Automobiles and Intellectual capital

By, Murray D. Stahl (02-2009)

It’s now quite fashionable to disparage the products manufactured by the American automobile companies. We hear it from friends and families on a regular basis. In some areas of the country twenty-something kids have never driven an American car. By that I don’t mean a Toyota assembled in South Carolina. No, I mean a car that was conceived, designed and built in the US by a company that is headquartered in the US.

In the fifties GM, Ford and Chrysler enjoyed gigantic market shares; GMs share alone approached 60%. Alas, after the Harley Earl and Alfred P. Sloan era a confluence of corporate mistakes led them to the pitiful state they are in today. The mixture of shortsighted (Ok stupid) management, unions that think profit is a dirty word and Government intervention in the design process created a can’t-win situation.

So here we are with another major industry about to collapse. The automakers are following all the other industries we’ve lost as our Manufacturing base shrinks. We no longer manufacture any state of the art electronic products, TVs, cameras or most appliances. At best we assemble components made overseas.

The worst part of the rapid decline of our manufacturing base is the loss of Intellectual Capital. This capital is what fuels innovation and could foster a resurgence of manufacturing in the US. For many years countries like India and China lamented their “brain drain” that occurred as they sent their best and brightest to the US for university then found that they stayed because the prospects in the US were just better. Just start noting how many Physicians and businessmen you see that are immigrants. In the past few years that has reversed as prospects in their home country improve. The majority of foreign students obtaining advanced degrees in the US now return home and that trend is accelerating. If you’re skilled at designing innovative new products why settle in a country that no longer values manufacturing.

One has to Consider that an automobile has upwards of 14,000 parts without even considering the myriad of small sub-parts making up a larger component; I.E. levers and springs in the window mechanism, bolts and nut on the starter. It is arguably the most costly, complex product ever put into mass production; it’s manufacturing creates many complex engineering, design and timing problems even beyond its huge overhead structure and marginal returns.

All these parts have to be engineered, priced, tooled and planned out to a cost and time budget. Tool and die shops, electronic gismo manufacturing and steel companies are dependant industries providing good jobs that require thought. These are highly skilled jobs that contribute enormously to the national economy. Innovative new products are the only way to grow an economy and it takes brains to innovate. India, China and Japan each graduate many times more engineers than we do although we graduate more Attorneys than any other country by far. We can easily be the worlds leader at parsing inane legal safety messages, I.E. “Hot Coffee”, warning, may be hot,” to put on coffee cups. Alas, the market for that silly prose is all ours.

I don’t pretend to know the answer nor do the Pooh-Bahs in the puzzle palace in Washington. I do know that GM and Ford now do almost all their mechanical and design work at their overseas plants. Most of the snazzy new stuff on sale sit on platforms designed in Germany, Sweden or Australia. As more of the Intellectual component of the new product work is done outside the US the chance of a bright American High school graduate picking a vocation in what seems a dying job pool get slimmer. Our purchasing decisions are now driving our decline. A recent article in the Wall Street Journal explored the possibility that GM would be very profitable in just a few short years after they pulled all their manufacturing out of the Union states they seem trapped in. They are expanding their plants overseas as we speak. Were on a precipice with no short term answer

Of course our kids will be able to learn new language skills. They surely will have to master the phrase, “do you want fries with that,” in Japanese.

The all new cars from GM and Ford are world class vehicles and I think there is a very slim chance that a combination of Union “give-backs” and legislative action will save them. The toxic blend of restrictive work rules, costs for Cadillac health care, taxes, legislative meddling and an uninspired management have finally taken them down. It’s really simple; all the foreign automakers are non-union, ergo no restrictive work rules, the plant management actually runs the plant. On health care; all our automotive competition enjoys Government sponsored health care usually financed by a Value added Tax. The tax paid by their automakers is refunded when the product is exported. The US is the only major country that taxes corporate profits directly. As for management problems please read the postscript. We need the US automakers to prosper but survival isn’t for sure.


Postscript:
Sprinkled throughout this article there are references to how dominant a position GM enjoyed in the fifties; alas they squandered the Alfred P. Sloan legacy with a long series of politically astute but product stupid managers. Their recent malfeasance has taken one of the preeminent industrial enterprises in history to the brink of bankruptcy. I only outline a few of GMs sins because I’m most aware of them. All of the US companies made major design and quality decisions that they can’t be proud of. To quote some MBA speak; the results formed an adverse feedback loop. The translation of this jargon is, “they don’t like our stuff.”

Just a few of their proud moments on the downside:
----The Oldsmobile Gasoline V-8 engine converted to diesel fiasco.
----The multi-displacement 2-4-6-8 engine that worked for a week.
----The Vega engine that self destructed with any 20-degree temperature swing while the car itself rusted fast enough to be visible.
----The Chevette, a car designed to rid our shores of the asian competition. It had a life span similar to a fruit fly.
----The Corvair; a good car ignored by the marketplace, perhaps too innovative for the time.
----The Cadillac Cimarron; this car marked the point when even the most passive and incurious American finally woke up and said, “ are you ****ing kidding me?” A prestige nameplate slapped on a cheap rental car design does not make a great car; it makes a catastrophe.
----The Bloated 1991 Caprice with curves in all the wrong places. The idea seemed to be to build something so appallingly unappealing that not even the elderly would buy it. State Troopers were embarrassed to be seen in it.
----All the look alike sedans of the era that had interiors that taxicab companies would be ashamed of.
----The deletion of convertibles in the 70s since no one would ever want one.
----A maroon automobile paint that faded in 6 months but continued in GM use for 5 years!
----The height of incompetence was the Aztec, a final insult to a people long erased from human history. GM affixed their name to this repugnant gallimaufry of discordant design elements ranging from art deco to Power Ranger. This seemed to be GMs low point. The Aztec took GM from Harley Earl’s soaring Styling exercises to a car whose name now symbolizes the ugly, dysfunctional design of any product.

After the Aztec low point GM must have re-read their management books for their newer designs for Cadillac, Corvette and Malibu are on the mark; now they only have to convince the buying public that they have reformed and will sin no more. I hope they get a chance to survive as US based companies for my Grandkids sake.