The Auto Business Is Overall Business

Automobiles have come a long way in two decades. The import craze of this latest bout of globalization was in the car business handed an open door by a lack of quality, or perceptions about a lack of quality. The domestic auto industry in the seventies and eighties really did not shine its brightest.

By the nineties, near constant problems became a source of early internet amusement. One urban legend passed around chat rooms had Bill Gates trashing the auto industry at a computer conference, which then triggered, supposedly, a direct response from GM CEO Jack Welch. The story really grew out of an old joke:

There’s word in business circles that the computer industry likes to measure itself against the Big Three auto-makers. The comparison goes this way: If automotive technology had kept pace with Silicon Valley, motorists could buy a V-32 engine that goes 10,000 m.p.h. or a 30-pound car that gets 1,000 miles to the gallon — either one at a sticker price of less than $50. Detroit’s response: “OK. But who would want a car that crashes twice a day?”

Both sides of it were simultaneously true; finicky computers then still in a stage of infancy and new cars that had a tendency toward recalls to fix unexpected issues. In July 1998, for one, General Motors was forced to recall almost 1 million vehicles over airbag sensitivities. Complaints to the National Highway Traffic Safety Administration alleged that in Pontiac Sunfires as well as Chevy’s Cavalier airbags would deploy under normal driving conditions.

The government’s investigation would ding not just GM, though. It would eventually involve Chryslers as well as “quality” imports like those from Subaru, Mazda, and Volvo. Needless to say, the model production changeover in July 1998 was particularly tricky. According to the Federal Reserve’s Industrial Production figures, domestic Motor Vehicle Assemblies (MVA) plummeted in that one month.

But that was only one month out of what was otherwise a very good decade for the domestic car business (including import brands who assembled cars in the US). All jokes aside, the nineties weren’t bad for automakers, foreign and domestic. Big problems in production are almost always instead of the result of macro factors – customers being unable to buy new vehicles because many no longer have jobs, or, just as bad, customers being unwilling because they fear generally negative labor market prospects.