What’s fascinating about the mega-merger hype is the degree to which it downplays obvious questions. Was not the over-consolidation of the U.S. auto industry after World War II a major reason for its subsequent humbling by foreign competition? Shouldn’t BMW’s troubles in absorbing Rover remind us about how many mergers have not lived up to their giddy expectations? And why is there so little discussion of management guru Peter Drucker’s prediction that mega corporations will be dinosaurs in the 21st Century because they lack the flexibility to respond to increasingly rapid marketplace shifts, e.g., with paradigm-busting functional innovation?
Implicit in mega-merger fever is a certain “GM envy” — an assumption that whoever survives the long-predicted consolidation of the industry must be modeled along the lines of General Motors, still the world’s biggest banana. This means, for starters, that all survivors must race to colonize the far corners of the developing world. But building gazillions of cars in China and India is not enough. Survivors must also offer a hierarchy of multiple brands, from plebeian to patrician, all sharing as many major components as possible. This GM-like strategy essentially requires much more emphasis on image differentiation than functional innovation.
Mega-merger fever has received inadequate questioning because GM envy permeates auto industry thinking. This has been the case since the 1920s, when Alfred Sloan began engineering General Motors’ ascendancy. By the 1960s, the global reach of GM and its Detroit sidekicks, Ford and Chrysler, helped spawn the notion that the number of international automakers would dwindle to roughly a dozen, and the survivors would be patterned along the lines of GM. This consolidation has largely occurred in the U.S. and Europe, but it has been counterbalanced until recently by the rise of Asian automakers.
Indeed, the initial success of Toyota and Co. in the U.S. market can be explained as a consumer revolt against an overemphasis on product image practiced by the Big Three. Yet in recent years all of the larger Japanese companies have adopted GM-like strategies, replete with aggressive global expansion goals, multiple brands, and a flagging interest in significant functional innovations.
Grosse Pointe myopia goes global
The root cause of mega-merger fever is thus a growing level of conformity in the auto industry. Certainly a pronounced herd instinct has long been an industry hallmark, particularly in the United States. For example, back in 1968 automotive journalist Brock Yates called the executive leadership of American automakers “Grosse Pointe myopians” because of their failure to adapt to fast-changing times — particularly in comparison to a rising tide of foreign automakers. Grosse Pointe is an exclusive Detroit-area suburb where many American auto executives have lived.
Global consolidation over the last two decades has exacerbated these conformist tendencies. Whereas once upon a time one could point to a handful of automakers that militantly rejected GM envy, today it is rare to find significant examples of unlemming-like behavior anywhere in the world.
This new conformity poses serious dangers to the industry. Thirty years ago, if consumers weren’t inspired by Detroit’s baroque fare they could choose from a marvelous diversity of alternatives. Saab, for example, helped pioneer some of the most important innovations of the post-war period: aerodynamics, front-wheel drive and post-Fordist manufacturing processes.
Today, the now-GM-owned Saab is so dominated by bean counters and image wizards that the marque has devolved into little more than a turbo-charged Opel disguised with Saab styling cliches (see related story here). Much the same can be said for other smaller automakers that have lost their independence.
Even recent industry newcomers now ignore a crucial lesson of automotive history: Most of the greatest post-war, rags-to-riches successes were achieved by eschewing GM envy in favor of bold functional innovation. Instead of pioneering new paradigms on par with the original VW Beetle or the CVCC Honda Accord, the Korean automakers have dished out products whose me-tooness is all the more striking in light of reckless expansion goals.
Alas, the Koreans are hardly alone. The recent global production capacity glut is a direct result of almost all major automakers playing the pubescent competition, “Mine’s Bigger Than Yours.” Might this boom-bust cycle have been less destabilizing if we had more independent automakers that didn’t succumb to GM envy? A careful look at automotive history would suggest the answer is yes. Well-run independents have always been the best antidote to the big boys’ excesses.
Independent automaker histories colored by GM envy
Drawing the right lessons from the past sometimes requires disagreeing with automotive historians. Even some who write passionately about independent American automakers can succumb, at least partially, to GM envy.
A case in point are accounts of the 1950s — a pivotal moment in automotive history. Within a short span of three years the number of independent passenger-car producers dropped from six to two. This trend was inevitable, according to common wisdom. Nash CEO George Mason is frequently pointed to as the greatest visionary of this period because he sought to create nothing less than a fourth high-volume automaker with a GM-like hierarchy of brands sharing platforms. Only then, according to this logic, could the independents achieve sufficient economies of scale to compete with the Big Three.
Why then were attempts by Mason and others to mimic GM abysmal failures? Historians tend to argue (explicitly or implicitly) that the mega-merger concept was sound but technical mistakes were made, e.g., the independents waited too long to merge and then married the wrong partners. This is not the only plausible explanation.
One can instead argue that the most successful independents of the post-war era were those that staunchly rejected GM envy. Most notable was American Motors, which under Mason successor George Romney adopted a strikingly unorthodox strategy: Mason’s dreamed-for merger with Studebaker-Packard was shelved, multiple brands were dropped, and the “Bigger! Glitzier! More Powerful!” mantra of the Big Three was rejected in favor of a modest line of compacts with an unusual emphasis on economy and functional innovation.
Romney’s strategy resulted in the Rambler becoming one of the most successful brands in the history of U.S. independents. AMC might have even survived into the 1990s if Romney’s successors hadn’t saddled the automaker with a poorly digested merger with Kaiser-Jeep and a GM-like circus of image-obsessed products. (For example, while Chrysler was making a fortune on its uncharacteristically utilitarian Valiant and Dart compacts — the spiritual heirs to the Rambler — AMC was losing its shirt on glitzy Ambassadors, Javelins and Pacers.)
Or consider Packard. Historians tend to avoid challenging CEO James Nance’s insistence that the venerable automaker could not have survived on its own. Yet a leap of logic is required to envision a merger that would have been beneficial over the long run to both Packard and its most likely merger partners.
Packard’s strongest potential partner was Nash, yet such a combine would likely have either: 1) single-handedly torpedoed Romney’s Rambler strategy because of the high costs of maintaining a competitive full-sized platform, or 2) led to Packard devolving into little more than a top-of-line compact Rambler.
Packard was more likely to have survived with its brand integrity intact if it had stayed independent and offered a slow-changing, conservative alternative to the Big Three’s ungainly and problem-plagued premium-priced cars of the late 1950s. Even Hugh Ferry’s complacent management may have kept Packard alive longer than Nance’s reckless effort to mimic GM (see related story here).
Independents can still succeed with the right strategy
Economies of scale do matter. But a 1980s MIT study echoed Romney’s contention that independent automakers could be competitive if they developed component-sharing partnerships and concentrated on products that didn’t directly compete against high-volume producers.
Subaru and (to a lesser degree) Volvo illustrate how this strategy can still be successful. For example, Volvo has a higher profit margin than Ford, which recently announced its intention to buy the Swedish company’s passenger-car operations. With more iconoclastic management Volvo might have prospered indefinitely as an independent. Instead, Volvo has been following in the footsteps of post-Romney AMC. Whereas Subaru has become profitable again by rekindling at least some of its zeal for functional innovation, Volvo’s recent products are almost as undistinguished as a 1968 AMC Ambassador.
The bottom line? Every once in awhile we might remind ourselves that historical accounts, no matter how seemingly matter of fact, require interpretations based on debatable assumptions. We could further the development of automotive history — and even contemporary automotive journalism — by discussing the insidious ways GM envy is distorting our interpretations about the past and future of the industry.
NOTES:
This essay was originally published in the fall of 1997 for the SAH Journal, the newsletter for the Society of Automotive Historians. Although much has happened to the American auto industry since then — including the implosion of General Motors — “GM envy” arguably still colors how historians view the industry’s past — and thus the future.
RE:SOURCES
- Yates, Brock; 1983. The Decline and Fall of the American Automobile Industry. Empire Books, New York, NY.
ADVERTISING & BROCHURES:
- oldcaradvertising.com: Rambler (1958)
- oldcarbrochures.org: General Motors (1936); Packard (1956)
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