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Crash Course: The American Automobile Industry's Road from Glory to Disaster

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I generally prefer to describe books more than I like to recommend them, because every reader is different, and armed with some reasonable information people can (and should) make up their own minds about what to read. That said, this is a book I recommend, due to the significance of the auto industry and, perhaps more importantly, the enormous amount of taxpayer money that's already tied up in the industry.

Author Paul Ingrassia has covered the auto industry for The Wall Street Journal for 25 years, and he has won a Pulitzer Prize--so he knows the industry and can write. Briefly, he has written a compelling story of how the U.S. auto industry got to be in the mess it's in today. If "mess" looks a bit nonspecific, just consider that the Detroit automakers have shed over 300,000 jobs in the last decade and somehow managed to lose $100 billion. The story, of course, starts at the beginning of the U.S. auto industry, and there is plenty of material in this book tracing the industry's history back to the times of Henry Ford, William Durant (the founder of GM), GM's visionary manager Alfred P. Sloan, Jr. and UAW leaders like Walter Reuther, Leonard Woodcock and Douglas Fraser. Indeed, I'd say that almost three-quarters of this book deals with Detroit before the recent crises and bankruptcies.

It is easy to forget that auto companies were once pioneering leaders in American industry and that Detroit was somewhat like today's Silicon Valley, attracting top talent from across the country. It is also easy to forget the degree to which the auto culture mixed with American culture--to the point that songs were written about cars (Mustang Sally, Little Deuce Coupe, GTO, Dead Man's Curve, 409, etc.) Ahh ... those were the days. Or were they? The problems that would eventually lead to the implosion of the American automakers were already developing, starting with a toxic relationship between corporate management and the UAW. Ingrassia doesn't really heap more blame on the oligopolistic automakers or the monopoly union, and that is probably fitting. They both seemed oblivious to economic reality, with the union typically demanding more than worker productivity would allow, and corporate managers giving in to union demands as the path of least resistance. Perhaps they deserved each other. The result was a dysfunctional industry, ripe for new competition--which is exactly what it got with the arrival of the "transplant" foreign auto factories in America. According to Ingrassia, Detroit probably reached its high-water mark in the 1970s and then began a long decline. I confess that I owned a Chevy Vega back then, and I found the history of this troublesome car to be very interesting.

After laying the foundation for an understanding of how the American auto industry developed, warts and all, Ingrassia moves on to the remarkable story of the last few years, including blow-by-blow descriptions of tense negotiations and corporate and government decisions. It is fascinating material, though not a pretty sight.

Summarizing, if you have an interest in just how the American auto industry got into the fix it's currently in, this book should inform, enlighten and even entertain you. (It includes a dozen or so pages of photos of classic cars.) The industry's story is perhaps more convoluted and messy than you might imagine. Indeed, I'd say that frequently it appears stranger than fiction. But it's real, of course, and this compelling book gives the reader a good understanding of the hopes, dreams, trouble and turmoil that has come to be the American auto industry.

If anyone is well placed to chronicle the collapse of the American automobile industry it is industry veteran Paul Ingrassia. "Crash Course" is a damning indictment of how badly Detroit's Big Three have squandered any chance at survival they once had. In the process "Crash Course" is a crash course on how to fail at negotiating globalism, managing the marketplace, and surviving in a competitive marketplace without government intervention. Ingrassia moves seamlessly from the corporate headquarters to union halls to get the genuine skinny on what's REALLY happening in Detroit and elsewhere. Daresay, there is no other industry insider who is un-bought and un-bowed that could deliver such a story other than Ingrassia, who eschews playing favorites and calls it like he sees it. Ingrassia captures the accounting gimmicks, industry infighting, and general malaise within the industry that has led to its collapse. The result is at times depressing and often hilarious, sometimes all at once. If there is a way forward it's not the way imagined by the Washington bureaucrats who have propped up Detroit, allowing it a change to fail in ways unimagined.

The result of Ingrassia's work is hardly cheerful; there is a way forward, but it will take more leadership and vision than currently exists in Washington or Detroit, but lets hope someone will latch onto it! At times "Crash Course" feels too much like an overtly nostalgic trip backwards with its pictures of decades old muscle cars. That leads to the contradictory mix of the here and now: is Ingrassia arguing for a way forwards or a call to the past? Obviously older boomers will bemoan how Ingrassia is rejecting the past, but there HAS to be a ways forward. " Crash Course" gives some glimpse to that way.

Last year the federal government spent $106 billion to bail out G.M. and Chrysler. In return, the two companies went through bankruptcy and substantially reduced their debt loads, will shut down 16 more factories by 2011 (after closing 22 between 2004-08), 3,000 dealerships will disappear, along with Pontiac, Saturn, and probably Saab, and the UAW gave up its 'Jobs Bank' (allowed senior workers to volunteer for layoffs at 95% pay) and many other prized bargaining wins. Only 60-some years previously these same auto companies, along with Ford and other firms, had been key to America's industrial might that helped win WWII. "Crash Course" provides an excellent accounting of how Detroit's auto oligopoly and labor union monopoly both failed after 70 years of constant battling.

In 1955, G.M. became the world's first company to earn over $1 billion in a year, its market share exceeded 50% (was being closely watched by the Justice Dept.), and Detroit's CEOs were king of the world. In 1960, imports comprised less than 5% of the U.S. auto market, though rising to 15% (mostly German) by 1971. More ominously, the year 1970 brought a 67-day strike against G.M., and worker sabotage at its Lordstown (Vega) plant. G.M. then worsened its quality problems by creating a new overall division (GMAD) in charge of production, separate from design and marketing and creating a lack of accountability. Then, in 1973 Detroit's import problems intensified with the first Arab oil embargo - buyers not only tried and liked Japanese cars' better fuel mileage, but their improved reliability (vs. the Chevrolet Corvair and Vega, Ford Pinto, and the later Dodge Omni) as well.

In 1982 Honda opened a plant in Ohio - it planned to sign with the UAW (its Japanese plants were unionized) but held back due to the plant managers' concerns. More than two dozen other Japanese plants followed, and the UAW's monopoly was quietly broken. Simple things involving respect - like providing job security, valuing worker ideas, making the work more ergonomic, locating predominantly in non-union areas, and improved dignity through common uniforms, parking, eating and restroom facilities for all levels eliminated the UAW's appeal.

Instead of focusing on improving car quality in the 1980s, Detroit went in other directions. G.M. bought Hughes Aircraft for its technology and EDS for its computer skills, paid Ross Perot $375 million to get off G.M.'s board and stop criticizing management, and established a 'Jobs Bank' for workers displaced by automation (later expanded to those displaced for any reason without any time-limit, and costing about $1 billion/year). The good news for G.M. is that it abolished both GMAD (assembly plants) and Fisher Body (stamping plants) to improve accountability, launched Saturn to build small cars with innovative labor relations and high-tech, and entered a partnership with Toyota to re-open a Fremont, Ca. plant (NUMMI) that had previously been G.M.'s worst. (Using the same workers and union leaders, Toyota led NUMMI to become a top quality facility as it produced cars for both firms.) Meanwhile, G.M.'s market share dropped to 41% by 1986 - had been over 50% at its peak. Across town, Chrysler bought Gulfstream and Maserati and moved production line locations ($800 million), and Ford spent billions to buy Jaguar, Aston-Martin, and part of Mazda.

The years 1990-91 brought $6.5 billion in losses for G.M., and the U.A.W. sabotaging the Saturn effort by insisting that expanding production into another facility required U.A.W. contract coverage (the Table of Contents ran nearly 20 pages), and that parts procurement had to be via union vendors. Other years in that decade brought record profits, aided by stretching factory depreciation from 35 to 45 years, and increasing projected pension investment returns. Mercedes bought Chrysler for a 40% stock premium in 1998, expecting $3 billion/year in savings - instead, Chrysler profits fell. Another strike at G.M. in 1998 lasted 54 days, and led to spinning off parts production into 'Delphi,' while continuing to guarantee Delphi's pension obligations. The U.A.W., in response, refused to allow suppliers to deliver pre-assembled modules that would save $2,000/car. Ford continued its acquisitions - buying Volvo for $6.5 billion, a chain of car repair shops in England for another $1.6 billion, and Land Rover for $2.9 billion. Soon after the Ford Explorer-Firestone tire problem hit, costing Ford at least $3 billion in recalls; thus distracted, Ford's quality hit bottom on J.D. Power ratings. The decade ended with all the Big Three all deciding to focus on trucks and SUVs - their profit areas.

The new millennium began with G.M. acquiring 20% of Fiat for $2.6 billion and agreeing to acquire the rest of the company later, spending $1 billion to close Oldsmobile and pay off affected dealers, expanding GMAC into home mortgages and commercial lending, and finding itself with a 29% market share. An internal report concluding that the company still had too many brands, factories and people was ignored. Its last profit was in 2004, at which time market share was down to 27%. About half of that was Chevrolet, and the rest spread over 7 other brands - including Subaru (owned 20%). The result, again, was a period in which G.M. cars looked like each other - for obvious cost-saving reasons. Then the Japanese brought out SUVs, gas prices rose, and G.M. was forced to pay $2 billion to Fiat to withdraw from its prior buy-out agreement. Meanwhile, Ford lost $12.6 billion in 2006, brought in a new CEO (Mulally, from Boeing), and borrowed $23.6 billion. Chrysler, meanwhile, was still losing money and the U.A.W. refused to grant contract concessions - Mercedes then sold it to Cerberus for virtually nothing (about a $35 billion loss from the original purchase price).

G.M.'s ratio of retirees to workers had now reached about 3:1 and added $1,600/car, vs. $200 for Toyota (few retirees). G.M.'s viability could no longer be taken for granted, and the UAW agreed to a two-tier wage structure (lower for new hires), and to take responsibility for retiree costs (for $35 billion from G.M., covering about 70% of projected costs). Government bailout talks in 2008 brought a succession of revival plans from G.M. - even the third plan only proposed to 'study' the topic of what to do with excess brands Saab and Saturn, to make Pontiac a 'niche' brand, and to recover by 2014 - based primarily on wishful thinking that the Chevy Volt ($37,000 cost, only 10,000 sales over its first three years) would accomplish this, and to avoid bankruptcy (the only way to break the UAW stranglehold). President Obama's 'car czar' concluded that CEO Wagoner and his board had to go, and they did. Now, Ingrassia concludes, instead of the Big Three, America will have a Medium Six.

Bottom Line: "Crash Course" is the story of an American tragedy - how early success, combined with timorous leadership, led ultimately to failure. Many blame Detroit management for focusing on SUVs and trucks - reality, however, is that these were the only vehicles they could earn profits with, as long as the Japanese had none, gas prices were low, and the UAW was so strong. This story, unfortunately, has also played out in the steel (more steel was produced in 2007 than in 1970, with one fifth the employees and one twelfth the man-hours per ton - thanks to bankruptcy and innovation) and airline industries, though with much better results in the latter - thanks to managements' aggressive use of bankruptcy law. Undoubtedly union abuse of power also has motivated the initial off-shoring of millions of additional American jobs. Unfortunately, the problem continues today - Boeing's 5-year string of $13 billion in profits brought the fourth strike by its Machinists Union in 20 years - this time for 8 weeks, delaying deliveries, causing cancellations, and prompting Boeing to lay off 10,000 workers and spend billions more to start a second-production line in non-union South Carolina.

Finally, American managers are often blamed for short-term thinking - eg. Detroit's CEOs failing to use bankruptcy laws to tame the UAW, and U.S. bankers dragging the nation into the 2008 Great Recession. Both Detroit's and the banking system's failure were abetted by U.S. regulators and political leaders failing to act. Conversely, our Chinese competitors are hampered neither by strong unions nor inept regulators. And that gives them a very strong advantage, in addition to their low costs.

The very worst type of book is one which presents information that everyone knows, but it's the author's conceit that he is such a virtuoso with words that you'll be delighted to read it anyway.

"Crash Course" begins that way. Everyone is already familiar with Henry Ford's famous dictum that a buyer of a Model-T could "have a car painted any colour that he wants so long as it is black," but Paul Ingrassia has to gussy this up and get the wording wrong by writing, "To simplify the production process further, he decreed that instead of making the Model-T available in red, green, and blue, customers henceforth could have 'any color they wanted, as long as it's black.' " Why mention only one color if you can name three and include "henceforth" to boot? Ingrassia erroneously credits Henry Ford with inventing the concept of the assembly line, when he actually had nothing to do with its development.

The book hits its nadir with the author's reminiscences of the fabulous '50s and '60s, and we are treated to not one, but three lists of his favorite rock-'n'-roll car songs -- each list including the Beach Boys' "Fun, Fun, Fun" -- followed by a Freudian comparison of gaudy tail fins, grilles and bumpers to the reproductive anatomy. This book, ostensibly about the collapse of the auto industry in recent years, wastes many pages on such threadbare topics as Ralph Nader vs. the Corvair, the flop of the Edsel, and a third of the book has passed before we even reach the 1990s. This space (particularly all the car songs) could have been better spent by a report of previous boondoggles in which the federal government (during the Clinton administration) lavished billions on the industry to fund research on more fuel efficient vehicles (the result of which was the SUV), then billions more (during the reign of Bush II) to develop the "hydrogen car" (anyone seen one of those, lately?), but apparently Ingrassia was too obsessed (Paul, call your therapist) with the sex-symbol tail fins to consider such recent events germane to the discussion.

Once the author finally focuses on the 21st century (if you get the book, start reading after the usual photo plates in the centerfold -- predictably, photos of the GTO, the Corvair, the Mustang, Henry Ford, Walter Reuther, &c.), the book becomes quite readable and informative. You no doubt know the story and how it ended (if, indeed, it has ended), but Ingrassia does supply enough insider information and detail to make the telling more vivid and worse than you could possibly imagine.

The story is told fairly and evenhandedly with everyone (except, perhaps, the Obama administration) appearing to be fools or knaves or both. Those of a leftist persuasion will find confirmation in the belief that -- for their $14,000,000 annual salaries, plus stock options, plus two free cars a year, plus gold-plated plumbing fixtures-- the experts, the geniuses of management, could easily have been replaced by a gang of winos and street derelicts who would've shown better judgment, while on the other hand, the UAW, like unions everywhere, function only as a gang of extortionists, steadily sabotaging operations and ready to wreck the entire industry if they don't get paid more and more princely wages for mostly sitting around, doing nothing, or any other demand they could imagine. (When I was a chief steward on the committee of Local 312, one of the demands AFSCME put on the bargaining table was, "No work in inclement weather.")

So there's some worthwhile reading here, but first skip over the Hamburger Helper.

I have to say that there are other excellent reviews posted here and I enjoyed reading them. I will just make a few points. The Big Three dominated the era after World War II when most of the rest of the world's industry was prostrate with war damage. They had the field to themselves. A similar story is the US healthcare system which has become a sluggish monolith with no compunction about seeking government help when necessary. The unions and the GM management, in particular, colluded (although that is probably too strong a word) to keep each other happy. The UAW did not strike and the GM management gave them what they wanted. The only party who was left out was the car buyer. The Big Three concentrated on style and ignored quality. I'm old enough to remember when nobody expected a car to last more than three years. Many people bought a new car every year. Before you turn pale at the thought of the expense, be aware that I bought my second new car in 1968, a red Mustang convertible, for $3050. I paid $50 down and signed a contract for $95 a month at my credit union. In three years, the car was paid for. My first new car was a Volkswagen bus, bought with money from my father and it cost $1700 in 1965. The Mustang was our second car. By that time I was a resident physician on the grand salary of $1500 per month.

It's not clear if the short life span of those cars was an example of planned obsolescence or if the union just built crummy cars that looked good. I drove that Mustang for four years and sold it. I wish I hadn't because they are classics now. Ford had another problem. In the 1970s, in a story not well covered in the book, Ford was taken over by the financial people. The men who made cars, from design to the shop floor, were delegated to a back seat. Many large companies did the same thing, maybe to cope with the Carter inflation or the deep recession that followed the painful medicine to stop inflation. It ruined some of them for a while. One was Xerox.

Then came the Japanese car makers. It is an interesting story how the Japanese had to respond to government attempts to prop up the US auto industry and hold the Japanese back. Each step the Japanese were forced to take made them more formidable competitors. It was punitive import duties that drove them to build factories in the US. They found that the newly energetic South was eager for the jobs so they located there. They expected to be unionized but found they had settled in a part of the country that was not pro-union. This story is very well told in the book. When GM started the Saturn to compete with the imports on quality, they built a plant in the South, and the UAW chief at the plant happened to be a rare union leader who wanted to adopt new methods and study the Japanese quality circles and other innovations in labor management cooperation. Saturn was sabotaged by both the GM management, who resented the implication that their cars were inferior, and by UAW leaders as the president of the union at that time, Stephen Yokich, was fiercely anti-management and uninterested in innovation. The project failed but shouldn't have. This is the best part of the book.

I think the author has given the UAW too much of a pass and soft pedaled the Obama administration's rape of the bond holders. He implies they were predatory hedge funds that thought the GM bonds were a buy because the law places secured creditors first in a bankruptcy. The administration stiffed the bondholders, many of whom turned out to be auto industry pensioners and their pension funds. The effect of that act, a gift to the UAW for their support, will come to hurt bond sales in the future since contract law was violated for political purposes. Countries like Argentina do that, not the US, at least until now.

Aside from that quibble the book was excellent.

"Crash Course" is a great history of the Detroit automakers--history as in it is over. I also think it has a lot to say regarding whether people are inherently good or inherently bad.

Interesting to realize as I was reading this book that generations of Americans lived and died never knowing that the arrogance, greed, incompetence and dishonesty of most of the men who ran the US auto industry killed it off.

The unholy alliance between GM and the union is mind-boggling--even though I thought I knew about that, what I read in this book shocked me. Generations of auto workers enjoyed a "workers' paradise" of inflated pay, superb benefits and insane job protections such as the jobs bank. And management right up through the very top loved all of that too because though it was bad for the company, it did not hurt them personally and that's all that mattered.

Though "Crash Course" is specifically about the auto industry, it's also a cautionary tale about investing in the stock of any American corporation. Corporate executives are immune from failure, they walk away with millions regardless of what happens to a company, so beware investors.

Paul Ingrassia writes a cautionary tale in Crash Course that details how any industry can fail when it loses its eye on what it should be focused on, the market, and instead focuses on a number of rules and regulations. Crash Course does an amazing job of showing how the classic Big 3 became hidebound by managerial incompetence, union greed and short term thinking and in doing so, sowed the seeds of their own destruction. Where Ingrassia is strongest is when he goes into detail on how the Union and company management refused to work together prior to the bankruptcies of GM and Chrysler out of fear that doing so might be seen as weakness.

Ingrassia gives a long and deep history of the American auto industry which is important because he shows how the industry's eventual collapse began long ago in its history but was a result of some long and hard fought battles which did benefit all parties in the short term. However they also resulted in complacency and a commitment to short term advantage and an attitude which can only be described as cutting off ones nose to spite their face.

The ironic thing is that when Ingrassia wrote this book Toyota and Honda were flying high. While they are mentioned as they obviously played a role in the downfall of Detroit, it is now easy to see them, especially Toyota going down a number of the same paths, bad management, protection of the company's executives over protection of the customer, as what we have with GM and Ford.

This is a well thought out and well developed book. In many ways it reads as both a mystery as well as a history. Ingrassia has a number of valuable insights and he is not afraid to offer an input when it is called for. Well worth your time!

Paul Ingrassia has written several books about GM and other auto companies, so has a unique background to write this book. If you were like me, I didn't follow what was going on at the time, too complicated and we basically were not told the truth anyway, typical of the O administration. This is a five star book, and explains how the industry got to the point of collapse after a major recovery, based on both management and union hubris. You won't believe the make work rules that the company went along with, and even if you start out thinking that the both GM and Chrysler should have gone through bankruptcy and fail if necessary, he presents a very good argument that this was the right thing to do at the time. Chapter 11 rather than 7 bankruptcy was used, meaning reorganization, which saved a lot of jobs. I came away convinced it was the right action to take, but only history will tell. This book more or less changed my mind on the bailout. I am a retired CPA so could follow all the restructuring pretty easily, but it was an amazing feat in hindsight. Kudos to the those that pulled it off.

For those interested in the US auto industry and its sad decline , this is an excellent book written by an author who knows his subject. If you are interested in accessing blame for what has happened in Detroit , you won't go too far wrong in holding both management and labor equally responsible. By the way, I write this as someone who has always bought American cars and, if possible, intends to go on buying American.

Years ago I read a great book called Comeback that detailed how the US auto industry failed to see the threat that Japanese imports were doing to market share and how the Americans companies fought back. I still remember the book because it was well researched and well written. It finally dawned on me that this was the same author who wrote Crash Course. Crash Course is as good as Comeback, maybe even better. Writing a book about the history of the car industry is a daunting task and other than great books like Douglas Brinkley's Wheels for the World, most of these automotive histories fall flat.

Crash Course is different. The book provides a basic background for each of the automotive companies and hits the high points, but never bogs down. It details just how the American and foreign car companies came to be, how they failed, and which ones may ultimately survive. Paul Ingrassia writes with ease and competence, so the reading is quick and interesting.