Boom and Bust: the Travails of the U.S. Auto Industry

Jeffrey Cardoni '11
Jeffrey Cardoni '11
Although it has long been the steel backbone of the domestic economy, the U.S. auto industry has caused some anxiety in these tumultuous economic times. The government takeover of General Motors in 2009 was a concrete indication of earlier warning signs of the U.S. auto industry’s problems; and, yet, Ford Motors has been able to avoid bankruptcy. Working under Henry Platt Bristol Professor of International Affairs Alan Cafruny and through a Levitt Center grant, Jeffrey Cardoni ’11 is investigating the business practices of Ford and GM that caused the two companies to succeed and fail respectively.

Although their fates have differed, Ford and GM have been faced with many of the same issues. Internally, Cardoni notices, the companies suffer from brand redundancies. GM had no need to sell almost identical cars in their multiple luxury brands, including Buick and the now-defunct Oldsmobile; GM would “use exactly the same car and slap a different hood ornament on it,” Cardoni explains. While the too-big companies suffered from these redundancies, they failed to utilize the benefits of their size; they would not sell any of the same cars overseas, as if the domestic and international divisions of the company were completely distinct.

It is common knowledge that American car companies are losing market share to their international (especially Japanese) competitors. Fuel economy has long been one of the main reasons for this. “[American] automakers are in trouble because they kept betting on low fuel prices; they were very dependent on selling cars that use a lot of gas, such as SUVs,” Cardoni explains. “GM bet on continued low fuel prices in 2005 when it decided to continue developing SUVs. Developing a car usually takes four to five years, so when those new SUVs were released into the market in 2008 and gas cost more than $4 per gallon, the company was in deep trouble,” Cardoni notes.

In Cardoni’s opinion, U.S. automakers have a lot to gain by increasing the fuel economy of all of their models. The federal government may make this a reality through either a gas tax or enforcing new Corporate Average Fuel Economy (CAFE) laws. While Americans find a gas tax difficult due to the price hike at the pump, a CAFE would require all manufacturers to have an average fleet fuel economy.

This could help American car companies even more than international companies because many Japanese cars currently have better fuel economy than do American cars; improving fuel economy in American cars could level the playing field or even put American cars back on top. However, in order to reap the long-term benefit of improved fleet fuel economy, manufacturers must make expensive investments to engineer more efficient cars. All U.S. car manufacturers are dealing with this issue, and their complex relationships with the federal government indicate that the road to resolution could be a long one.

But in the past five years, Ford has made changes that have saved it from bankruptcy. In 2006 Ford took out a loan that has kept the company afloat well after GM sank into bankruptcy. Ford also appointed former Boeing CEO Alan Mulally as its CEO in 2006—a step that Cardoni sees as essential. “Ford hired an outside CEO in an industry plagued by sameness and obsolete practices, including their labor-management relationships. It’s important to bring people in who have new perspectives,” he says. Although this tactic has its problems, GM agreed that it could benefit from some fresh blood; in 2009, GM appointed Ed Whitacre, Jr., former CEO of AT&T, as its CEO.

For the future, Cardoni foresees continuing difficulties for domestic automakers. “The downturn in 2008 was part of a larger cycle of boom and bust of the economy and the U.S. auto industry. However, even in good economic times, U.S. manufacturers have seen many years in which they still couldn’t turn a profit.” American companies, Cardoni says, need to protect themselves as best they can from so many uncontrollable factors and make the best possible product to appeal to consumers in the U.S. and abroad.

Cardoni has been interested in the auto industry ever since he began subscribing to Car and Driver magazine at age 11. He has long been frustrated by the inadequacies of U.S. auto companies. “I wanted to root for the home team, but they were never as good,” he says. An economics major and creative writing minor, Cardoni is the co-captain of the men’s varsity crew team, a Writing Center tutor, and enjoys brewing his own beer back in his home state of New Hampshire.

Cardoni is a graduate of Exeter High School in Exeter, N.H.
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