History is a funny thing; if you don’t learn from it you’re consigned to living it over and over again. Who said that? I don’t know, but apparently the Detroit Three weren’t listening.
For years, auto and energy industry watchers wondered how high the
price of gas would have to climb before consumers in the U.S. — still
the world’s biggest automobile market — would change their driving
habits. Now they know.
The change in consumer attitudes about fuel efficiency has been so
swift and widespread that the American vehicle manufacturers have found
themselves once again behind the curve relative to their Asian and
European competitors, just as they did following the oil embargo of
Yes, it happened before.
Should Detroit have seen that "tipping point" coming? "Maybe,
probably," says MacDuffie, admitting benefits of hindsight. "When gas
prices spiked in 1980, the U.S. was making very big, gas-guzzling
vehicles. So they were very vulnerable to competition from the Japanese
and European manufacturers who were used to selling [fuel-efficient
cars] in a market where gas prices were much higher. So you would think
the U.S. automakers, having lived though that experience once, might be
guarded about letting that happen again."
1973, 1980, 2008… history repeats over and over. Why didn’t they learn?
One reason they might have dropped their guard was the irresistible
profit margin in light trucks. "The trucks and SUVs had fat profit
margins. Even if [the automakers] saw it coming, it would have been
hard to shift resources to build more hybrids. The U.S. auto industry
has been struggling with a lot of problems for a long time," MacDuffie
notes. "They felt that they could not move away from the SUVs and
pickups because they needed the profits from those products to cope
with the other difficulties they were having. … Labor and benefits
costs were one of the largest problems." Those costs also meant that
Detroit "was slow to make their factories flexible," which in turn made
it more difficult for them to shift quickly from one product to
another, adds MacDuffie.
Of course hindsight is 20:20, or at least 20:40, even if it does give you multiple chances to learn. So now what?
A question more important than whether Detroit should have seen the
coming of the tipping point is what the U.S. Big Three and their
competitors in Europe and Asia should do now, according to both
MacDuffie and Guillen. "The long-term challenge is to develop truly
competitive hybrid or hydrogen cars. We need to make the investments
now, so that they become available in 15 or 20 years," Guillen
suggests. "In the short run, we need to incrementally improve fuel
efficiency and help people switch to more efficient cars." Late as they
may be, MacDuffie says he is heartened by Detroit’s aggressive
investments in alternative engine technologies.
The first jolt created the rise of Toyota and Honda. The next Kia and Hyundai. Now…? Perhaps Tata and Chery. Pretty soon there won’t be much left for the Detroit Three… if they don’t learn from this latest reminder.