Sunset for Detroit?

A smaller, more humble Detroit might just be the best thing for the U.S. auto industry.

It won’t be much longer now. We’ve known for some time that the Big Three’s reign would one day come to an end. Refusing to learn from their mistakes, General Motors Corp., Chrysler and Ford Motor Co. continued to churn out gas-guzzling clunkers that consumers just didn’t want. The first of the Big Three to fall was Chrysler, absorbed in a laughable “merger of equals” with Daimler-Benz in 1998. That left the Big Two: Ford and GM.

Despite a legacy dating back to the “inventor” of the automobile, Ford is practically melting away. Its “Way Forward” campaign aims to reduce its work force by 30,000 employees and shutter 14 manufacturing plants. Chairman Bill Ford’s actions have made it clear that the family’s goal is to preserve its wealth over preserving the company.

That leaves GM, currently the world’s largest automaker. Like Ford, GM has been hemorrhaging jobs, market share, plants and cash. GM recently refused to consider a proposed global alliance with Carlos Ghosn’s Renault-Nissan, preferring to go it alone.

The Big Three’s losses have been the Japanese and Korean automakers’ gains. Toyota will soon replace GM as the world’s No. 1 automaker. But, as GM and Ford (and DaimlerChrysler, too) discovered, bigger doesn’t necessarily mean better. Toyota’s ascendancy to the No. 1 spot may be exactly what Detroit needs to revitalize: By being smaller, more nimble and more driven (pardon the pun), U.S. automakers may be able to compete more effectively against their larger Japanese rivals.

Already Toyota is worried about being too big and too slow to react to the market. A recent Wall Street Journal article discusses Toyota CEO Katsuaki Watanabe’s fears. Forget kaizen, the relentless focus on incremental improvement. According to The Wall Street Journal, Watanabe wants kakushin—revolutionary change in how Toyota designs cars and factories. “His ultimate aim: Cut at least a trillion yen ($8.68 billion) in vehicle costs in the next three to four years—the equivalent of about $1,000 a vehicle—and keep slashing costs at similar rates thereafter,” says Norihiko Shirouzu, writing in the Dec. 9, 2006, issue of the Wall Street Journal. “That is on top of one trillion yen Toyota squeezed out of its parts purchasing from 2000 through 2004, an effort led by Mr. Watanabe in an earlier role.” Does this sound like a man content to let Toyota rest on its laurels?

GM and Ford have seen disastrous results in product design and innovation from their narrow focus on cost cutting. Let’s hope that Toyota doesn’t forget about the customer in its drive to slash costs.

So far Toyota’s growth in market share has been matched by growth in profitability. But remember how profitable Ford and GM were in the 1980s and 1990s? Toyota has also seen an increase in the number of vehicle recalls and quality problems. Some chinks in Toyota’s armor are beginning to appear. “In the U.S., the number of Toyota recalls hit 2.38 million vehicles last year, more than the 2.26 million vehicles the automaker sold the same year,” writes Shirouzu in the Dec. 11, 2006, issue of the Wall Street Journal.

Back in the days when quality was supposedly “job one” at Ford, lean and mean Toyota and Honda pecked away at the Big Three’s market share by focusing their resources on building exactly what the consumer wanted and relentlessly improving existing models. Honda introduced the Civic in 1972, and has refined and improved it ever since. U.S. automakers can’t stand to keep a model in production for more than a few years before killing it off in favor of something new. Remember the Taurus? Once America’s best-selling car, it slipped quietly away and recently ceased production.

The new leaner and meaner Detroit might have a chance to beat the Japanese, Koreans and, quite probably, the Chinese at their own game. If they can use their smaller work force, flattened bureaucracy, and (hopefully) a newfound humbleness to regain a focus on improving quality and giving consumers what they want, they can compete. If not, don’t be surprised if one day you’re checking out a new Toyota Mustang or Hyundai Corvette. Think it can’t happen? Not many people thought they would be driving a Daimler-made Chrysler, a Ford-made Volvo or a GM-made Saab.

There is hope for Detroit. As Shirouzu wrote in his Dec. 9, Wall Street Journal article, “Toyota is finding that there are limits to its efficiency drive, with each incremental improvement increasingly hard to win. In 1998, it took the Japanese company 21.6 hours to assemble one car in North America, more than 10 hours faster than GM. By last year, Toyota had improved only marginally, to 21.3, while GM had almost caught up.” It’s easy to see why Toyota’s Watanabe is worried.

What are your thoughts on the future of U.S. auto manufacturing? Will Ford and GM remain independent? Should they? Can they successfully compete against Japan, Korea, China and the Europeans?