GM vs. Ford: Decline of the Big Three in Global Auto Sales

Statement of the Problem

Since the 1970s, American automobile manufacturers have faced a number of significant challenges. Oil prices, the cost of labor, and globalization have collectively created a dramatic shift in the business model for the industry. As a result, the Big Three automakers — General Motors, Ford, and Chrysler — began facing serious difficulties competing against foreign automobile manufacturers. There were periods, such as the 1980s and 1990s, when the industry appeared to have learned from the lessons of the past, only to revisit those same problems nearly three decades later.

To determine why the different manufacturers continue to face similar situations requires conducting an analysis of the causes that have contributed to the current state of affairs and examining various statistics to support or refute those findings. Together, these two elements provide the greatest insight into how the U.S. auto industry fell into a long-term decline, losing large portions of market share to foreign competitors. Both industry insiders and the general public stand to gain a more precise understanding of how these lessons can be applied to become more competitive in the future.

To determine the underlying causes of why the different automobile manufacturers find themselves in such a difficult position, it is necessary to examine the root factors at work. Three pieces of scholarly research — from economists, analysts, and industry insiders — are evaluated below.

Background Information and Literature Review

Singleton, C. (1992). Auto Industry Jobs in the 1980s. Monthly Labor Review, 115, 124–137.

This article traces the history of the American auto industry through the early 1990s. Early on, the cost of labor was a major issue affecting the overall fortunes of automakers. When these companies were new and experiencing rapid growth, labor costs were relatively low. As the companies became more successful, however, labor costs increased dramatically, and management lost focus on producing high-quality vehicles. These two factors allowed Japanese automakers to capture 33% of the U.S. market share by the early 1990s. This source is significant because it illustrates how high labor costs, combined with a reduced focus on product quality, enabled foreign competitors to take market share from the Big Three.

Mannering, F. (1991). Brand Loyalty and the Decline of American Automobile Firms. Brookings Papers on Macroeconomic Activity, 67–114.

This article discusses how the American automobile industry managed to increase sales during the 1980s, primarily in Europe, where higher trade barriers limited Japanese competition. Researchers argue that the industry faces a serious long-term threat, because once those trade barriers come down, one of the Big Three's strongest markets would become vulnerable to foreign competitors. Compounding this problem, many Japanese automakers were already building manufacturing plants in the United States, positioning themselves to gain domestic market share as well. This source is significant because it highlights how globalization and the reduction of trade barriers would eventually push the U.S. auto industry toward financial crisis.

Greene, D. (2004). The Potential of Hybrid and Diesel Powertrains. Department of Energy. Oak Ridge, TN: Government Printing Office.

This report examines how hybrid technology can be applied to both gasoline-powered and diesel vehicles. Researchers modeled the total effect of converting 930 vehicle models to a hybrid drivetrain system and found a gradual improvement in sales of 4% to 15% in the early years of adoption. Over the long term, as the technology became more widely implemented, a demographic shift of as much as 40% in auto market composition was projected. This source is significant because it demonstrates how rapidly rising oil prices could accelerate market transformation — and it identifies an opportunity for the Big Three to rebuild market share through aggressive adoption of hybrid technology.

The data for this study were gathered by reviewing various scholarly journals and papers for evidence of the underlying trends contributing to the industry's problems. This approach was selected because multiple pieces of scholarly research can illuminate the broader forces at work, allowing an analyst to look beyond the headlines and identify the real causes driving the current situation.

Statistical Analysis of Global Production

The evidence gathered during this examination shows how the Big Three were, in many respects, victims of their own success. In the years following World War II, they enjoyed near-exclusive dominance of the worldwide automobile market. Once Europe and Japan rebuilt their industrial capacity, however, that earlier success became a liability — as executives and workers assumed they could continue producing large, fuel-inefficient, and expensive vehicles indefinitely.

As many of their key markets began to see significant reductions in trade barriers, the Big Three began losing market share to foreign competitors at an accelerating pace. The 2008 worldwide production statistics, compared against the rest of the global industry, illustrate just how quickly that market share eroded. The ramifications of this research point to a fundamental need for a new mindset within the industry — one oriented toward reducing costs, increasing quality, and producing the kinds of vehicles that consumers actually demand.

It is recommended that the industry aggressively pursue the sale of hybrid vehicles as quickly as possible. According to Greene (2004), the company or companies that are able to convert their full lineup of cars and trucks to hybrid technology stand to see a dramatic improvement in market share — with an estimated 40% market shift favoring early movers. When combined with the labor cost reductions that the Big Three achieved in the years following the 2008 crisis, being first to market with a comprehensive hybrid vehicle lineup could allow the Big Three to recapture a major portion of their lost market share. In this way, industry executives can learn from the mistakes of the past and use the same technology-driven strategies employed by their foreign competitors to regain their competitive footing.