry.
