Indications that the American car market is facing tough times aren’t hard to find. Consumer reports ranked Japanese models as its top choice in all 10 of its vehicle categories in its annual auto issue. For the first time ever, Toyota enjoys a record 13.3 percent of the American car market. The proliferation of plant closings recently only adds to the grim portrait.
Lyda Bigelow has a hard time feeling sorry for American carmakers. The assistant professor of organization and strategy in the Olin School of Business at Washington University in St. Louis, says American car companies brought a lot of their problems on themselves.
“American car makers are still laboring under legacy problems that the Japanese, Korean and many European manufacturers don’t have to contend with,” Bigelow says. “It’s not as if these obligations were unforeseen. It’s pretty clear that somewhere along the line Ford and GM needed to start a renegotiation process with the workers about pensions and benefits. They failed to do it; they failed even when they had something to offer because sales of SUV and large trucks were doing so well.”
Bigelow says the Big Three automakers have been closing plants and moving the work abroad to save money, but that doesn’t mean the auto industry is dying.
“These foreign cars are in demand because at the moment they have better product designs and they’re building and expanding plants in the U.S.,” Bigelow says. “Even though Ford and GM just made 60,000 jobs disappear, Hyundai, Honda and Toyota are expanding, opening new facilities in the U.S. that will bring in 60,000 new jobs – 60,000 good jobs with decent pay and benefits. If it were up to the American car industry, automobile manufacturing workers would be in big trouble.”
Dealing with the enormous benefits overhang is a significant burden for American car makers, Bigelow says, but it is only one of several critical long-standing challenges they face. In addition, they have yet to resolve the problem of designing and offering competitive product portfolios to attract consumers and improve their declining share of the U.S. market; which is obvious from the large incentives dealers offer for cars that were once hugely popular. Incentives for American SUVs, for example, are approaching $3,000 to $4,000 per vehicles.
“That’s nowhere near the kind of incentives that Japanese carmakers have to provide,” Bigelow says “They are offering vehicles with features consumers want, they are increasing market share and yet they barely have to use incentives – maybe $1,000 per vehicle.”