Car Guys vs. Bean Counters - Bob Lutz [12]
This marked America’s introduction to the (alleged) superiority of Japanese quality. Millions of American buyers experienced trouble-free motoring for the first time in their Hondaoyotasuns. And many decided, then and there, that neither they, nor their children, nor the issue of their children, would ever buy an American car again.
So, here we have an exogenous event—the oil crisis—triggering politically expedient federal action (CAFE, “Make those rich corporations do it,” applauded by an anti–U.S. business press), resulting in a buying public experiencing unaccustomed reliability and fuel economy (a lesser priority, but nice when you get it) in imports. And thus the myth of “Detroit dumb, imports smart” was born.
The ridiculous part about CAFE, other than causing devastating harm to the domestic manufacturers, is that, aside from populist politics, it did no good. First, if you reduce the cost of a commodity (improved miles per gallon means less cost per mile driven), people will tend to consume more of it. In general, America’s car buyers buy the amount of fuel dollars they can afford per month. Double the mileage, and they won’t pocket the difference or save the gas for Mother Nature’s sake. Now, it’s “Honey, I think we can afford the fuel consumption of that SUV we’ve always wanted!” Affordability drives more use, a basic law of economics. Mandating higher mileage at constant fuel prices simply encourages more miles driven and larger vehicles.This is a major factor in mainstream America’s “escape” into trucks where, thanks to lower fuel economy standards, V8 performance and U.S.–style roominess were still available.
Meanwhile the Japanese, of course, were exploiting their “teacher’s pet” position of CAFE compliance, constantly reminding an all-ears media how “socially responsible” they were while scheming to exploit their overachievement of CAFE mandates to move upmarket into the lucrative segments Detroit was being forced to abandon.
So, failure to address the real issue, fuel cost, created a chaotic situation which, in the end, cost the American manufacturing industry dearly. Sadly, it wasn’t the only nail in the coffin.
At some point in the 1970s, when the geopolitical battle between the Western democracies and communism was raging, the U.S. State Department decided that special measures were called for to keep Japan in the U.S. orbit, to serve as a bulwark against China’s expansionism in the Pacific. A healthy, prosperous Japan, interlinked economically with the United States, was the best guarantee for reliable, pro-Western stability in the area. Presumably at Japanese urging, it was determined that the best way to achieve this goal was for the United States to tacitly permit Japan to manipulate the yen to a le vel below that justified by the country’s costs, wages, balance of payments, and general economic might. Administrations of both parties, while occasionally joining the chorus of protest against “blatant currency manipulation” by the Japanese, did precisely nothing to stop it.
Subsequently, under the most airtight protectionist umbrella ever witnessed in the era of alleged “free trade,” the Japanese industrial machine cranked up and soon became a powerful force in cars, consumer electronics, watches, cameras—in short, just about anything that could be manufactured and exported.
The cost advantage handed to the Japanese carmakers by the artificially low yen was in the thousands of dollars per unit, estimated at as much as four thousand dollars. Add to that the much higher U.S. labor cost and health care obligation, not to mention the depreciation and amortization burden brought on by the massive retooling of the entire U.S. car industry, and it becomes abundantly clear why U.S. producers found it increasingly impossible to compete. When a major competitor has a systemic cost advantage of that magnitude, he can use it in various ways:
• Increase marketing spending
• Underprice his competitor
• Add more features, quality, and