Wrecked: How the American Automobile Industry Destroyed Its Capacity to Compete

The federal government provided over $50 billion in funds to GM and Chrysler and helped restructure both through Chapter 11. About a half-century prior, in 1955, G.M. became the first corporation with profits exceeding $1 billion and the auto industry was the nation's largest. In 1960, Detroit's 1.5 million residents had the highest per capita income among the big U.S. cities, and the 200,000 residents of Flint had the highest per capita income among the world's medium-size cities. Those cities have nearly collapsed, losing most of their population and their wealth.In December, 20087, GM CEO Wagoner blamed the global financial crisis - not their high costs, low quality, and behind-the-times models. The Big Three had steadily been losing domestic market share over the past half-century - down from 905 market-share in 1965 to 45% by 2015. (This was acerbated by the 2008 Great Recession.) However, in 2005 G.M. lost $850 million in just the first quarter, and Fortune in 2006 had forecast bankruptcy.Japanese automakers produce higher-quality at lower cost using a flexible production system characterized by geographic clustering, machine flexibility, long-term sole suppliers, and JIT. This facilitates CI in product and process. U.S. automakers had instead chosen to disperse production away from Detroit to segregate new workers from militant unionists and make strikes more difficult to organize; they also eliminated single-sourcing of all key components so that stoppages in one plant would not interrupt production elsewhere, and they maintained large inventories at every workstation so that upstream work stoppages would not quickly interrupt production. This reduced workers' leverage AND decreased production efficiency and the rate of innovation.Taiichi Ono worked at Toyota City's engine shop in the late 1940s. When he became plant manager, sales were less than 100,000 vehicles/year - spread between small batches of several models of cars and trucks. At the time one to two months' of product was accumulated in inventory, and up to three days required to change to a different model. Space demands and remaining inventories at changeover times (requiring relocation, sometimes becoming obsolete) created financial burdens for Toyota.Uncommitted workers could easily cause delays (coordinated slowdowns or strikes, absenteeism, lack of focus). Ono south to modify/replace machines so they could move from one task to another much more quickly, and rearranged the shop floor so workers could work another station rather than remain with a temporarily idle machine.Supplier rings around the final assembly core consist first of partially/fully-fabricated components integrated into the finished vehicle. A third concentric circle comprises second-tier suppliers selling raw materials and subcomponents to the first tier. This facilitates ease of transport. Ohno also eliminated procurement departments and forced suppliers to make daily deliveries directly to user locations. (This also forced suppliers to adopt flexible production within their own plants to satisfy the small batch delivery requirements.)Suppliers (2 - 3) were originally offered the opportunity to submit their own designs, subject to general specifications, and bids; those selected were guaranteed a contract for the lifetime of the model even though t his would involve ongoing cost reductions and modifications as the vehicle evolved.Conversely, U.S. automakers created a fiercely competitive components industry by reducing barriers to entry (eg. taking functions like engineering and R&D almost completely in-house. Several (6 - 8) competing suppliers were employed, offering only one-year contracts and requiring suppliers to license major innovations. Overall, American automakers generally had about 10X as many suppliers as the Japanese - in the mid-1980s, Toyota had 177 first-tier suppliers vs. G.M.'s approximately 1,500.JIT facilitates innovation via trial-and error.

As an observer of the auto industry since the 50's, I find the insights reached here to be essential in understanding how the American auto industry forfeited its primacy in the world and in the U.S. This management flaw of never allowing labor to have a say in anything and making lowering labor costs the primary motive for all decisions, is actually pervasive throughout all American industry. This same attitude may be in process of bringing down the American aircraft industry (Boeing) which has dispersed its manufacturing all over the country and world increasing its costs, its manufacturing defects and quickly becoming non-competitive to aircraft from Airbus, Canada and China. Boeing's hostility to labor has led to a tremendous loss of institutional knowledge in the company resulting in the loss of ability to build safe competitive aircraft.

A great primer on how the rust belt cities and towns came to be. Two nations (Japan and U.S.A.), with different outcomes under the globalization of supply chains. Interesting, but also very depressing.