"When you play the game of thrones [chromes], you win, or you die [go bankrupt]. There is no middle ground." – Cersei Lannister
An intense quote from an intense show, obviously slightly adapted by our team. However, in a commercial sense, it captures the intense competition necessary to succeed in profitably selling automobiles. You can engineer a great vehicle and produce it by the tens or hundreds of thousands, but you also must also ensure consumers will buy it. Your competitors can quickly get the drop on you by understanding any of these three steps better than you. The rewards are high but often fleeting in the auto industry. One day you’re on top; the next day, you’re majority owned by Uncle Sam or the United Autoworkers (UAW). The auto industry is capital intensive, high-risk and subject to the fickle whims of both consumers and congressional committees. The barriers to entry are sky-high, and while we’ve called the airlines in this column as subject to “bankruptcy dodgeball,” in the auto industry it’s more like “solvency hunger games.” As you can see above, only two American companies have avoided this fate.
There’s always finger-pointing and Monday morning quarterbacking about reasons for spectacular failures and successes, but we believe that competent and forward-looking management with a capacity for execution over promises is what is truly key. While Detroit blamed its decline in the 70s and 80s on the United Autoworkers, the reality is that the Japanese devised superior methods of production (Lean Six Sigma) that rendered how much a plant worker got per hour a moot point. It would be like the legacies saying today that Tesla is ahead of them because of outstanding pensions; clearly, this is not the case. Not even Lee Iacocca’s immensely successful minivan could turn the tide. Also, Ford and GM's efforts to expand international production into more accommodative labor markets were essentially an unmitigated disaster that left the stocks in no man's land for the millennium's first decade.
The companies are still paying for the deals and acquisitions for deals and acquisitions' sake pioneered by Jack Welch and imitated by Detroit C-Suites. It didn’t work for Detroit, and it didn’t work for GE, either. We believe Welch’s corporate Frankenstein has to be taken out back and shot. A new scion of the industry proved that short-termism and pleasing Wall Street analysts could be thrown out for focusing on engineering and production over all else. He proved that short-termism is inferior to a solid plan and deliberate investment for the product rather than what the sell-side thought was best short-term. Tesla was initially hated by the Street and is now one of the world’s largest companies. Detroit follows their lead now, not the other way around. The market has spoken clearly about future prospects.
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