Monday’s Wall Street Journal had an editorial titled The Drive-a-Toyota Act that has taken me a couple days to digest. It is an interesting mish-mash of fact, innuendo, and a poor excuse for a history lesson that that gives me a headache. Basically the author is taking Harry Reid and Nancy Pelosi to task for advocating increased CAFE standards for cars, proposing a free market alternative while attempting to protect Detroit from the effects of that same free market.
As the WSJ author begins,
Foreign automakers were cheering in June when Senate Democrats muscled through energy legislation to raise CAFE standards. GM, Ford, and Chrysler all warned Congress that this would add to their financial burdens, making their vehicles less competitive than those made by Toyota, Honda, and other automakers. The United Auto Workers warned that even a small increase could cost 65,000 jobs.
That’s probably true, but I believe it’s disingenuous to call it a "Drive-a-Toyota Act." As the author continues,
Reid’s response was to scold Detroit for opposing him. His apparent point is that if only GM and Ford had invested in new technology and smaller cars the way Toyota and Honda have, they wouldn’t be losing market share.
Pigs almost took flight with that last quote, as the concept of me agreeing with Reid on pretty much anything is basically unfathomable. He was on the right track, but for the wrong reason, which perhaps also explains certain Nevada land deals.
Not only do you have to look strategically into the future and invest in appropriate technology to get you there, you must also fundamentally build cars, regardless of size, that consumers want. You must also work incessantly on improving internal processes to reduce cost and improve quality. As the author later points out, the Detroit Big Three did pour development dollars into smaller cars, such as Saturn. But I would add that they completely missed the boat on focusing on customer desires and internal improvement.
Then the author lets Detroit off the free-market hook:
The main competitive reality facing Detroit for a generation has been the burden of its worker pension and health care costs. The consensus is that those costs add about $1,500 per vehicle compared to Japanese or Korean competitors.
Yes that is a competitive reality, but it is the result of a failure of leadership. As he put it himself, it has been "facing Detroit for a generation." A generation. You would think some fairly smart guy at GM or Ford would scratch his head in the shower and say "hmmm… I don’t think this is sustainable." Perhaps one or two did, and then confronted traditional accountants that said "hey, just build more cars!"
GM even missed a terrific opportunity when they collaborated with Toyota on NUMMI. Toyota learned how to train American workers on the Toyota Production System, and GM learned… well… I don’t really know. Just last week Delphi negotiated a new contract with their union that will reduce wages by almost 50%, back down to roughly the level for similar skills in other industries. Why wasn’t this done ten or twenty years ago? By battling the union, management forgot that those same workers had the knowledge, creativity, and experience that could help them improve their internal processes.
A free market supporter would say "tough luck" and let the pins fall where they may. And they are, with yesterday’s news that GM saw car and light truck sales fall another 21% while Toyota saw a 10% increase. The WSJ author would like to see Detroit get a pass for past leadership failures, but then correctly describes how free market economics trump bureaucratic regulation… again.
Amid today’s much higher gas prices, more Americans are choosing more fuel-efficient cars – a market phenomenom that will do far more to reduce fuel consumption than any Washington mandate. As most economists understand, mileage mandates are an inefficent way to limit fuel use. They don’t reduce the number of cars on the road, and owning a car that gets more miles to the gallon encourages people to drive more miles.
He goes on to describe the ongoing battles on the left between various environmental groups, senators from auto-producing states, and wealthy celebrities that drive their Prius to the airport where their private jets are parked.
The free market works, and the wave of consumer desire for cars that are fuel efficient… and well-designed at a decent price… is changing the competitive landscape. That same free market is penalizing GM, Ford, and Chrysler for a generation of leadership failure. Let’s not forget that, and learn from it.