A 'Crash Course' On The Auto Industry
GUY RAZ, host:
And as Joel mentioned, cars of the future will probably become networked: Fords talking to Hyundai, Chevys to Toyotas. It's actually a pretty radical concept considering how the one-time Big Three carmakers here in the U.S. - GM, Ford and Chrysler - were doing everything but cooperating.
All that changed in the fall of 2008, when the heads of the Detroit Three and the chief of the workers' union, UAW, all went to Capitol Hill, cap in hand asking for help from Congress. Now, eventually, the government did bail out GM and Chrysler - companies that were close to collapse.
Journalist Paul Ingrassia covered the rise and fall of the auto industry, and he tells a story in his new book. It's called "Crash Course." And he says back in its heyday, American cars and the men who made them were national icons.
Mr. PAUL INGRASSIA (Author, "Crash Course: The American Automobile Industry's Road from Glory to Disaster"): It's really hard to believe today. I mean, when Henry Ford bought out the Model T in 1908, there were far more orders than Ford could fill for the car. It was like people lining up for iPhones today.
In 1955, General Motors became the first corporation on the planet to earn more than a billion dollars in a single year. And the Big Three car companies, which today don't even have half of the U.S. car market, back then had 95 percent of the car market. So their power over the American psyche in films and in music and in movies and all that, as well as in economic clout, was incredible.
RAZ: And GM, I mean, at a certain time, and not in the distant past, was one of the biggest companies in the world - at one time the biggest company in the world.
Mr. INGRASSIA: Oh, absolutely. You know, when I was transferred to Detroit by the Wall Street Journal in 1985, GM topped the Fortune 500 list. It was easily the largest company in the country and in the world. And it's been a steady decline and sad decline since then.
RAZ: You write that the seeds of collapse are there already in the 1970s, particularly when GM agrees to a demand by the union, by the United Auto Workers, to allow union employees to retire after 30 years with full pension. Why did GM agree to do that?
Mr. INGRASSIA: Don't forget, at that time, Guy, the U.S. auto industry was characterized by a corporate oligopoly and a union monopoly. So the whole ethos of the system, be on the labor or management side, is that we can pass the cost on to consumers and they don't really have a choice because everybody's got to have a car in America if they want to get around.
RAZ: I mean, it meant that you could join a company like GM or Ford or Chrysler at the age of 18 and retire at 48 with a full pension.
Mr. INGRASSIA: Yes. Although I might add that in 1970, there was originally -the 30 and out retirement plan did require a minimum age of 58. It was only three years later that they did away with the minimum age requirement. So, you're exactly right. You could retire at 48, and then if you lived until age 78 or 79, you could actually collect full pension and benefits for a longer period of time than you worked.
RAZ: Now, you can't understand the decline of the auto industry without understanding the relationship between these companies and the unions. Describe why the relationship was so contentious right up until last year when the unions essentially came to Congress with the automakers asking for a bailout?
Mr. INGRASSIA: You know, it really goes back to the union's organizing effort against the car companies to gain recognition in the 1930s, which was marked by violent struggles and violent resistance. So, this whole ethos of we have to struggle, you know, we have to get more, this whole idea of, you know, we don't really have a stake in the company's prosperity because their prosperity is assured by their oligopoly.
The old 1960s Cold War term Mutually Assured Destruction, MAD, is actually what happened in Detroit.
RAZ: In 1984, GM and the UAW agreed to create something called the jobs bank. Describe what that was for us, sir.
Mr. INGRASSIA: Sure. The jobs bank originally was intended to be limited in scope. And it basically said, if we put in new plant technology in a factory and workers are displaced for a year or so, we will pay those workers 95 percent of their full salary to give them a chance to adjust.
Within a few years, by 1990, GM just, you know, let the fences wide open and said, for whatever reason, if a worker is laid off in a factory, that worker will get 95 percent of their wages indefinitely.
RAZ: To the point where you write in 2007 GM was paying something like $800 million a year to pay workers who weren't actually working. I mean, some of them were playing cards.
Mr. INGRASSIA: Well, exactly. You know, playing cards or going to Disney World or whatever. I mean, they didn't have to show up in sort of a detention hall, if you will, every day but there was a lot of abuse of the system, let's put it that way.
RAZ: One of the former heads of the UAW, Leonard Woodcock, is quoted in your book shortly after he stepped down. And he said this in the 1970s. He said, our members have the best contract that people with their skills and education could ever hope to get, but we've convinced them that with every new contract they're entitled to more. How much responsibility, in your view, does the UAW have in the decline of the American auto industry?
Mr. INGRASSIA: Well, I think it has a lot of responsibility, although I hasten to add, Guy, I would put the major responsibility on management. Management agreed to all this stuff. And in fact, in some cases, such as the jobs bank, they even proposed it, you know, amazingly enough.
But it even goes deeper than that. The cultural divide between the union and the management was actively encouraged by a lot of ways that workers were treated by managers. You know, I remember once in 1987, General Motors asked me to visit a few factories to see how this new age of labor management cooperation was working. And I went to an engine factory and I got the dog and pony show for several hours and it looked quite good.
And before I took the flight back to Detroit, I said, gee, I have to go to the men's room before heading to the airport. And they directed me to the men's room, but there was not one, but there were two men's rooms, an hourly men's restroom and a salaried men's room, right next to each other.
RAZ: Two separate restrooms?
Mr. INGRASSIA: Segregated restrooms like there was in the Old South but not by race but by rank. It was amazing.
RAZ: Now, Paul Ingrassia, how much responsibility does Congress have for the decline of the U.S. auto industry?
Mr. INGRASSIA: Look, there's a lot of culprits here. But in the 1970s, Congress passed the Corporate Average Fuel Economy laws in which they mandated fuel economy requirements. And they really forced Detroit to build unprofitable cars to meet these fuel economy requirements. The much saner approach would have been to raise gasoline taxes. I mean, that's why they have fuel-efficient cars in Europe because gas is $8 a gallon.
If we would have started raising gasoline taxes step by step 30 years ago and boosted gasoline prices and at the same time cut income taxes so you're taxing consumption, not production, you would've had a much more rational automotive transportation system and encouraged the consumption of small cars, not big SUVs.
RAZ: Do you believe that the U.S. auto industry will ever be as powerful as it once was?
Mr. INGRASSIA: Well, no. I don't think so. First of all, the economy is much more diversified. You're never going to have a big three anymore. You're going to have a medium six companies. And half of the medium six will be foreign companies doing business here but they'll all have between, let's say, eight and 20 percent of the market share.
I don't think it's necessarily a bad thing if the U.S. auto industry is not as dominant as it once was, because we have new industries - high-tech industries, Silicon Valley - that we didn't have. But I do think it's important that we keep a manufacturing footprint in this country.
And the fact that the Japanese and Korean and German car companies are successful and financially profitable building cars here indicates that with proper management, we can do it.
RAZ: Paul Ingrassia covered Detroit for the Wall Street Journal. His new book is called "Crash Course: The American Automobile Industry's Road from Glory to Disaster."
Paul Ingrassia, thank you so much.
Mr. INGRASSIA: Thank you, Guy.
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