Automotive

Why Did the American Auto Industry Fail?

The automotive industry in the U.S. has faced multiple existential crises in the last thirty years. Each crisis illustrates the cost of missed opportunities and the power of innovation. As the archetypal industrial enterprise tries to adapt to the post-industrial knowledge economy, we must learn from the mistakes of the past and continue to innovate. In the United States, automakers are in an uphill battle against European car manufacturers and Japanese car makers.

The financial crisis weakened the American auto industry. While the Big Three companies focused on producing fuel-efficient vehicles, gasoline prices increased sharply. This led to a decline in demand for gasoline-powered cars. Fuel prices soared, discouraging the purchase of fuel-efficient vehicles. Meanwhile, the financial crisis had a significant impact on raw material prices. Finally, the Chinese government cut automotive taxes in an attempt to increase sales.

In addition to government intervention, the GM, Ford, and Chrysler companies were facing a difficult time. By 2007, the domestic auto industry was struggling and losing market share to foreign-owned competitors. The auto industry suffered a massive cash-flow hit during the recession, as a result of falling sales. But the automakers responded to the crisis by restructuring and reducing production volumes, which allowed them to compete on labor costs. In fact, the two companies now lead the American industry in job creation.

Despite these challenges, the American auto industry has the capacity to reinvent itself. It has been accused of being troubled in a similar way to the financial sector. Its CEOs were criticized for flying corporate jets to testify before Congress, but their testimony was largely irrelevant. While it was true that the executives were well on the way to transformation, the crisis that plagued the industry was already too late.

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