Competition versus protectionism: Destroying Toyota to save GM
Getting too cozy?
Is the White House “too cozy” with GM?
As a Toyota hybrid owner, I was naturally very concerned when the Toyota recall scandal erupted. Yet, quite quickly, I began to have serious doubts about the veracity of the claims being made.
Something – actually a lot of things - just didn’t feel right.
For instance, if Toyota had some major glitch in their vehicles for many years, why wasn’t the data more supportive of this great danger, a danger that prompted the Secretary of Transportation to tell the public that he wouldn’t let his family drive in a Toyota?
Ironically, however, according to NTHSA data, far more consumer complaints had been lodged against every one of the Big 3 compared to Toyota before the scandal. Likewise, Consumer Reports – and most auto experts – called the Congressional investigation into Toyota an “over-reaction” not supported by the statistical data.
So, why were Congressional reps from Michigan and even the Secretary of Transportation attacking Toyota with such reckless abandon if there was no real evidence to support their claims, and if the historical data regarding unintended acceleration demonstrated the need for extreme caution, and the need NOT to jump to conclusions (Case in point, Audi)?
Obviously, it would be easy to say it was just politics. Not only is the auto industry a hugely critical important base for Democrats in Congress and in the White House, but the administration has invested a massive amount of money into the auto industry. A lot of skin is in the game.
Then again, however, even President Bush quickly ‘invested’ $25 billion into the auto industry as the possibility of bankruptcy become reality. Thus, it seems regardless of whom took over the White House, saving the Big 3 would have been a top job.
But, how far should saving the Big 3 go?
On July 3rd, George Person, the chief of the Recall Management Division at the NHTSA retired after 27 years of service. According to Person the NTHSA has investigated a sampling of 40 Toyota vehicles, including 23 reported to have accelerated unintentionally. Every Toyota thus far has tested without problem and the data gathered from the 23 ‘problem’ vehicles all suggest driver error as the cause of unintended acceleration.
So, why isn’t the NHTSA being more forthright about its findings thus far?
Politics, according to Mr. Person.
Straightline has even even suggested that the NHTSA and the Department of Transportation have developed a “cozy relationship” with the Big 3. So, if GM, for instance, has the ear of the government, which it should since the government owns them, what might GM have told their bosses?
For years, I’ve been invited by GM to attend a number of different Chevy Volt events, at GM’s expense. During that time I’ve been around many GM executives, including Bob Lutz and Rick Wagoner. At these events it always surprised me just how much Toyota and the Prius were always a topic of conversation. The Prius, for instance, infuriated Bob Lutz. Likewise, the more positive perception of Toyota quality compared to GM was another major concern.
Toyota, Toyota, Toyota. If only GM could some how trump Toyota.
Yet, until the recall scandal, the data from everywhere – JD Power, Consumer Reports, the NTHSA, and consumers themselves – always demonstrated that Toyota was doing a better job than GM, and the rest of the Big 3. Surely GM, and the rest of the Big 3, were making gains. Still, Toyota was becoming a bigger and bigger concern, and the success of the Prius, especially during the gas spike, made the Big 3 seem even more inferior.
Then came LaHood and the Michigan Congressional caucus and their campaign to save America from the dangers of Toyota. Suddenly, months later, perceptions have greatly changed for GM and the Big 3, largely at the expense of Toyota.
Unfortunately, however, the evidence still seems to suggest there was never a problem with Toyota safety, especially relative to the rest of the auto industry. Consequently, despite early calls from numerous experts that Congress was “over-reacting”, the evidence continues to suggest that Congress and the Secretary of Transportation attacked Toyota without any solid evidence, at least regarding safety.
Certainly, incompetence and ignorance perpetuated by a blood-thirsty media might account for what is shaping up to be the real scandal – publicly slandering Toyota despite a lack of quantifiable evidence in the face of a mountain of contrary data. But, perhaps that’s just politics as usual, and any other country would have done the same thing to protect such an important manufacturing base. To be sure, most of the Asian automakers do have overly-protectionist policies.
Still, is protectionism the key to a healthy US auto industry?
Whether judged by safety, fleet fuel economy, reliability, etc. – before Toyotagate – Toyota was doing a better job than the Big 3 according to essentially every data point. The Big 3 had not, and still were not, doing enough to fully compete. A certain amount of complacency was still inherent in the Big 3’s DNA. In fact, Toyota was pushing the Big 3 to become better, to become more competitive, and the Toyota-way was very influential in Alan Mulally’s reshaping of Ford – the only Big 3 automaker to avoid bankruptcy.
Ultimately, Toyota has been a good thing for the American auto industry and American consumers.
More important, however, even without Toyotagate, Ford seemed on a path to begin to legitimately challenge Toyota – not because of new protectionism or new political friendships, but because great leadership can still lead to great American companies that can compete. Inevitably, it wasn’t protectionism that pushed Ford on a path to greatness, it was competition.
Today, the Big 3, collectively, are in the best shape they’ve been in for some time. However, it’s been protectionism – and a lot of tax-payer money – that has saved them – not their ability to compete, and today’s ’success’ could still be short-lived.
Eventually, competition in the auto industry will intensify far beyond what Toyota brought to the game, and overly protectionist politics will only make US automakers less competitive in the long run.
Larry-
I do think CEO’s and Unions deserve blame, but not any more blame than the people deserve themselves – perhaps even less. Nonetheless, I pretty much agree verbatim with everything you stated in the previous comment.
well but.. the Japanese are number one in life expectancy and we are 38th right next to Cuba.
All of the other industrialized car makers in the world live longer than we do and pay 1/2 as much for health care.
What does that mean for our competitiveness?
I think in the real world – that we are hoping for a technological silver bullet but unwilling to deal with the realities that we as a people have hurt our own cause but would prefer to blame others like unions and CEOs for our own shortcomings.
We use twice as much energy – fuel and electricity as the other countries do also.
that also adds to our inability to be competitive.
And yet.. we blame others for our own lack of focus …
we can’t be number one in the world if we won’t keep ourselves healthier, use twice as much healthcare and energy as our competitors.
and blaming the CEOS and Unions for this failure is just not accepting our share of the responsibilities.
We are the ones who want the SUVs.. and we are the ones who believe that we can “buy” “Green” instead of actually living it like our European and Japanese counterparts do.
Do we really think we actually should be able to beat our competition if we are not willing to best them on the numbers?
this is obviously an opinion.. and I certainly respect others views even if different but I do feel that we need to have a good dose of truth on this also.
Health care didn’t cost as much 2 or 3 decades ago, yet American automakers were far less competitive. They didn’t even try to compete. At the same time, union auto workers had everything. Now costs are more expensive and somehow automakers, such as Ford at least, believe they can beat the Japanese at their own game, in America, even with health care costs?
Had the US auto industry had that kind of attitude 2 or 3 decades ago, I bet the US auto industry would be in far better shape today, and that bankruptcy would have never been necessary.
Also, I don’t believe that comparing US health care to Japanese health care just is that simple. Aside from the fact that the Japanese use far less health care, and far less expensive healthcare, they also pay far more for food, fuel, etc. Consequently, I don’t think ‘health care’ can be separated apart from the larger economy very easily. America offers a different balance of taxes and benefits through our tax code, economy, etc..
Ultimately, I just don’t think it’s that easy to blame, because it’s so easy to blame. There is so much blame to go around, but no easy solutions.
America needs a dream, a challenge. Something akin to a moon shot, but completely unpolitical. Something that most can participate and benefit from.
Energy independence is always the one I come back to, unfortunately, energy is also highly politicized, especially in the book rooms of power that most of us just aren’t even privy.
so I’m trying to understand if we think the fact that foreign car makers don’t have to pay for health care is an “unfair” advantage and that we should set up trade policies to require a tax on foreign cars that would be equivalent to the health care costs that are embedded in U.S. Made cars.
or …are we saying that American workers should not get the health care they have and instead get less?
I don’t pretend to know the answer but clearly as long as we are less healthy in this country and consume twice as much healthcare as other industrialized countries – it doesn’t matter what the product is we make or even if there is a union – the healthcare costs are going to be substantially higher than overseas – and, more importantly, embedded in the cost of the product we sell.
Who should we blame for us being fatties and so much more unhealthy that we require more expensive health care?
I keep hearing that the unions are to blame but there are a lot of companies that don’t have unions and if they are paying health care costs and competing against other companies from other countries that don’t have those costs – it’s clearly a competitive disadvantage.
Who should we blame for that?
Perhaps, Larry. Still, Honda makes more cars in the US today than it does in Japan and it makes most of its profits in the US. In terms of health care, the Big 3 never tried to make the health care and pension fund more efficient. They typically made promises they knew they probably wouldn’t be able to keep.
Still, I think it goes deeper. For a long time US automakers claimed that it was impossible to derive a profit from Japanese style cars. Most have changed their tune at least a bit, and Mulally has outright claimed that Ford can make a profit from small cars. Period.
Why the change?
Certainly, it’s true that universal healthcare could be leveler. However, there is no doubt that there was great waste in those old union contracts as well. There has been great waste in the US manufacturing process, and there has been great complacency.
Likewise, just for an apples and oranges comparison, I’ll bet the average US autoworker uses the health care system far more than the average Japanese or Korean auto worker. Whether it’s healthcare, building cars or the American diet and lifestyle, complacency has become a nasty element of the American psyche.
re: ” In fact, historically, hasn’t GM been more profitable outside the US than in the US?”
Bingo!
what would be different?
One really important thing.
Other countries have universal healthcare – and when you remove the health care costs from manufacturing autos – you do something important – competitively.
So we talk about “protectionism” and NAFTA and competing on a level playing field but the reality is that well over $1000 per American car…some say $1900 goes to pay for health care.
So… a question for folks…
is universal healthcare – “protectionism”?
I hope not Dave, although I wouldn’t be terribly surprised.
A strong GM is good for America, but so to is a strong Toyota, and Honda and Hyundai – at least in my opinion. Certainly, if there is a legitimate claim to be against Toyota, then it must be made, but if it’s just politics, then such protectionism only becomes more scandalous.
No Tom. It’s not fair, and it was noted in the post that Asian companies do use unfair protectionism. Nonetheless, your company is the top selling automaker in China, so GM has obviously figured out some ways to make money off outside countries. In fact, historically, hasn’t GM been more profitable outside the US than in the US?
The point regarding competition versus protectionism is that, particularly for the US, protectionism isn’t going to work. As the world’s greatest importer of foreign oil, we have the most to gain by being the most innovative auto industry in the world. Yet, too much of our innovation is driven by comfort, not necessity. Likewise, as China, India and emerging markets achieve greater and greater levels of auto shares, their demands might change significantly compared to America. Considering the 2008 gas spike, the current economy, etc., I’d say those greater levels of demand will be driven by ever-increasing fuel efficient cost-effectiveness.
Along those lines, last I saw, Toyota, Honda and Hyundai all offered significantly greater US fleet fuel economy than any of the Big 3. Shouldn’t we be the leader? Why is Hyundai the first automaker to state they will average 50 mpg by 2025 with or without government regulations? Why is it so hard for US automakers to create a marketing campaign – backed by adequate supply – that focuses on ending US dependence upon foreign oil because its the American thing to do? Have corporations lost all nationalistic relevance?
In my opinion the US auto industry is still just too complacent. That’s certainly not the fault of just US automakers, but also US auto consumers. To a large extent GM makes what GM customers want, and unless regulations force them to do otherwise, change is rare.
Yet, the next gas spike could be just as unpredictable as it was in 2008 (although myself and others were predicting big spikes in gas prices well before the actual run-up). It might be months from happening after Iran cuts of the Straights of Hormuz, for example, after an Israeli missile attack on their nuclear program. That’s the new world in which we live, and we better start accepting that massive change is inevitable, and probably will be required much faster than will be mandated by government regulations.
The potential of the world’s energy demands to change drastically, almost over night is becoming increasingly dangerous. The US auto industry needs to be moving forward at warp speed. Only competition, not protectionism, can create that kind of dynamic, innovative environment.
As GM moves closer to their stock offering date in late August, watch for increased negative news about Toyota. No quicker way to get your money back than to sideline your competition.
So It’s OK if Japan, Korea, China use protectionism for their products, almost eliminating US imports, But if America tries to keep “Fair” trade laws, we’re called protectionists/isolationists There is nothing Fair about these laws, so we should get out of NAFTA, CAFTA etc
And I’d just like to add to the record that I do believe that US automakers can fully compete and succeed, but it won’t be easy.
Likewise, I think the government owes some serious props to Alan Mulally and Ford. Ford’s ability to avoid bankruptcy, I believe, gave Americans a lot of hope.
Had Ford been in the same boat as GM and Chrysler, Americans wouldn’t have just been against a government-controlled bankruptcy, they would have made sure it didn’t happen without a lot more blood in the streets.
Certainly, Ford still has a tough job ahead, but when I think of American leadership, Mr. Mullaly definitely sits atop my list.
Dach – Great article. Well done, sir.
You’re hitting it on the head that politics has become THE game in Detroit, since GM and Chrysler can’t make shit that doesn’t burn 5 pounds of gas an hour, or some such.
Ford saw that writing on the wall years ago. They began investing in altfuel vehicle research and tech because (I’m assuming) Mullaly has actually been following the Cheap Oil forcasts and sees that altfuels won’t be an alternative but a necessity. So, he’s taking the position of a businessman, not a tree-hugger. Nothing wrong with that since the end result’s gonna be the same. That’s why Ford’s market share has increased over what the other two fumble-butts have been slogging out.
But while I was reading the article, I remembered (barely) when the Volkswagen Beetle was introduced back in the late ’60’s and early ’70’s. When its sales started to peak, I recall hearing the Big 3 comparing VW to the Nazis. They saw their sales shares slipping and starting back-handing the Bug with little comments like, “Oh, sure, the Volkswagen is from Germany. It was made for the Nazis, y’know.”
A little flippant, but not as insidious as we get nowadays with these protectionist tactics that those syphillic Michigan white trash have been spewing out.
Oh, well, my two cents…
I agree. People have started to doubt government and even other institutions… unions, scientists, corporations, BP, Coast Guard, MMS, EPA, etc….
My first thought when reading Drachs commentary was ..oh god..not yet another conspiracy theory…
it is what it is… people have lost faith and no longer trust.
Now this is what I call an excellent conclusion. Straight forward and to the point.
“…the Department of Transportation, NHTSA, the White House and Big 3 automakers are getting so cozy that companies like Toyota are publicly slandered…without legitimate and verifiable cause…”
I believe this is just one of the many reasons why so many Americans have become disenchanted with their government. People either know; understand or feel it in their gut something is not right in our country.
Will we survive this madness?
Tom G.
Tom-
I thought the conclusion was that if the Department of Transportation, NHTSA, the White House and Big 3 automakers are getting so cozy that companies like Toyota are publicly slandered by the likes of Ray LaHood without legitimate and verifiable cause, then the government is getting too involved and becoming too protectionist at a point in time when we should be embracing competition.
For instance, let’s imagine that a great earthquake destroyed Japan and Honda, Nissan and Toyota never existed.
The US auto industry would be far different today. For decades the US auto industry produced crap, it was only competition that ultimately forced them to improve. Likewise, if not for the success of Japanese small cars, the US fleet would still be far different. Likewise, if not for the success of the Prius, there wouldn’t be any American hybrids. There wouldn’t be the Volt, Cruze, or Fiesta. There wouldn’t be Ford’s EcoBoost. There wouldn’t be cylinder deactivation or start/stop.
Ultimately, consumers would have less choice and crappier, less safe choices if not for the competition created by the Japanese automakers. We need that kind of competition heading forward because I believe the world’s auto industry is going to become far more competitive than ever.
When the tax credits for plug-ins were developed, there were many that claimed that the credits were written to favor a vehicle like the Volt at the expense of a vehicle like a plug-in Prius. However, almost every single study done on plug-in cost-effectiveness suggests that a vehicle similar to a plug-in Prius offers the best case scenario of achieving mass plug-in adoption.
So, are we seeking the most efficient, quickest path to change? Or is the government trying to control change, even if not efficient, because it protects their self-interests? Eventually, despite government intervention, it will be cost-effectiveness that wins, especially when places like China begin to see far more yearly car sales than the US.
Moreover, as I’ve stated before technology is advancing exponentially across numerous technologies that can affect almost every element of the automobile. To think even for one second that we can predict the future of the auto industry based on these evolving technologies mated with the growing importance of world markets is utterly insane in my opinion. There will be numerous breakthroughs that simply won’t be foreseeable, yet that will offer entirely new business models for transportation.
Competition ensures the best possibility that the most efficient options win. Today, it seems like the government is more focused on protectionism, which makes some sense since they own much of the US industry, as well being the banker behind many billions in low interest loans. Nevertheless, that should never justify the kinds of comments that Ray LaHood has made, nor the support he has received from the White House, nor the actions of Congress.
Ultimately, the best of the best will be required from the Big 3 heading into the future. Stymieing competition via politically-biased protectionism, on the other hand, will just lead to the same complacency that got US automakers into trouble in the first place.
Now, I couldn’t make my conclusion that black and white because I haven’t spoken with Mr. Persons. Others might eventually counter his statements. Likewise, perhaps LaHood jumped the gun and was not at all politically motivated. Nonetheless, as the pieces of this story come together, it does seem as if protectionism is being used to stymie competition. If that ends up being the case, we better stop it as soon as possible. You can try to limit competition, but in the end it always means that you’re just less competitive, and in our ever-increasingly connected world, competition is inevitable.
This is a very well written article. Lots of information supporting the conclusion that – wait a minute; what was the conclusion? I have seen this so many times; wonderful skillful writers who make an overwhelming case but never state a conclusion.
Do you think it is intentional?
Do you believe it is so obvious it doesn’t need to be stated?
Is it because the author is fearful they could be proven wrong?
Is it because everyone but me knows what the conclusion?
Or is the conclusion stated and I just read it too quickly?
Just wondering.
Great post! It’s what most of us have felt for months…