Michael Arrington of TechCrunch has proposed that the US automobile manufacturers stop building cars and emulate computer and electronics companies that outsource all of their manufacturing. The idea is that the automobile companies would handle the marketing and sales, relying on the value of their brand names to win or retain customers.
Michael Arrington of TechCrunch has proposed that the US automobile manufacturers stop building cars and emulate computer and electronics companies that outsource all of their manufacturing. He cites Apple as a company that has successfully followed this model.
Apple doesn’t actually make any of the parts that go in the iPod or iPhone. Factories, mostly in Shenzhen, China, do that. Most of the big PC manufacturers don’t actually build computers or any of the parts that are in them. Every part is made by different companies that specialize in building that particular thing. Even final hardware assembly is outsourced. Dell and some others do some final assembly themselves to allow for easy customization, but they are quickly getting out of that business, too.
Following this idea would lead to a radical transformation of the automobile industry and many of the businesses that depend on domestic automobile manufacturing. It would, in effect, wipe out the UAW, and send most, if not all, of GM, Ford's, and Chrysler's manufacturing outside the US, probably to China which has, for now at least, the lowest costs for those companies capable of building complex automobile components, such as engines.
While such an idea is politically and economically infeasible, given the impact that it would have on millions of Americans, it's noteworthy that such a suggestion could seriously be made and discussed, with most of the comments on TechCrunch supporting this idea. To me, it's worth thinking about how and why the idea has gained some credibility.
The recent joint appearance before Congress by the Detroit CEOs showed them to be completely clueless about the shifting public attitudes toward their survival. Apart from their egregious use of private jets, they simply expected that our representatives would immediately accede to their requests for bailouts. Perhaps they hadn't read the responses to Bob Herbert's NY Times column where he argued for a bailout, only to be met with a wave of responses arguing in favor of letting the companies make their own way, with the possible risk of bankruptcy.
But these issues go back many decades and the recent economic crisis only brings them to the fore. I'm old enough to remember when foreign cars were rare and when Detroit's auto manufacturers (more than 3) restyled their cars every year or two. I am great at parallel parking because I learned on my Dad's massive '57 Caddy. I have positive memories of the heyday of the American automobile, and even went to 8th grade in Detroit with kids whose families worked in the industry. My in-laws generously gave my wife and me a GM car as a wedding present. Subsequently, we bought the awful Chevy Monza, which we kept for only a year, and which drove us away from American cars forever.
I think that our poor experiences with American cars were typical, and opened the door wide for foreign competitors. This was a time when the US manufacturers had a good chance to fight back and retake leadership, but they instead delivered the Ford Pinto, the Chevy Vega, the Plymouth Omni, the AMC Pacer, and the Cadillac Cimarron. These vehicles and others represented an astonishing failure on the part of the Detroit auto manufacturers. Many people who rented an American car quickly saw their flaws and looked elsewhere when it came time to buy a new car. We all made our decisions to buy Japanese, European, and now Korean cars, and passed those preferences along to our children. Meanwhile, the auto execs remained huddled in their suites, watching their market share drop, emerging only to go to their executive washrooms and dining rooms, and driving only the latest models of their best cars (which they could easily exchange). Of course, they rarely tried out the foreign cars that were eating their lunches.
We now know that GM and Ford would be in much better financial shape if the US had adopted universal health care when it was widely discussed in the 1920s and '30s. So rather than giving them $25 billion dollars, which they will use up in a year, let's use that amount toward fixing the American health care delivery system. Guaranteeing the health care coverage of the UAW retirees would cost far less, and would cut out more than $1500 from the cost of each vehicle.
It would be sad to see the American automobile industry go the way of the electronics and textile industries in the US. To prevent that, GM, Ford, and Chrysler will have to make drastic changes to their operations and their products to remain competitive. Bailing them out doesn't seem like the way to make that happen.