Wednesday, August 23, 2006

Ford In Talks with Nissan-Renault?

This story only serves to remind us of what happened in the 70s, and then 80s and 90s: American auto manufacturers are ill-equipped to deliver the consistent performance that their Japanese counterparts are able to do quarter over quarter.

The 70s was a tumultuous time for American car makers. In the early 70s, the Big Three, Ford, GM, and Chrysler, hit highs during the peak of the muscle car era, when family sedans sported Hemis, station wagons were coming into vogue, and the world was a relatively stable place.

Then came the gas crunch. My grandparents owned a Mobil gas station in the late 60s and early 70s. I remember gas being 27 cents a gallon. That was full-service: Check the oil, tire pressure, radiator, other fluids, wash the windows, dump the ash tray. Then OPEC decided that they'd test their heft in the world market by limiting production, thus putting upward pressure on gas prices, in order to try to garner more profits for themselves. It worked.

Soon, the Saudis and other OPEC members were awash in cash and we were left holding our dicks, um, gas nozzles in lines longer than we've seen since. The limited production, by definition reducing supply, coupled with the ever-increasing demand, spurred by gas-guzzling big blocks, caused rapidly rising prices and shortages. President Nixon put price caps on gasoline, which further worsened the shortages. Soon, people were literally fighting for gasoline.

Inflation went through the roof, people started buying smaller "economy" cars (read: Japanese), and we went about our business. Ford and GM floundered for years, until the mid-80s, and Chrysler nearly went bankrupt. If not for former exec Lee Iacocca, Chryler's chief executive, Chrysler would have gone belly-up.

The Japanese automakers, once known for the crap they sold as cars, were now making cars that got far better gas mileage, were of higher quality, and were longer-lasting. The Big Three finally got it together in the mid-80s, after another gas crunch, and started making better cars. Then, in the mid- to late-90s, the GM, Ford, and Chrysler bagan making SUVs, minivans, and larger family cars. Very similar to the 70s (substitute SUV for muscle car, minivan for station wagon).

For a while, the Japanese automakers fell behind, playing catch up by designing their own bigger vehicles, but all the while making hybrids and conventional gas-powered cars that were again getting better in terms of quality, efficiency, and longevity.

Today, Toyota, Honda, and Nissan are well-positioned to stick it to the Big Three once again. This time perhaps forever. Ford and GM are now on the ropes, mostly due to poorly-managed (if "managed" at all) pension plans and near-sightedness comparable to Mr Magoo.

With oil at perhaps peak production, or even past it, hybrids and electric cars are bound to take over gas-powered cars. Detroit is at least 5 years behind Japan in terms of maturity of the technology.

Both Ford and GM are in talks with Nissan and Renault to try to boost their horrible businesses. They're both looking for a life-line. Will they get it? Will the federal government have to bail them out? The stakes are much higher now than they were when Chrysler faced its own demise 30 years ago.

What will come of it? I don't know, but it's not looking good. However, Detroit has bounced back before. Can they do it again? Time will tell.