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Panic in Detroit

- February 18, 2009

“Ezra Klein”:http://www.prospect.org/csnc/blogs/ezraklein_archive?month=02&year=2009&base_name=why_detroit_cant_fix_itself gently criticizes Susan Helper’s “arguments”:http://blogs.tnr.com/tnr/blogs/the_plank/archive/2009/02/17/the-grade-on-detroit-s-bailout-proposals-incomplete.aspx for reform of the Detroit car manufacturing industry.

bq. ” What’s missing in both proposals,” she says, “is an honest, humble appraisal of why more consumers haven’t wanted to buy their cars at a similar price point to their competitors–and a demonstration of how they intend to fix this situation. Or, to put it another way, why do Detroit Three’s cars sell for $2,000 less than comparable Japanese models? This is the key issue–not labor costs, which including the legacy costs account for less than 10 percent of the cost of a car.” I’m don’t have half Ms. Helper’s expertise, but I might gently suggest that Detroit doesn’t know how to fix this situation. Indeed, it’s probably the case that Detroit can’t fix this situation. This was true five years ago, when consumers understood that Detroit’s quality lagged Toyota’s metronome-like reliability, and it’s truer now, when Detroit’s stability threatens their very survival. Put another way, I don’t care how detailed the restructuring plan proves: I’m buying the car from the company that a) is reputed to make better cars and b) is likeliest to exist next year.

Ezra may be right that Detroit car manufacturing is stuck in an irremediable trap. But I think that there is a little more to Helper’s argument than he is suggesting here. Much of Helper’s work over the last fifteen years or so has been about trust and cooperation between auto manufacturers and their suppliers (which is why I”m familiar with it – I have a forthcoming book on trust and cooperation among engineering firms, albeit building from a different theoretical base). She (together with John MacDuffie, Mari Sako and others) has argued that Big Three manufacturers in Detroit haven’t been able to emulate Toyota’s efficiencies because they prefer to exploit their suppliers than to collaborate with them in improving quality. And even on those rare occasions where they _have_ tried to take a less hard-nosed attitude, they haven’t been able to maintain it because of external pressures. In short, they have a serious commitment problem.

This is why Helper and MacDuffie were “cautiously optimistic”:http://www.tnr.com/politics/story.html?id=8c381173-66fe-4e60-9c44-6acee7350e1c about government intervention in restructuring Detroit. They hoped that the government could do what car manufacturers and suppliers themselves could not, by knocking businesses’ heads together, and (if I read their hints correctly), serving as a kind of implicit guarantor to underpin supplier relations, force the Big Three not only to think in the long term but to live up to long term commitments, and hence introduce real collaboration. It may be (as Ezra seems to imply) that Detroit car manufacturing is in an irreversible spiral; since I’ve no specific expertise on car manufacturing, I’m not in a position to say. But if the situation isn’t quite that hopeless, then Helper’s suggestion as to the underlying problem (and probable cure) is at the least plausible.