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Competitive Challenges: Does Detroit Matter? (Yes.)

The domestic OEMs may have caused some of their problems, but shouldn’t the rest of the country care?

Charles Gibson, anchorman for ABC News’ “World News Tonight” (http://abcnews.go.com/WNT), asked during a special “town hall” meeting in Detroit on the auto industry: “Do we need an American auto industry and does it need to be in Michigan?” For someone who has spent 20 years as an automotive industry analyst, that question knocked me off my couch. Ironically, the next day an out-of-state reporter asked me, “What is it about the Detroit executives and unions working in the auto industry? Do they not understand what they need to do to be competitive?” These questions are troubling and make it clear that people who are outside the automotive industry and not living in Michigan are really insulated from the troubles we face and don’t truly understand the significance the auto industry has on the national economy.

Just prior to the national election in November, 2006, I spent time with a current U.S. congressmen, and he indicated that many of his peers in Washington don’t see the troubles in automotive because they come from Tennessee, Alabama, Georgia, Texas, and other states where the industry is booming with new plants from foreign competitors. Additionally, he indicated many people in Washington see the economy thriving in most states, so there is not a big focus on those select few that are suffering, like Michigan. For people with jobs in the auto industry and children hoping for futures in Michigan, these comments were difficult to swallow. I’m not an economist with a series of statistics to share, but frankly it doesn’t take a Nobel Prize to understand how critical the loss of the American auto industry would be to this nation.

It’s true there are issues like health care, currency manipulation, tort reform, education, and trade policies that must be addressed by our federal government for domestic companies to compete long term. The playing field must be leveled for companies to succeed. And honestly, we are tired of hearing government officials say we must work on these issues, yet there continues to be no movement. In other countries, the auto industry and government work hand-in-hand to grow business, while the U.S. government has turned its back on domestic auto companies.

The domestic companies continue to struggle with decisions made years ago that have led to over-capacity costs, labor issues, higher product-development costs, lack of commonization of global components, supplier relationship issues, and many others that drive an over $2,400 per vehicle cost differential to the best Japanese competitors. When the trade barriers were lifted by the U.S. government and foreign competition began importing and building vehicles here, the domestic automakers were caught off guard. The arrogance in the industry led to denial and resistance to change. But the new American consumers found these foreign vehicles were often higher quality and they began to modify their preferences. Studies reported that these vehicles were made with the best technology and with fewer resources. Other countries had a culture of efficiency by necessity, so the bar was raised. The domestic automakers reacted, but not quickly enough. OEMs and suppliers cut costs considerably, but there is more to be done. A focus on common vehicle architectures, which enables commonization of components globally, significantly improves competitiveness. Collaboration with suppliers to improve quality and efficiency, along with union partnership, will change the face of the industry. But most importantly is the speed at which companies execute and how much effort they put into changing consumer perceptions. The domestics have great products today and they are doing great things, but many consumers are unaware.

Each OEM and supplier must evaluate their total business and aggressively execute the things they can control. Pointing fingers will never get the industry back on its feet but working together will. And it wouldn’t hurt if the government decided to lend a hand to help. 

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