An interesting opinion into why the US car industry is bust

[Tote]

Just goes to show how big corporations make bad decisions by not listening to what their customers want.

By MICHAEL MASSING
1,199 words
28 March 2006
Financial Times
London Ed1
Page 19
English
(c) 2006 The Financial Times Limited. All rights reserved

The main causes of the US motor industry's current woes by now have been well established: soaring pension costs, crushing healthcare obligations, ossified management, uninspired car designs, clumsy marketing practices. Yet, amid all the analysis, one important factor has been overlooked: the industry's own lobbying efforts. For more than 15 years, US carmakers have strenuously and successfully opposed efforts in Congress to raise fuel-efficiency standards. Thus freed, General Motors and Ford have directed their energy and talent into selling highly profitable - and highly inefficient - sports utility vehicles and light trucks. Now, with petrol prices soaring, these companies are falling further behind their Japanese competitors. It is a case study in how an industry's lobbying efforts can undermine its own long-term interests.

The industry's lobbying apparatus is formidable. The Washington-based Alliance of Automobile Manufacturers, representing nine companies (including European and Asian ones, among them Toyota), spent Dollars 36.6m (Pounds 21m) on lobbying from 2000 to 2005, according to the Center for Responsive Politics, a nonpartisan group that tracks money in politics. In that same period, GM spent about Dollars 43m and Ford Dollars 36m on lobbying. These sums go on the usual array of tactics that corporate America uses to bend rules and regulations to its liking: sending batteries of lawyers to congressional hearings, helping congressmen mark up bills, filing lawsuits to contest unwelcome laws and forming "consumer groups" to pressure lawmakers. The motor industry is also generous at campaign time, contributing about Dollars 20m in both the 2000 and 2004 election cycles. On many issues, moreover, it can count on the support of the United Auto Workers, which, in addition to deploying its own lobbyists, can mobilise its 600,000-plus members.

On no issue has the industry pressed harder than on that of fuel economy. In 1975, Congress passed a law setting Corporate Average Fuel Economy (Cafe) standards, requiring that vehicles produced by each company in a given year meet an average fuel-efficiency standard, with one standard for cars and another for light trucks. By the late 1980s, these standards had stalled at 27.5 miles per gallon for cars and 20.7 miles for light trucks. In 1990, amid growing concerns over global warming and US reliance on imported oil, Richard Bryan, Democratic senator from Nevada, proposed a bill to raise those standards by 40 per cent over 10 years. The industry maintained that meeting that goal would mean reducing the weight of its models. It formed a "grassroots" coalition to protest against the inconvenience this would cause and pushed car dealers and motor industry workers to protest to lawmakers. In the end, the measure just missed the 60 votes needed to overcome a threatened filibuster. Had it passed, says Laura MacCleery of Public Citizen, a consumer advocacy group, "it would have saved the industry".

Liberated from concerns over fuel efficiency, Detroit concentrated on producing SUVs, which were classified as light trucks. These, of course, proved very popular while fuel remained cheap. But GM and Ford let their family-car lines stagnate, to the point that GM had to retire its venerable Oldsmobile division, whose image had become hopelessly outdated. Meanwhile, Toyota and Honda concentrated on building smaller, more fuel-efficient models and in developing hybrid technology, with its vastly superior mileage.

After the defeat of the Bryan bill in 1990, subsequent efforts in Congress to raise Cafe standards - in 1995, 2000, 2001 and 2003 - succumbed to industry opposition. Only in 2003 were those standards finally raised - by a paltry 1.5 miles per gallon for light trucks over four years. Over the past decade, as mileage standards in America have stagnated, GM's and Ford's combined US market share has tumbled from58.5 per cent to 43.4 per cent, while Toyota's and Honda's has surged from 12.7 per cent to 21.9 per cent. This reflects both the reputation of Japanese cars for quality and their superior mileage. The US has fallen so far behind Japan in hybrid technology that Ford now leases a version of it from Toyota.

During the past year, with gas prices soaring, the performance gap between US and Japanese models has grown even more salient and, while there is a three-month waiting list for Toyota's hybrid Prius, GM and Ford have had to offer huge rebates to move their lumbering Escalades and Expeditions.

Of course, given the carmakers' managerial bungling, higher mileage standards might not have saved them. But they would not have hurt. Certainly, if the companies had put the millions they spent on lobbying and litigation into improving their engines and transmissions, Detroit might now be leasing hybrid technology to others.

The motor industry is hardly alone in lobbying against its own interest. US electric utilities, represented by the Edison Electric Institute, have worked hard to defeat congressional efforts to require them to derive at least 10 per cent of their power from renewable sources, such as wind and solar, by the year 2020 (compared with just 2.5 per cent now). Three times in the past four years, the Senate has approved such a measure, only to see it killed in the House by the industry's allies. With the price of natural gas nearly tripling in the past two years, the industry would now be better placed had it been forced to develop those alternative sources.

In the late 1990s, when people began downloading songs from the internet, the major record companies, through their main trade group, the Recording Industry Association of America, pressed Congress to tighten copyright laws. They also sued thousands of individuals who traded music online. Seeing an opening, Apple developed its iTunes downloading technology and has since sold more than 1bn songs, for a current fee of 99 cents each. Meanwhile, CD sales by the RIAA's members have plunged. Had the industry sought to adapt to, rather than buy protection against, the internet, it could be leading the way technologically.

On healthcare, one has to wonder what the competitive position of US corporations would be today had the 1993 Clinton reform plan not been so vigorously opposed by such business groups as the Chamber of Commerce and the National Association of Manufacturers. Had they embraced it, perhaps companies such as GM and Ford would not be struggling with their current healthcare costs.

This all shows that it often takes years for the short-sightedness of corporate lobbying to become apparent. In the short term, the gains wrung through lobbyists and campaign contributions might seem impressive. Over time, though, lobbying, in foiling measures designed to promote the public good, can undermine the fortunes of the very industries doing the lobbying. It is yet another reason Congress should hold firm in its effort to rein in Washington's influence peddlers.

The writer, a frequent contributor to The New York Review of Books, is author of Now They Tell Us: The American Press and Iraq (New York Review Books)