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Last Updated: Monday, 19 February 2007, 08:14 GMT
The decline of Detroit
By Steve Schifferes
Globalisation reporter, BBC News, Detroit

Closed factory, Buick City, Flint, Michigan
28,000 workers lost their jobs when GM closed Buick City in Flint

Globalisation has been a powerful force that has accelerated change in the world economy over the past half-century.

It has affected the fate of companies as much as countries. And nowhere has been the change more dramatic than in the US car industry.

The Big Three are facing their greatest challenge ever in their entire postwar history
Professor Garel Rhys, Cardiff University

Fifty years ago, American car companies dominated the world, especially the mighty GM, the world's biggest industrial company, many of whose factories were based in Flint, Michigan, 40 miles north of Detroit.

GM in decline

For the grandparents of Claire McClinton, who made the journey from the poverty of the rural south to Michigan just after World War II, it was like arriving in another world.

"None of their children ever went hungry, we all had a good education, we had good jobs, and owned our own home. We thought we were living the American dream," she told the BBC.

Detroit 1950s
How Detroit lost its dominance in the global car industry
Wednesday: Lean production
Next week: China's Challenge

Claire's whole family followed in their footsteps and became "Flintsones," working for GM - and so did Claire.

They were loyal members of the autoworkers union, the UAW, which won increasing benefits for its members, with average wages of more than $50,000 plus overtime.

"We respected the union then," she said. "We believed it was the union that had delivered us the American dream."

In the 1950s the Detroit area had the highest median income, and highest rate of home ownership, of any major US city. But times are very different now.

GM, under pressure from its competitors, is no longer making money in the American car market - and it has been closing plants all across Flint.

Claire McClinton, GM worker
We thought we were living the American Dream
Claire McClinton, third generation GM autoworker, Flint, Michigan

Now there are only 6,000 GM workers in Flint, compared to 100,000 at the peak, and the town and workers are suffering.

"Flint has the highest rate of unemployment, poverty and homelessness in Michigan," Claire told me.

She works in a shelter feeding the poor, and would like her union to get more involved in the community. And she is not sure how much longer she will have a job - and if she retires, whether she will have any benefits.

GM has already told the unions it wants to cut the generous retirement and health care benefits it promised its workers in the halcyon days of success.

The company does plan to build more car plants in the future - but in emerging markets like China and India, not in the United States.

Toyota rising

But 400 miles south of Flint, another group of car workers are feeling very different.

Toyota's vast Kentucky facility
Toyota builds 500,000 cars a year at its vast Kentucky plant

They work in Toyota's huge Camry factory in Georgetown, Kentucky, and receive, by their standards, generous pay and benefits.

Toyota is the fastest-growing car company in the United States, and it is building a new factory every year to keep up with demand.

And it is set to overtake GM this year as the world's largest car company by sales.

For Laura Wilshire, from Ashland, Kentucky , life is good.

"This is the top notch job in the area," she told the BBC.

Laura Wilshire, Toyota worker
This is the top notch job in the area
Laura Wilshire, Toyota worker, Georgetown, Kentucky

She doubled her salary when she joined Toyota, and the company provides a good health care plan for her family, including dental coverage for her two children.

And she says that Toyota has also helped to provide better schools for her children by putting money into the town's budget.

She says more is expected of workers at Toyota than her previous job in a convenience store, but she doesn't mind taking responsibility.

"If a seatbelt isn't right, I stop the line until it is fixed - that is an important issue as it could affect people's safety."

Toyota encourages workers to take personal responsibility for defects, and to work together to fix them.

That attitude has given them a well-deserved reputation for quality and reliability - and the Camry has been the best-selling car in America for the last ten years.

Toyota has no trouble hiring the right sort of workers - 100,000 people applied for the 3,000 jobs when the plant opened in 1990.

Laura says she feels sad when she reads in the papers about what is happening to autoworkers in places like Flint.

Dominance to decline

Now, according to Professor Garel Rhys of Cardiff University, the US Big Three are facing their greatest challenge ever in their entire postwar history.

What has led to the decline of US car manufacturers in their home market?

While it was inevitable they would eventually lose their monopoly position, their failure to adapt their production methods and meet changing consumer tastes has accelerated their decline.

Boarded up house, Flint, MI
Flint, Michigan, GM's production centre, was once a thriving community

In 1955, the world looked like a very different place.

Four out of every five cars in the world were made in the US, half of them by GM.

No other car companies had the capital or the know-how to enter the global car business.

GM's main US rival, Ford, was half its size. The largest foreign carmaker, VW, was little bigger than GM's own German subsidiary, Opel and only had one model - the VW Beetle.

And Toyota was not even on the horizon. It made 23,000 cars in 1955 in Japan, compared to 4 million manufactured by GM in the US.

Innovation and experiment

But the near-monopoly conditions in the American market bred complacency - and the assumption that the American lead in technology and marketing was unassailable.

Ad for Ford Mustang 1965
Ford and GM dominated the US auto industry in the l960s

According to Stephen D'Arcy, head of Global Automotive Practice at PriceWaterhouse Coopers, in the long run "the US monopoly was an unsustainable anomoly."

In the 1950s and 1960s, US firms failed to innovate in the design of cars, preferring to make money by increasing the size and weight of their vehicles by adding extras like air conditioning, power steering, and fancy sound systems.

It was left to European manufacturers to develop disc brakes, rack-and-pinion steering, air-cooled and diesel engines.

And the mass production system discouraged innovation because it was so expensive to introduce fundamentally new models.

Meanwhile, Toyota was also making a virtue of adversity, changing its production system to become leaner and more efficient than its rivals.

Oil crisis

It was the oil crisis in the 1970s that first illuminated the problems of US automakers.

Lean production: It is easy to say you will do it, but harder to actually implement it
James Womack, author, The Machine that Changed the World
For the first time, smaller cars were the rage, and US consumers found that cars like the Toyota Corolla were an attractive alternative to big American cars.

Imports of Japanese cars soared in the 1980s, to the chagrin of the US companies and the unions alike, taking nearly one-quarter of the US market.

US car imports

And when the companies pressured the US government into limiting imports from Japan, Toyota and Nissan started building car plants in the US.

By 2005, these Japanese "transplants" were producing 4 million cars a years, one-quarter of US output, and more than GM.

The Japanese located their plants in low-wage, non-union areas of the US and brought new, more flexible production methods as well.

As a result, they could make money on smaller cars and change models more frequently.

The US car companies tried and failed to design a competitive small car.

They also experimented with Japanese production methods but neither seemed to do the trick and close the quality gap.

According to James Womack, author of the influential book The Machine that Changed the World, it was easy for everyone to say they accepted lean production, but much harder to actually implement it.

The SUV craze

If the 1980s was a decade of fear, the 1990s represented a false dawn.

SUV sales

With oil back at $18 a barrel, the US companies thought they had the answer to the Japanese threat - the SUV (Sports Utility Vehicle).

As light trucks, SUVs were protected by a 25% import tariff and also escaped government rules laid down to boost fuel efficiency.

SUV sales soared from one to four million with 60% of the Big Three's sales - and nearly all of their profits - coming from SUVs.

The SUVs transformed the fortunes of Chrysler, dominating with its Voyager minivan and Jeep Grand Cherokee, and Ford which had the best-selling SUV, the Ford Explorer.

Abandoning cars proved a costly mistake for Detroit when it became clear in recent years that environmental concerns were here to stay.

Last year,the price of gasoline in the US reached a record $3 per gallon in most states.

As a result, SUV sales slumped, and the sale of smaller vehicles rose.

At this year's Detroit Auto Show, Ford and GM made it clear that they were taking the environment seriously, and produced electric-powered concept cars.

But these cars are years, if not decades, away from reaching the public, while Toyota is already rolling out its hybrid electric-petrol engine across its entire range.

Downsizing lessons

In 2006, both Ford and GM finally accepted they would never dominate the US car market as in the past.

Mark Fields launching the Ford Focus, Detroit Motor Show
Detroit still puts on a glitzy image at the annual motor show

They both announced huge downsizing programmes, cutting 70,000 jobs between them.

And Chrysler - now owned by German firm Daimler - also announced its own downsizing programme and is effectively up for sale.

There is real doubt in the industry that all three can survive.

GM hopes to survive as a global car company which increasingly operates outside the US.

And Ford may survive by selling some of its more profitable European subsidiaries.

But even if they manage this, it is sad end to what was once a central element in the American industrial dream.

Sales (volume) Sales ($bn) Profit ($bn) Market value ($bn) Workforce
GM 8.3m 192 -10.9 20 335,000
Toyota 8.2m 176 12.5 208 285,000
Daimler/Chrsyler 4.8m 185 -1.7* 65 382,000
Ford 6.6m 153 -12.7* 16 300,000
Volkswagen 5.2m 118 5.2 43 344,000
*2006 (Chrysler only)
Source: PriceWaterhouseCoopers, 2005

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