The Hard Way

While gas may be cheap in the U.S. there are still insurance, maintenance, and a crippling college debt load. What’s more, the whole Uberization of transportation is playing a bigger role for those in cities.

If we go back to the late 1980s, early 1990s, the state of the U.S. auto industry was one that was, to put a word to it, unhealthy.

Yet the level of rhetoric was robust.  There was a lot of chest thumping being performed by automotive executives.  Politicians got in the act, too.

But it seemed as though when it came to manufacturing automobiles, the Japanese had it all over the U.S.

Now since that time, there have been billions of dollars invested by Toyota, Honda, Nissan, in particular, and Japanese suppliers, in general, in the U.S.  Although the headquarters’ offices may still be in Japan, the level of design, engineering and manufacturing exhibited by these companies is such that it is hard not to consider them to be other than as the term that the Center for Automotive Research (cargroup.org) used to use to refer to them: “New Domestic Manufacturers.”

(And one thing has always puzzled me about the nationality of giant corporations: aren’t these corporations owned by shareholders, a large percentage of whom just may be located in places other than the home country, such that it would be hard to determine whether they are really German, Japanese, American, or something else?)

Anyway. . .

So the U.S. auto manufacturers went to school on things like the Toyota Production System.  They learned about things like being lean.  About pull systems instead of push.  (Although one might argue that given the number of new cars that I see sitting as inventory in lots that are not dealer lots per se, but somewhat out-of-the-way places where they can be held and not necessarily seen, I think that there is still a considerable amount of push going on.)  About trying to be more willing to work with suppliers rather than simply dictate to them.

All of which is to say that the traditional Big Three got a whole lot better in their manufacturing.

And just as importantly, they began to realize that just because they said something was “world-class” design or engineering it didn’t make it so.  (This brings me back to those bloviating executives who thought they had Harry Potter-like powers and they could just make their products appear to be better with a figurative wave of a wand.  Turns out, to stay with the metaphor, they were merely Muggles.)  With time, the designs and the engineering got much, much better.  Yes, even “world-class” in some cases.

Now there was that hiccough the magnitude of the 2008 Mount St. Helens eruption in the spring of 2009, when Chrysler and GM paid visits to the U.S. Bankruptcy Court for the Southern District of New York.  (Ford had cleverly raised money in 2006 that helped tide it over; but in order to get the line of credit, it had to put up the Blue Oval and trademarks including “Mustang” and “F-150,” which it managed get back safe and sound in the spring of 2012.)

Still, arguably what happened in the late ‘80s, early ‘90s and then at the end of the ‘00s taught the domestics a lesson they wouldn’t forget.

And in the meantime, Toyota kept building Camrys and setting up new plants; Honda kept building Accords and setting up new plants; and Nissan kept building Altimas and setting up new plants.

Meanwhile, back in Japan, things haven’t been going particularly well when it comes to its domestic auto production.

According to the Japanese Automotive Manufacturers Association, from January to June 2015, automobile production was 4,650,840 units, down 8.2% from the same period in 2014.  Exports were up by merely 9,766 vehicles, or 0.5%, to 2,177,637.

The auto industry isn’t doing too well in the place that once seemed invincible.

There are a variety of reasons why this is the case.  And it is not all about the value of the yen.  A large part goes to the point of the localization of manufacturing that has been performed by the Japanese OEMs, not just in the U.S. but literally around the world.

But another part is the fact that there appears to be an increasing disinterest among Japanese young people when it comes to cars.

According to a story that appeared in Japan Today this past April, “The top 20 things that Japanese youth are distanced from,” the #1 item on the list is “Cars.”  As the reporter writes, “the rising costs of owning a car, including paying for gasoline, insurance, and maintenance, making owning one an increasingly unrealistic goal for the youth of today.”

And it occurs to me that there are a whole lot of executives at the car companies today who are thumping their chests and talking about the importance of the Millennials to their businesses.

While gas may be cheap in the U.S. there are still insurance, maintenance, and a crippling college debt load.  What’s more, the whole Uberization of transportation is playing a bigger role for those in cities.

I wonder if this isn’t going to become another lesson the auto industry is going to learn the hard way.