Monday, December 23, 2013

General Motors, the parent of the iconic Holden, was once upon a time the greatest industrial empire in the world.  It produced more than 450 million cars during its century of existence and its engineers also invented the room air conditioner and the mechanical heart pump.
Detroit, the home of GM and the two other American car-making giants Ford and Chrysler, was also the Silicon Valley of the mid-twentieth century, a place where mass manufacturing and mass marketing were invented.
However, their fortunes have taken a sharp turn in the last two decades. GM and Detroit, both symbols of American industrial might, filed for bankruptcy in 2009 and 2013 respectively. GM also pronounced the death sentence for its local manufacturing arm this month.
As we ponder the future of manufacturing industry in this country and the fate of thousands of soon to be laid-off workers, what lessons can we learn from the American experience in the automotive sector?
The rise and decline of the American car industry is one of the most dramatic business stories in our time.
Nearly eight decades after Henry Ford created a worldwide industry with the first mass produced T-Model, American automakers had to go Washington cap in hand to ask for bailouts. In total, American taxpayers forked out nearly US $100 billion to rescue the crippled industry.
So what went wrong?
Paul Ingrassia, a Pulitzer-winning journalist who covered the auto industry for 25 years as the former Detroit bureau chief for the Wall Street Journal explains the demise of the industry in his book Crash Course, the American Automobile Industry's Road from Glory to Disaster.
For him, the answer was not complicated. Detroit's auto industry was built on a corporate oligopoly and a union monopoly that had expended so much effort trying to outwit each other that they had little time left to either look after their customers or to fend off foreign competitors.
Ingrassia argues the sector's ossified industrial relations is one of the key contributing factors that contributed to the decline of the industry. The United Auto Workers, the union that at its peak represented 1.5 millions car workers, fought management constantly.
For example, employments contracts that originally had been the size of pamphlets grew to become as thick as phone books. The complex rules governing seniority ran 16 pages alone.
Workers were also divided into dozens of job categories and they were forbidden from doing work reserved for members of another category. The list goes on. GM's factories even had segregated toilets reserved for managers and workers.
However, by far the most absurd industrial relations creation is the so-called the Jobs Bank, which was originally conceived to provide temporary security for causal workers on layoff.  Eventually, laid-off workers were making 95 per cent of their wages while not working and for an unlimited time.
This American invention makes Australia's own generous awards system looks Dickensian by comparison.
While GM, Ford and Chrysler squabbled with union bosses, Japanese-owned car factories in the United States, which employ a largely non-union work force, flourished and gained market share.
The second key catalyst behind the decline of the American auto industry is lack of innovation.
Despite the fact that Americans invented the modern car industry, successors of Henry Ford and Alfred Sloan Jr –the legendary chief executive of GM during the 1920s, rested on their laurels and failed to innovate in the face of tough competition from Japanese car makers.
Crunch time was 1973, when the Arab Oil Embargo sent petrol price skyrocketing.  American consumers turned to more fuel-efficient Japanese cars while GM, Ford and Chrysler were still wedded to the idea of making muscular petrol-guzzlers.
Though Detroit managed to achieve a significant comeback on the back of SUV boom in the 1990s, the big three car makers and the unions would succumb to hubris and lapse back into their old bad habits during the time of prosperity.
What have these American lessons taught us?
Overly generous awards and wages have made both the American and Australian auto sector uncompetitive. Industry Minister Ian Macfarlane said Japanese workers could produce twice as many cars for the same hour worked compared to Australian workers.
Innovation may sounds like a cliché, but it is one of the most important things for the survival of an industry. The Japanese have shown America and us the way, continuously dedicated to improving products and processes from factory floors to C-suites. 
For example, Toyota's lean production system has transformed the manufacturing industry. David Landes, an economic historian from Harvard describes it as the most important technical innovation since Ford's successful implementation of the moving assembly line.
The decline of the mighty Detroit should serve as a warning to Australian industry. We must innovate or die and our generous wages and conditions must be matched with a corresponding increase in productivity.

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