What's Good for General Motors . .

July 31, 1994

The big three U.S. automakers are making much more than record profits these days. In one of the most remarkable turnarounds in the annals of heavy industry, the lords of Detroit have recreated themselves as the manufacturing force they had been for half a century but seemed fated never to be again. The record quarterly earnings General Motors, Ford and Chrysler reported, welcome to management and stockholders, are even better news for the U.S. economy.

Just 15 years ago, Chrysler was begging for a federal handout to survive and GM was a doddering behemoth tripping over its own limbs. Japanese manufacturers were gobbling up 25 percent of the U.S. market. Plants were closing, workers laid off, management in despair. Today, the Japanese share has slipped, its manufacturers are hastily shifting more production base from the homeland to this country and Toyota officials are visiting Detroit in search of production innovations.

Detroit has risen to the top again by beating the Japanese at their own game. After smugly piling price increase on top of wage increase and designing cars by committee instead of consumer demands, U.S. automakers adopted Japanese techniques of quality control and listening to workers and customers. They abandoned assembly lines manned by human robots and injected some participatory democracy onto the factory floor. Teamwork and flexibility were the order of the day, plus old-fashioned reliance on individual ingenuity, rather than human or mechanical robots.

True, Detroit had some fortuitous help. In the 1970s, when Japan was riding high, its cheap currency helped keep export prices low. Now the dollar is the weakling, and Japanese prices have jumped. Some Japanese cars sell here for thousands of dollars more than their competition. And the recent U.S. recession discouraged a lot of consumers from buying new cars. Now consumer confidence is higher, with pent-up demand unleashed.

The real story is the dramatic restructuring of the U.S. auto industry. Some of it was convulsive (not yet over, especially for GM). None of the big three is satisfied with the performance of its U.S. operations. Still, the impact on the economy is enormous. The auto industry remains the nation's largest, and its revival is a welcome tonic.

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