The decline of the North American car

In 1955, the movie Rebel Without a Cause came out, starring James Dean and a ’49 Mercury Coupe. Elvis Presley was about to rocket to fame, and to famously buy his mother a pink Cadillac with his windfall. It was the year of the Ford Thunderbird, the ’55 Chevy and the first of the famed Virgil Exner designs at Chrysler, like the Imperial. The act creating the interstate highway system would pass the following year and well-off Americans were migrating to the suburbs. This was “the apex of the golden age of the automobile in America,” says John Heitmann, a historian at the University of Dayton.

“The auto industry and the image of the nation were bound together as one,” says Bruce Pietrykowski, a sociologist at the University of Michigan-Dearborn. “The industry was the major promoter of cultural events, such as symphonic orchestras and popular television shows.” The city of Detroit was buzzing as it built not just cars but a new wealthy American middle class. Owning a car became a “symbol of upward mobility, financially as well as socially.”

One in seven Americans were tied to the industry directly or indirectly. It wasn’t just big, it was the symbol of American industrial superiority. But even in those glory days, the first cracks in the mighty facade began to appear. When a brief but steep recession hit in 1958, car companies panicked at a sudden drop in profitability, Heitmann says. They turned control over to financiers rather than “car guys” and engineers. “Once you get the accountants and bean counters, you lose that passion for automobiles,” he says. The Japanese automakers, on the other hand, tended to reserve top jobs for engineering visionaries—establishing a corporate culture that would pay big dividends in the long run.

There were other warning signs in those early days. Detroit, for instance, “failed to understand the emergence of Volkswagen in the U.S. and the appeal of smaller cars,” says Keller, who has written two books about GM. “It started when they were incredibly rich, incredibly arrogant and incredibly entombed in their own stupidity,” she says. An insular state of mind ruled in Detroit, as pro?t trumped design and quality. By the 1970s, an industry that had always seen itself as the epitome of American know-how found itself dealing with the Ford Pinto, which tragically exploded in some cases when it was rear-ended, and the laughably ugly AMC Gremlin. Observers dubbed it Detroit’s Malaise Era.

When the oil shocks of 1973 and 1979 hit, Detroit was unprepared. It had been dragged kicking and screaming into the small-car market, but even then failed to deliver a product that really fit the times. That period very nearly spelled the end for Chrysler. In 1980 it was staring down certain bankruptcy, and was saved only by a $1.2-billion loan from the U.S. government. Its fortunes reversed when, led by Lee Iacocca, it came out with the boxy but inexpensive and fuel-efficient K-car, matching the key advantages of the latest wave of imports. Then, in 1984, it invented the minivan. Ford, similarly, would soon strike gold with the Taurus sedan, proving that America could still deliver a hot design. But these successes proved to be more reprieves than genuine turnarounds. The door was left open to foreign rivals, and they came through in waves.

Honda set up shop in Marysville, Ohio, in 1982. Not only did it make high-quality cars, it did so without the financial burden imposed by Detroit’s United Auto Workers union. Foreign manufacturers established a new auto industry south of the Ohio River where there was little UAW presence.

Detroit had established a combative and costly relationship with its blue-collar workers dating back to the late ’40s, and would soon begin paying for it. “The UAW had insatiable greed, and none of the companies could stand up to it. Doing so would bring on long strikes and great losses,” says David Lewis, a historian at the University of Michigan who worked for GM in the early 1960s. Year after year, labour raised its demands, and management would capitulate to keep the factories humming, and to protect their vaunted market share. The situation worked fine, so long as those rising costs could be passed on to customers. But with Japanese competition, that proved increasingly difficult. “The net result included higher wage, pension, health care and other costs that strapped the surviving American automakers,” says Lewis. Today, health care costs add over $1,500 to the price of each car GM makes in the U.S., or over $7 billion a year—more than the manufacturers pay for steel. By comparison, Toyota spends under US$300 per car. From 1993 to 2007, GM spent $103 billion on pensions and health care for retirees.

These stresses aside, by the mid-1990s Detroit seemed to be experiencing another renaissance. GM was expanding into foreign markets and profits were hitting record levels—it made $6.88 billion in 1995. Demand for trucks and the new sport utility segment soared. With oil worth around $20 a barrel, North American consumers clamoured for big vehicles and Detroit delivered (practically handing the compact segment over to foreign automakers who were still primarily selling gas-sipping compacts and family sedans). Critics argued this sudden success had more to do with the boom times of the ’90s than the kinds of vehicles Detroit was pumping out, like the Chevy Lumina, Buick LeSabre and Chevy Cavalier—inexpensive cars that sold well but never built the kind of loyalty that the imports enjoyed. Overall profits disguised the fact that in the middle of the decade Detroit was still plagued by UAW strikes, which cost GM an estimated $1.2 billion in 1996 alone.