Can Global Automakers Learn From Their Mistakes?

The changes affecting the global auto industry are nothing new but they are more serious. Too bad carmakers didn't learn the first time

by Jim Henry

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If hindsight is 20-20 vision, then automotive executives must spend a lot of time looking in the rear-view window.

Like many great industries, the auto sector has seen tremendous achievements, pioneered new technologies, and changed the course of history. But it has also had its share of blunders and missteps; some worse than others. What is different today is that many of these bad ideas are responsible for the woeful state in which the auto industry, Detroit in particular, currently finds itself.

The biggest of these, obvious to anyone who has tried to fill up his sport-utility vehicle or pickup truck lately, is that General Motors (GM), Ford (F), Chrysler and, to lesser extents, companies such as Mercedes-Benz (DAI), Porsche (PSHG), and BMW (BMWG) continued to make fuel-inefficient cars for the U.S. market long after concerns about America's dependence on oil, foreign or otherwise, became known. Like cigarette smokers, they continued puffing away, ignoring the mountain of evidence detailing the dangers.

The Road to Truck Nation

Despite two earlier oil embargoes, in the past 15 years or so the U.S. market steadily became Truck Nation. The domestic automakers made more and bigger trucks, many with gas-guzzling V-8 engines, until it seemed as if no truck was too big, too powerful, or too ostentatious.

As Detroit concentrated on trucks and SUVs, it effectively ceded the market for more fuel-efficient, though less profitable, sedans and coupes to companies such as Toyota (TM) and Honda (HMC). Now that light-truck sales have fallen off the cliff, Detroit is struggling to catch up, if it ever can. So, in an industry that has given the world such paradigms of disaster as the Edsel and the Pinto, the near-sightedness of the decision to ignore fuel-efficiency ranks at the top.

But there have been plenty of other blunders, and not all can be laid at the feet of Detroit. In no particular order, there was Daimler's lame attempt to merge with Chrysler; Ford's misguided—and very expensive—bid to create its Premier Automotive Group by buying up Land Rover, Jaguar, Aston Martin, and Volvo (nearly all of which have been sold at a substantial loss); Volkswagen's (VOWG) decision to build the Phaeton luxury car that no one wanted; and the complete abandonment of a once-proud British-owned car industry. Let's not forget about Detroit failing to take the Japanese seriously, the Hummer, the Ford-Firestone debacle, overproduction, fleet sales, excessive health-care costs, Chrysler's "talking cars" of the 1970s, American Motors, the Pontiac Fiero, Le Car, anything from Yugo, and 0% financing. The list goes on.

Back to the Future

None of this is new, of course, or comes as much of a surprise. But why it is worth mentioning is to see if the auto industry is capable of learning from its mistakes. While there has never been another Edsel, the same problems that bedeviled Detroit during the gas crisis of the 1970s are revisiting us in a slightly more serious manner today. Back then, Motown was still the undisputed auto champ of the world. If Detroit had chosen to spend the money to develop affordable, smaller, well-made cars that got great gas mileage, it could have remained so and continued to laugh at the imports.