Publisher's Corner: a Day Like that May Come Again Soon
Dec. 9, 1963.
That was the day that Studebaker Motor Corporation died.
It may be inevitable that a day like that may come to the American manufacturing scene again. Only instead of this time it being the "Big three" putting a smaller auto manufacturer out of business, it may be the likes of Toyota and Honda destroying what has been the predominant American industry of the last century.
Ford and General Motors are in trouble; big trouble. Just as much as Studebaker was on that cold morning in South Bend, Ind. when they closed the doors of a 114-year-old-business that made vehicles. I was only 11 at the time, and the son of a Ford family, but still there was disbelief in everyones minds that such a large, old company could go out of business just like that.
Well, it actually wasn't just like that. Studebaker had a lot of weaknesses that just built up over the years until they couldn't compete with the likes of Chrysler, GM and Ford. They had old plants, which were not only expensive to retool, but impossible to update except at high cost. So they would just change things on vehicles around a little and keep using the old equipment and the same plans to build cars.
They had workers who were paid more than the industry average and with their manufacturing plants the way they were, those salaries made the cost of the cars even higher. An old company (50 years older than Ford and more than that for many of GM's divisions) Studebaker had retirees to take care of; pension plans were important. Generations of workers had toiled in their factories. When those workers hadn't built cars they had built the best horse and oxen pulled wagons made. They had provided a way west before the railroad.
They were part of the American scene when they died.
One time, in the late 1800s, when the largest Studebaker plant in northern Indiana burned down, instead of moving onto greener pastures or closing it they had rebuilt it, largely because the Studebaker brothers felt they owed it to the workers who had built their company over the years. They were dedicated to their employees' security long before unions told them they had to be.
They had bought up other car companies, trying to support their faltering market position before World War II. Companies like Pierce Arrow and Packard.
Their factories had helped defeat the axis powers during that war building outstanding military trucks and great engines for B-17 bombers. Along with Curtis Wright, another Indiana based company, they had taken their products to the sky and won.
But despite this, the Packard division of the company failed in 1958. The Pierce Arrow division had been divested of years before. And the company just wasn't building their standard Studebaker trucks and cars in a fashion that many people wanted anymore, despite the introduction of new models that were ahead of their time and every bit as good or better than their competitors.
If all this sounds familiar it should. It's a pattern that is being retraced today. The very automotive juggernauts that sent Studebaker down in the death spiral, may soon be going the way of the passenger pigeon themselves.
Ford's market share has dropped so far that now they are only the number two auto maker in North America, not in the world anymore. Toyota recently passed them for that honor.
And if it weren't for fleet sales in the United States, GM would be number two in the world to that same company; the one whose cars GM execs in the 1960s termed "Japanese junk."
How did this happen? How did the power houses of American manufacturing end up in such straights? How did the dreams of Henry Ford and William C. Durrant get so tarnished?
There are a lot of answers to these questions and almost all of them are correct. A lot of it was arrogance by American car manufacturers. Some of it can be attributed to greedy executives and yes, to greedy union workers too.
Right now the big three have literally hundreds, maybe even thousands of employees sitting in what workers call "padded cells" (old, unused shops in and around manufacturing plants) reading magazines and watching television all day because the companies have no jobs for them to do. But because of union concessions years ago concerning job security, they can't lay them off. With benefits many of these workers are pulling down over $100,000 per year. The total cost for these non-productive employees is well over one billion dollars a year.
And then there is the American consumer. In the 1990s the manufacturers went nuts with bigger and bigger SUVs because that is what people wanted (and what the manufacturers told people they wanted, as well). Then gas hit $3 per gallon and suddenly economy cars sounded much better than they had in a long while. At that time GM and Ford were actually building some pretty good economy vehicles, but they haven't sold well and the vehicles are built with such high costs (based on productivity) that neither company makes any money on them.
It's just like the 1973 Arab oil crisis again. Remember that? Only thing is, this time it isn't going to go away like that did. And Honda, Toyota and Hyundai all have big plants in the U.S. making cars Americans want. There are no tariffs to pay and politically it looks good to build their cars here. They often point out that the cars are put together by Americans.
Just don't tell anyone that 90 percent of the parts in those cars are manufactured overseas, while most main line American car manufacturer vehicles have at least an 80 percent rate of parts that are made in North America. That's important, because the support industries that supply parts to the big three employ as many or more people than the car makers do.
American car manufacturers are what economists term "mature industries" which really means their executives manage pension funds and health care plans instead of automotive manufacturing and marketing. They are busy trying to pay for thousands of workers health insurance, who built the companies into what they are, instead of strategizing about how to build better cars, how to market them and how to catch up with the Japanese companies that have few retirees and younger workers to support.
The Land Of The Rising Sun couldn't defeat the United States in a war because our resources and manufacturing capacity was so great; but they have now almost vanquished most of our industry because of many Americans self denial, arrogance and selfishness.
To sell products in a world economy you must be competitive; and you can't count on your countrymen to buy from you just because you are one of them. In fact today, many people under 30 in this country will not buy any car made in America. And if you are trying to teach young kids a geography lesson and the largest city in Michigan is the question that is being posed, don't try to give them a hint about which town it is by saying "It's where they build cars." Many kids now will answer, with little hesitancy, "Japan?"
As for the Japanese they had better start looking over their shoulders too. No one is going to have a run as being the largest company in the world for 70 years, like GM has, again. Or at least if the Chinese can help it. Right now Japanese industry may be sweeping up the world in their arms, but their arch rivals in Asia are getting ready to trip them up and steal away all they have gained.
Everyone in the United States is pointing fingers at someone else for losing first the electronic industry, then the steel industry and now the vehicle manufacturing. But the fact remains it is everyone in this country's fault that this has happened: manufacturers, dealers, parts suppliers and yes, us, the consumers.
A turnaround may be possible. And a merger may be in the works but I doubt that Ford and GM could ever get along under the same roof. So what are the possibilities? Who knows what strange bedfellows may emerge.
Anyone for a Ford Civic or a Toyota Eldorado?