Analysis of Auto Industry Crisis (2008)

Christmas eve in Detroit may look different this year. Probably fewer lights will shine in the jolly night. Probably fewer plates will be served at the dinner tables. Probably Santa Claus will not bring as many presents. This Christmas eve in Detroit will very likely not be jolly enough to help anyone forget the threatening circumstances. Even when the entire country faces a dark economic crisis, the situation is darker in Detroit where hundreds of thousands families’ incomes are dependant on three monster car companies on the brink of bankruptcy.

The Big Three is the name that has been assigned to the greatest American automakers: General Motors, Chrysler Corporation and Ford Motors. These companies, each with their own style, created icons of the American culture: All-American Muscles. These companies also employ 293,00 of the best-paid workers in the industry. With their geography, their size, their appeal, their prices, nothing seemed to indicate that anything could go wrong. But everything did. Currently the Big Three are on the verge of losing (if they have not lost already) their titles of the greatest American automakers, while asking the government for a thirty-four billion dollar bailout to keep them from declaring bankruptcy.

When it was time to point out fingers in search of blame, many different reasons arose. For one, there were the ridiculously high oil prices. When suddenly filling up a car’s tank of gasoline was worth from eighty to one hundred and twenty dollars every two weeks, everyone who owned a car that consumed twenty-five miles per gallon of gasoline was alarmed. They had to either sell their car and buy one that was cheaper and more gas-efficient or keep their car and not even think about buying a new one. Secondly, there was the building mortgage and credit crisis that threw the entire American nation into a state of recession. It was a chain reaction that started from the excessive purchase of unattainable real estate ended in the foreclosure of various important American banks and the necessity for a bailout of others. Furthermore it sunk stock prices and the foreign value of the dollar. The result was American citizens whose money was not worth as much as before, stockholders whose stocks were not worth practically anything at all, while prices still remained sky high. During a countrywide recession new cars were no longer a practical commodity but an unaffordable luxury.

Yet, for this specific situation, blaming is not particularly an easy task. According to Cahn and Abigail in their book “ Managing Conflict through Communication”, there are cognitive biases in the way people attribute fault. The attribution theory states that people act in conflict because of the assumptions they draw about others; yet, interestingly enough, these assumptions are drawn inversely than the explanations of our own actions. When the other does something wrong, we attribute it to his internal qualities. Yet, when the other does something right, we attribute it to external circumstances such as luck. Inversely, when we do something wrong we attribute it to external circumstances, while when we succeed we attribute it to our own meritorious qualities. When the time came to explain the reasons for their bleeding bank account, the Big Three looked at the outside circumstances to explain their failure. Yet, that could have most likely been product of the biases in the attribution theory and perhaps, it is necessary to look inside, and explore the faulty internal qualities of each of the Big Three companies in order to truly recognize the source of the automobile industry crisis of 2008.

A company is like a living organism. It is a structure composed of individual units that work together in order to function as a whole. Like an organism, a company too has a life cycle. In the book “Organizational Communication”, Katherine Miller asserts that the “natural life cycle of a [company] might include a start-up phase in which the company develops…a growth phase in which client relationships are developed and the size of the company grows, a steady harvest phase in which the company serves existing clients, and a decay stage in which…the services become less relevant to the marketplace” (Miller 180). To steer away from the phase of decay, a company can struggle and succeed by changing. Planned change allows the company to reinvent itself adapting to the current market’s needs and wants. Planned change is the result of vision, connoisseurship of the market, and great leading skills. Judging the Big Three’s organizational cycle, it would be accurate to say that they are facing the somber threat of decay. And even when some drastic changes occurred, none of them were planned. When a company faces unplanned change, they are by definition considered to be in a crisis. Yet, this is usually so, when a natural disaster occurs or when an important figure of the company is confronted with a scandal. But the Big Three are not in crisis due to unplanned change, but the lack of change, and more importantly the resistance to change.

“Close your eyes and picture yards of buttery pastel leather, yawning chrome grilles, ferocious V-8s, rare-wood exterior panels. Mmmmm. Now imagine vehicles with names like Thunderbird, Charger, Impala, S-Type. Although it all sounds like an early 1960s flashback, these were highlights of January's 1999 Detroit auto show” (Zesiger 1999). The latter are the opening lines of the magazine Fortune’s millennium top ten vehicles for the millennium prediction report. The styles and the names surely evoke grandness that once upon a time had its place, yet at the start of the new millennium they evoked images dusty memories that should be either at old sepia photographs or a at an antique shop. Neither of the Big Three were working with any sense of innovation, they were merely renovating structures that had once been popular.

If one should not judge a book by its cover, probably a car should not be judged by its bodywork. Regardless of the outdated Grease Lighning-esque appearance of the American cars, their efficiency was not groundbreaking either. On the list of 2009’s Most Fuel Efficient Cars, products from the Big Three are nowhere to be found. While Asian and European cars’ miles per gallon range from forty to fifty, American cars are way behind with a capacity of twenty-five miles per gallon. These low mpg standards are problematic on two levels. First, in sight of soaring oil prices, American cars were not able to adapt to the market. Regardless of the situation, a businessman’s strategy is to understand a market and sell accordingly. Even if the high oil prices are of course a problem, the actual problem was the fact that the Big Three could not adapt to the changing market. Secondly, in sight of global warming it is not a matter of adapting to the market to produce profit, but of responding to global needs to protect the environment. Even not responding eco-friendly is a way of resisting to adapt to the market for we are facing such a serious global crisis that everyone is turning “green” and looking down on those who do not.

Even when a company has suffered from visionary or adaptation problems, not all is lost. A good leader should be able to understand the situation and effectively communicate with the other members of the company to change at a time where change is necessary. Neither Rick Wagoner, Allan Mullaly, or Robert Nardelli knew how to handle their near-bankruptcy situations. Instead of devising plans to save the companies that each of them run, they all turned to the government in look for a financial Deus Ex Machina: a thirty-four billion dollar bailout. When referring to how leaders should communicate, Miller suggests that: “perhaps more important than what is said, is how it is said” (Miller 191). Worse than the fact that the Big Three CEOs were asking for a bailout, was the fact that they all flew to Washington D.C in GM’s 36 million luxury aircraft to make their case to Congress. This reckless act did not precisely communicate to anyone the despair of near-bankruptcy that needed thirty-four billion of the taxpayer’s dollars in order to save their companies.

Despite of the reasons that the Big Three have come up with to attribute their failures to, none of them stand a chance. If this auto industry crisis were in fact product of circumstances, every car company in the United States would be in the need of a bailout and that is not the case. With a third of the size, a third of the paying salaries, and twice as much vision companies like Toyota or Honda are not feeling the auto industry crisis. These Asian companies were very much underestimated when they first settled in United States, but it was their understanding of what the market was asking for that led them to produce cheap, efficient, hubrids that hold long waitlists of anxious buyers. The auto industry crisis is in fact an American car crisis. The Big Three were not as big as they thought they were, and their poor managerial skills and resistance to change led them to the position they are right now.

There are three stages in which a company that faces unplanned change might be: precrisis, crisis, and postcrisis. During precrisis, the company should anticipate what is about to come in order to prepare for it. Because this crisis was something that the Big Three brought on themselves, they did not precisely have an understanding of their situation to prepare for anything. During crisis, the organization “tries to make sense of what is happening” in order to act accordingly. Finally, during postcrisis, the company focuses on ways to deal with the crisis and determine ways to prevent it from occurring once more. The Big Three are now stationed in a limbo in between crisis and postcrisis. They have reported their failures in order to make sense of their situation and are pushing for the bailout in order to repair the damage that has been done. Yet, we must ask ourselves. Is a bailout necessary to implement change within the companies?

“Bailout” is a fancy term to signify that a certain amount of the taxpayer’s money is granted to big companies to save them from bankruptcy. There have been heated debates on whether the government should grant the bailout or not. Lack of deep knowledge in economics I do not have a set opinion on whether the bailout should be granted to the Big Three or not. Yet, the words of the Republican senator who refused last week to vote left me thinking. He argued that a bailout should not be granted to the Big Three because that would actually produce change. With the bailout, they could carry on with their faulty management at least for some amount of time. If the Big Three were to file Chapter Eleven for companies on bankruptcy, without enough money to spend they would have to regulate their budget and use it wisely because it would be all they have. If they file Chapter Eleven, that actual state of bankruptcy would probably create an impact strong enough that they would learn a thing or two about change, and organizational management in order to avoid this from occurring in the future. It would seem that continuing in this course would be lack of change, but it is precisely this course that would lead to changes in attitude, understanding of the world, and vision. Without granting the bailout, the thing to worry about is how the mistakes of three big men will have affected the lives of thousands of employees and their families. This Christmas eve will be very different in Detroit, and we should hope it is the last one like this.

References

Abigail , Ruth and Dudley Cahn. “Managing Conflict Through Communication”. Pearson Education. New York. 2007.
Cloud, John. “Why the SUV is all the Rage”. February 24th, 2003.
Dash, Eric. “Auto Industry feels the Pain of Tight Credit”. May 27, 2008.
Isidore, Chris. “The Big Three Depression Risk”. November 26, 2008.
Miller, Katherine. “Organizational Communication”. Wadsworth. Boston. 2006.
Newman, Rick. “Lifeline for GM, Ford, and Chrysler”. December 3rd, 2008.
Ross, Brian. “Big Three Fly Private Jets to Plead Public Funds”. November 2008.
Sachs, Jeffrey. “A bridge for the Carmakers”. November 18, 2008.
Zesiger,Sue. “Hot-wheels Nostalgia”. Fortune Magazine. February 15, 1999.