The Decline of the 'Big Three' U.S. Auto Makers

General Motors, Ford and Daimler Chrysler — dubbed the "Big Three' — have dominated the U.S. auto market for decades. But now their collective grip is slipping fast, due to a "perfect storm" of poor business decisions, rising health-care costs and strong foreign competition. Ed Gordon talks about the issue with Csaba Csere, editor-in-chief of Car and Driver Magazine and Joseph White, Detroit bureau chief for The Wall Street Journal and co-winner of the Pulitzer Prize for his 1992 coverage of turmoil at General Motors.

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ED GORDON, host:

From NPR News, this is NEWS AND NOTES. I'm Ed Gordon.

General Motors recently reported more than a billion dollars in losses for the first three months of this year, and the picture is also stark for Ford and Chrysler, the other two of America's big three car makers. Though the trio has dominated the American market for decades, its grip is slipping fast due to the perfect storm of business decisions--poor ones--raising health-care costs and strong foreign competition. The Big Three's decline has already been felt by 130,000 workers that have been laid off since 2000. It's only beginning to really impact the larger economy.

Joining us for a closer look at the industry's uncertain future are, from our member station WUOM in Ann Arbor, Michigan, Csaba Csere, editor in chief of Car & Driver magazine, and also with us, Jeffrey McCracken, automobile reporter for the Detroit Free Press. He joins us from the Motor City.

Gentlemen, thank you very much.

Mr. Csere, let me start with you. The American auto industry has seen its obituary written before. Talk to me about where we see it today.

Mr. CSABA CSERE (Editor in Chief, Car & Driver): Well, at this point, they're really hurting for a number of reasons. You pointed out the poor business decisions, the rising health-care costs. The one other thing that's happening--actually two other things. One is the high cost of fuel. The last place where the American car makers make pretty easy money is full-size pickup trucks. They don't have a lot of competition in that area and also the very large SUVs that are built on those platforms. With fuel prices this high, sales of those vehicles are getting soft and that's the place where they make their money. So that hurts them quite a bit.

The other part that's going to hurt them in the same area is that they're getting competition in those full-size pickups. In the '90s, the Big Three all made a huge amount of money on SUVs as the market moved in that direction and they were there first. But capitalism works. Everyone got into that SUV business. Today, even Porsche's building SUVs and the easy money there is gone.

There again they retreated into the full-size pickup area. The Ford F-Series is the best-selling vehicle in the country and has been for about 20 years. The second best-selling vehicle is the Chevy Silverado, GM's full-size pickup. And the Dodge Ram does very well also. A year ago, Nissan did a full-size Titan that's going right after those vehicles. And about a year from now there's going to be a new full-size Toyota built in a new plant in Texas going after those vehicles. And once those pickup truck profits go away, it's not clear where the Big Three is going to make their money.

GORDON: Jeffrey McCracken, I am originally from Detroit and was at home not long ago talking with a number of people inside the automobile industry and those who work on the peripheral and service it. And they are, quite frankly, frightened, particularly at--looking at the situation General Motors is in. Have you ever seen anything like this?

Mr. JEFFREY McCRACKEN (Detroit Free Press): No. I would say I think frightened is an accurate word for the feeling here in Detroit and across much of the Midwest as it relates to GM, Ford and Chrysler, specifically as it relates to GM. They're just so big and they're operations are just so important to so many regions. You've got the trickle-down effect when GM has a cold or GM has its issues, so to speak: the ad agencies that service the company, all the auto suppliers, all the doctors, the HMOs, the hospitals that provide health care to GM's retirees and employees. And when Chrysler's down, people notice it, of course. But when GM's down, they really, really notice it.

GORDON: Do we know and we have looked at, Jeffrey, the idea, as you just suggested here--and it seems to me that America does not understand if GM falters--and we don't necessarily suggest faltering being going under--but if they trip and stumble, it has a tremendous effect across this country, does it not?

Mr. McCRACKEN: Absolutely. Back in 1998--now I wasn't covering the industry at the time, but I know that back in '98 when GM had its strike up in Flint, I've been told and I've read that the GDP took a dip of about a point because of the GM strike, which knocked out, you know, an infinite number of plants and all the suppliers that provide parts and services to GM as well. So, yeah, the impact across the United States, and especially in the Midwest, is tremendous.

GORDON: Csaba Csere, how much do we need to hold accountable those who are running the North American operation for these companies in the sense that the foresight was not there? They've been behind the eight ball, quite frankly, for a long time. People have talked about inferior product and the like, and it does not seem as though they've been able to really deal with the competition from the foreign market.

Mr. CSERE: I think that's very fair, certainly at General Motors. If you look at the market share of the company back in the '60s, it was 50 percent. Now it's hovering around 25 percent, a little bit over. So there's been a straight-line decline for about 40-some years and management has shown no real ability to reverse this. And I think, ultimately, it is a management issue.

There are some other aspects to it. You mentioned the medical costs and the pension costs. That's a huge problem and a bigger one for GM than for anyone else because they have an enormous number of retirees, some 300,000. And a lot of these retirees were created when they had 50 percent of the market, and they're now trying to support them from the revenues of 25 percent of market. It comes out to about $1,500 per car and truck sold in America. And if they didn't have that cost, that would be $7 billion, which would help quite a bit. But if they hadn't lost that market share, that whole retiree situation would be a whole lot more favorable and it is, in fact, more favorable for Ford and Chrysler because they've lost less market share since the '60s than GM has.

GORDON: Jeffrey McCracken, what can be done, when you look at the continuing slide of what is known as the big three in this country, to try to shore up their position and remain as strong?

Mr. McCRACKEN: That's a good question. I think, as Csaba pointed out, back in the '90s they were--the three automakers got out in front of the Asian automakers and found the truck and SUV segment as a way to protect themselves. I think what they need to do now is probably get back--first of all, they need to get back to building some cars that people actually would like. And that's one of the things that's helped Chrysler, is Chrysler alone among the big three is actually doing reasonably well, mostly on the back of products like the Chrysler 300 and the Magnum. It sounds pretty simplistic, but a lot of times it does just come back to building product that people are going to want to buy.

GORDON: When you look at, Csaba Csere, the totality of all of what the automobile industry has meant to America, this is to a great degree a sad indictment, perhaps, of America's some would call laziness in sleeping on its laurels.

Mr. CSERE: Well, there's no question about it. This industry is absolutely critical to the country. It's not--when you look at the car industry, it isn't just the car manufacturers, but all the suppliers; to some extent you can look at the oil industry as being part of it, the transportation industry. Over the years, people have done calculations suggesting that, directly or indirectly, one in six people in the United States are employed in some way by the transportation industry here. So it has a huge impact.

And furthermore, you know, over the years, the auto industry has offered very high-paying jobs to people who didn't necessarily have a lot of education. The auto industry was one of the places where somebody with a high school degree could go in, get a union factory job and make a lot of money and earn a very, very good living. And this was critical to an awful lot of people in the middle class. And if those jobs start going away, it really does affect the fabric of the country. And it certainly does so here in the Midwest where a lot of the big three's plants and operations are concentrated.

GORDON: And, Jeffrey McCracken, Csaba Csere beat me to my next point--the idea that these industries did provide that, and also provided minorities the opportunity to get into corporations and start to climb ladders where, heretofore, they had not been allowed in. When you look at all of these opportunities falling by the wayside, are we going to have to see, as we saw with Chrysler some yeas ago and Lee Iacocca trying to salvage that corporation--are we going to have to see outside intervention to eventually save the foundation of what we know as the automobile industry today?

Mr. McCRACKEN: Not necessarily. I think these companies can turn it around. If there needs to be outside intervention it would probably have to be in an area like health care. I think, increasingly, people realize that General Motors and Ford and, to a lesser degree, Chrysler, are going to need some outside help or need something to hold back these rising health-care costs.

The one thing I would caution is, on the issue of health care, these automakers talk a lot about health care. But you do--you have to note they make a lot of their own bad decisions that are wholly unrelated to health care. It wasn't health care that got GM to spend $4 1/2 billion on a dismal deal with Fiat. It wasn't GM that--or it wasn't health care that forced GM to really miss out on hybrids, to miss out on another--on crossovers, which is another popular segment. I guess I would say that intervention sounds like a good idea. I'm just not sure who it would necessarily be.

GORDON: Csaba Csere, a lot of people suggested that patriotism had a lot to do with the burgeoning market for years, and that that has fallen by the wayside, as we've already suggested, to a superior product in terms of quality and, some will say, style. How much do you believe that patriotism no longer plays a part in loyalty in buying?

Mr. CSERE: I think it's been a diminishing factor for a long, long time. I was around back in the '70s when we had the first fuel crisis in '73, '74, and the Japanese car makers first really got established because they had the high-fuel-economy cars that Detroit wasn't building. And a lot of people in Detroit thought that Americans will never buy Japanese cars or, if they do, they'll buy them temporarily and get back to the Detroit cars as soon as gas gets cheaper. Well, gas got cheaper again, but people learned not only that these cars were not evil, but they actually had higher quality than the domestic cars. And ultimately, most American customers buy quality. They buy value. They buy what is best for their own uses and where they get the most value for their dollar. And patriotism doesn't enter into it that much. That may be your going-in position, but it gets worn down if the patriotic choices don't really deliver what the customer wants.

GORDON: Jeffrey McCracken, with about a minute left, as you look at the automobile industry for North America and the landscape, are we seeing a cold or do we see pneumonia?

Mr. McCRACKEN: I think it's probably somewhere closer to pneumonia. Even if General Motors pulls itself out of this spiral, the question is: Will they ever get back to even what they were just a couple years ago, when the goal of the company was to have about 29 percent of the US market? It's now dipping down below 26 percent, closer to 25 percent. It could right itself, have all of its truck products come out next year and do tremendously well and still not get back to that 29 number that was the goal all of 18 months ago. These companies seem to be on an inevitable decline and you just have to wonder: When does it stop? When does it slow? When do things ever get any better or, you know, return to what they were just a few years ago, you know?

GORDON: All right. Well, Csaba Csere, editor in chief of Car & Driver magazine, and Jeffrey McCracken, automobile reporter for the Detroit Free Press, we thank you both for joining us today.

Mr. McCRACKEN: Thanks.

Mr. CSERE: My pleasure.

GORDON: This is NPR News.

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