Car Guys vs. Bean Counters - Bob Lutz [13]
• Increase profitability, enabling a faster product renewal cycle.
The Japanese did it all! Complaints from Detroit about the distortion of the dollar/yen relationship fell on deaf ears. Lee Iacocca, then CEO of Chrysler, tirelessly warned the media, the public, and Washington that serious damage was being done to U.S. industry. We had already lost the entire home electronics industry, as well as cameras, optical instruments, and much, much more. But politicians didn’t want to listen, and administration officials professed it all to be for the common good, because Japanese cars were excellent and represented exceptional value. Why tamper with that? “You boys are crybabies. You’ve got to stop complaining and learn to compete! It’s not the weak yen! You boys gotta learn how to make better cars!” was the response Lee Iacocca and I received from one distinguished senator. Just how you beat a competitor at making cars when he has a four-thousanddollar-per-unit cost advantage was not something the worthy man cared to address.
Still, a partial “victory” was achieved in 1981 when U.S. and Japanese trade negotiators reached a “voluntary restraint agreement” limiting import sales at least until the floundering U.S. auto industry could get its retooled, more competitive, more fuel-efficient models to market. The period of voluntary restraints came during the sharp recession of the early and mid-1980s, when prices were lowered due to depressed demand and steep incentives. Enter the recovery, the tide that floats all boats. Newly confident buyers snapped up vehicles with more equipment, more options, and bigger engines.They bought more trucks and SUVs. And all with no incentives.
Then someone at a Japanese car company did a study, using U.S. Department of Labor statistics showing average U.S. car transaction prices (the price at which the vehicle is sold) before “Voluntary Restraints” (the deep recession) and during “Voluntary Restraints” (the dynamic resurgence of demand).
The upshot: “Look at how the U.S. car companies unconscionably raised prices during Voluntary Restraints! They were supposed to use this respite to gain competitiveness! Instead, they gouged the American public by raising prices thousands of dollars!” No mention of the differing economic environments, no mention of the rapid shift to trucks! The gullible (and proimport) media lapped it up, and broadcast after broadcast, editorial upon editorial pontificated on the obscene behavior of Detroit’s villainous Big Three. The propaganda, documented as it was by the U.S. government’s own statistics, became the accepted truth: “Instead of becoming competitive, Detroit used the ‘Voluntary Restraint’ period to gouge the public.” It’s incorrect, but that’s the way history is written. It reveals key aspects of the rise of the Japanese: their incredible lobbying power in Washington (stronger even than our own, believe it or not), their “teacher’s pet” stature with the fawning U.S. media, and their astuteness in regularly reinforcing the image of the Big Three as fossilized remnants of a failed industrial culture.
Needless to say, that propaganda assault precluded any further sympathy in Washington or elsewhere, and many elected officials went on the public record stating that the disappearance of the Big Three would not necessarily be a bad thing for America, as we would “still have an automobile industry” in the form of Japanese assembly plants (using high percentages of imported materials) in the southern United States. (As of this writing, the yen is finally strong, and the Japanese producers are all professing to being severely damaged. Let’s see how well they play without the exchange rate advantage!)
And then there was health care. Long a cherished benefit of the United Automobile Workers, the quality of coverage went up with each three-year contract. Once again, the reader may well say, “Well, it affects every car company.” Logical, but wrong. Japanese (and European) manufacturers have no, or minimal, employee health care costs because most