My friends Conor and Kara recently bought a new car. They told me about it at Daniela's birthday BBQ (the pictures are up on Flickr and I posted about it here). A year ago, before I opened a TD Ameritrade brokerage account, it wouldn't have mattered to me which car they bought. A car was a car and I didn't plan on buying one any time soon. But as an investor, now I'm very interested in how the American car companies are doing. Should I buy some shares of Ford or GM (after it emerges from bankruptcy) and hold them for the long run? Beyond my investments, should I care if GM makes it or not? Wouldn't we be better off if Toyota made all of our cars and they got 38 miles per gallon, like Tom Friedman wants? To make a long introduction short: Conor and Kara bought a Honda. But as everyone knows, that's GM's damn fault.Published earlier this year, Bill Holstein's book about GM and the auto industry is timely. It was finished around the time that the CEOs of the Big Three went to Washington on private planes to ask for a bailout. I was hoping for a book that was 50% GM biography and 50% argument for a domestic auto industry. The book he wrote is 95% biography and 5% argument for an American industry. He didn't put a lot of thought into the argument part of the book either. Why should we keep GM around? Because the auto companies have done a lot of great things for our country (see the Ford and Alfred P. Sloan Foundations), GM's factories helped us win World War II, there are a ton of jobs at stake, and we as a nation benefit from the skills we develop in running an auto industry. That's all Bill Holstein mentioned, to be the best of my memory. SO weak.
This book is an argument in favor of GM. So why would Mr. Holstein cite the Ford Foundation as a charitable organization? And if the only charitable organization coming out of GM in the past 100 years is the Alfred P. Sloan foundation, I'd say GM is doing the bare minimum to get by. Plus, it's the Sloan foundation, not the GM foundation. Alfred Sloan could have made his money elsewhere and still been as charitable as he was. Plus, it seems that Mr. Holstein is forgetting that we have more than one auto company. He made it sound like the failure of GM means the failure of our whole auto industry. Things would get pretty bad for the industry if GM failed, but in 50 years, who's to say Ford, Chrysler, Tesla Motors and a host of new auto companies wouldn't fill the void? Creative destruction. That concept is absent from this book. Lastly, how do we compare all of the benefits from running GM against the pollution generated by its inefficiency? Is the Alfred P. Sloan foundation and all the rest of it more valuable than an extra 10 miles per gallon on every car? When we have 500 million refugees in Asia in the next 50 years thanks to rising sea levels and a lack of potable water, are we going to be talking about how great the Sloan Foundation was, or how it was a shame we didn't pollute less in the past 200 years?
All of that aside, GM has been doing a great job catching up to its foreign competition, despite what you hear in the media. Toyota brought its first car, the "Toyopet," into the US in 1967 (pictured here). It was laughed right back to Japan. They tried again in 1969 and in just two years had dramatically improved upon their shortcomings. By the 1980s, Toyota had caught right up to Detroit in terms of quality. What spelled trouble for Detroit was what GM discovered when it created a co-venture with Toyota, called the NUMMI, in 1984. That was GM's first look at how Toyota produced its cars. It was also Toyota's first factory in the US. What GM discovered was that Toyota could make a comparable car to what GM was producing in half the time. Since that moment, GM, Ford, and Chrysler have been playing catch up.GM has, as of the book's publication, cut its deficit to 5%. Now GM charges (I can't remember the exact figure) an extra $400 per car due to its inefficiencies vis-a-vis Toyota. That 5% figure however, is what you get by comparing GM's American factories to Toyota's American factories. Apparently, the factories that Toyota runs in Japan are far, far more efficient (thanks to all the robots?). But GM has some tricks up its sleeve. Most people who work at GM think they have a design edge. American cars, when designed right, are better than Toyota's.
That comes from our automotive culture, among other things. The 2010 Camaro (pictured here) was described by its designer, Sang Yup Lee, as "a fist in the wind." I don't know about that, but it does look bad-ass. GM has 11 design centers in 8 countries (including Russelsheim, Germany; Warren, Michigan; Bupyung, South Korea; etc.,) and has them compete against each other to come up with the best models. GM considers this an advantage (Toyota, I just found out, does the same thing). GM considers its diversity (while still overwhelmingly 50-something white guys) an advantage. Toyota's upper-level executives are all Japanese. They had an American head up their US operations (he was even the first non-Japanese to sit on Toyota's board) but he left when he felt there was a glass ceiling for non-Japanese there. Lastly, GM has found strength in recent innovation. Everyone knows about the Volt (the first all-electric production car), but OnStar is just as important. Ummmm... there was a lot in the book that I'm leaving out. I guess I'll wrap it up anyway. This is longer than I had envisioned. Hope it gets the traffic that my World War IV post still gets.