The Biggest Threat To The US Auto Industry From GM’s Recalls – Forbes

Posted: Tuesday, March 18, 2014

On Tuesday, General Motors General Motors named a 40-year company veteran, Jeff Boyer, to a new position as vice president of global vehicle safety. He joined the automaker in 1974, when GM’s leadership of the automobile industry, both in the United States and around the world, was unrivaled.

But during Boyer’s four decades at the car company, GM saw its market share take a steady slide. The automaker lost its position as the world’s biggest automaker and it wound up in a government-sponsored Chapter 11 filing, which cost American taxpayers $50 million.

While people in Detroit might debate the reasons for the GM bankruptcy, one clear reason for GM’s decline is the quality of the vehicles it built over the past four decades. The carmaker has worked tirelessly in recent times to rebuild its reputation, only to see the current recall crisis call that reputation into question once more.

The situation in which GM finds itself poses a threat not only to its own reputation, but to that of the American automobile industry as well. None of Detroit’s carmakers can afford to see GM’s recall
problems go on much longer, because their fight for stability has been too hard fought.

When cars and trucks are in the news because of defects and driver deaths, it brings back all those old memories of shoddily built vehicles. Those memories, not just lawsuits and Congressional investigations, are what GM has to work hardest to overcome.

As I was writing my 2003 book The End of Detroit: How The Big Three Lost Their Grip On The American Car Market, I was struck by how many consumers held the car companies to task for the vehicles they had owned five, 10 and 20 years ago. Despite all the improvements Detroit carmakers said they had made up until that point, car buyers were reluctant to forgive them, and little wonder.

Automobiles are the largest purchase most people make, next to a house. When something that costs tens of thousands of dollars runs into problems, you tend to remember. The problems of the late 20th century and the past decade prompted many consumers to divide the industry into two pieces: Detroit, and everyone else.

Back when The End of Detroit came out, however, people inside GM were still talking about the possibility that the company would return to 30 percent of the American car market. Collectively, the three Detroit companies held 61.7 percent of the automobile market a decade ago. While that was far less than their dominant position in the 1960s and 1970s, it was still a clear majority.

Ten years later, GM’s market share for 2013 stood at 17.9 percent, followed by Ford at 15.9 percent and Chrysler at 11.3 percent, for a total of about 45 percent for the three Detroit companies. Despite the recoveries of GM and Chrysler after their 2009 bankruptcies, and despite all the efforts made at Ford to improve its operations, the Detroit automakers gained only half of a point of market share in 2013, facing a stiff battle from foreign based companies, many of which build cars in the United States.

Foreign competitors as well as Tesla Motors Tesla Motors are not the only ones that GM and its Detroit counterparts have to worry about. These days, consumers have more reasons than ever to put off buying new vehicles. Some think new cars, which cost about $33,000, are too expensive. Others are delaying purchases because of credit ratings that weakened during the recession; some because they are just beginning to catch up after five years of difficult economic times.

English: Renaissance Center, GM World Headquar...

GM World Headquarters, Detroit, Michigan. (Photo credit: Wikipedia)

Still more people have alternatives to buying vehicles. Aging boomers and especially millennials are a reason why public transit demand is its strongest since 1956. New transportation systems are being built across the United States, with funding from the same Obama administration that paid for the auto industry bailouts.

Rather than purchase a new car, a family can use a Zipcar Zipcar when needed. Urbanites can phone Uber or Lyft. People in 50 cities and on 30 college campuses can take advantage of bike sharing programs. There has been a revived interest in being able to walk to work (except perhaps, this winter east of the Mississippi). And, at least 20 million Americans don’t have to go to an office, because they have the option of working remotely during the week.

(These are all issues that I’ve explored in my crowd-funded journalism project, Curbing Cars, which is the subject of a soon-to-be-published eBook.)

So, for GM, the challenge of overcoming the recalls is even greater than it might have been a decade or two ago. Boyer and GM’s new chief executive, Mary Barra, have their work cut out for them, not only in making the flood of defects stop, but in keeping old memories from coming to the surface. If they can’t, it won’t only be GM that will suffer. It will be Detroit.



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