Click for next page ( 18


The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page 17
An industry Primer The automobile has become an integral part of everyday life for millions of people. What was once looked upon with wonder and awe has become commonplace, a durable consumption good taking its place alongside countless other gadgets and machines that inhabit modern garages and households. Thousands still flood to auto shows to see new and exotic hardware, but the technology in the basic run-of-the-mill automobile is taken for granted. Yet the car is among the most sophisticated, complex consumer products ever devised. Early gas-powered vehicles were little more than a modified carriage with a crude (by modern standards) engine and chain drive, "horseless carriage" was a quite accurate description. Many years of refinement and development have resulted in an engineering- and technology-intensive product. Major technical systems include the engine with its advanced m echanics and materials, fuel delivery with sophisticated car- buretion or fuel injection, automatic transmission and drive train, power-assisted steering and brakes, and complex electronic controls. The technical complexity of the car is masked by the sim- plicity of its operation. From the standpoint of the driver, all that is required is a turn of the key, selection of forward or reverse, and pressure on the gas pedal. Beneath the sheet metal, behind the gear selector, however, the technical systems must function at high levels of performance, on demand, under extreme conditions, over and over again. From the beginning of the industry, reliability under pressure and simplicity of operation were important parts of the motiva- tion for increasing complexity and sophistication of the car's technical systems. Reliability, simplicity, and low cost were essential to the development of a true mass market oriented toward basic transportation. In this sense, design changes in the first 20 years of the industry were determined by market demands, and competitive success depended on significant advance in 17

OCR for page 17
18 f unction and performance. At this stage, much of the new-car demand was "first time" purchase, with replacement demand playing a relatively small role. The rapid and widespread acceptance of the automobile is evidence of the success of engineering and technical develop- m ents. As the product matured and basic technologies were refined, the design of basic systems and components was stab i- lized. The previously dominant need for basic transportation gave way to a more varied, more sophisticated set of demands and consequent segmentation of the market. Vehicles were developed to meet particular functions (e.g., station wagons, sports cars, f amity sedans). Moreover, within a given f unction, the use of optional equipment created wide divergence in the potential cost and performance characteristics of similar models. Table 2.1 presents a four-segment characterization of the automobile market of the 1 970s. The segments range from TABLE 2.1 Market Segments (by model) and Buyer Priorities in the 1970s Market Segments Sporting/ Prestige/ Economy Cars Personal Cars Family Cars Luxury Cars Chevette BMW 320i Fairmont Audi 5000 Civic Camaro Impala Jaguar Corolla Celica LeBaron Lincoln Omni Cutlass Coupe LTD Mercedes-Benz Pinto Grand Prix Regal Seville Rabbit Mustang Thunderbird Priorities Price x x x Fuel economy x Interior room x Comfort x x Reliability x x x Acceleration x Handling x Styling x x Interior trim x x Workmanship x SOURCE: Adapted from Arthur D. Little, Inc., The Changing World Automotive Industry Through 2000 (1980, pp. 24-25).

OCR for page 17
19 TABLE 2.2 Structure of New Car Sues Size Class Year Subcompacta Compact Intermediate Standard Luxury 1967 9.3 15.7 23.6 47.9 3.1 1972 22.7 15.4 21.7 36.1 3.4 1973 24.9 17.7 23.0 30.0 3.6 1974 28.4 20.0 24.2 22.6 3.7 1975 32.4 20.3 24.1 17.9 4.0 1976 26.1 23.5 27.3 19.4 3.7 1977 27.1 21.2 26.9 19.4 4.6 1978 26.4 21.6 26.8 18.4 5.5 1979 34.0 20.0 24.2 15.3 5.5 1980b 42.0 20.2 20.6 12.5 4.7 a Includes imports. b January and February. SOURCE: Ward's Automotive Year Book, Annual Reports, Detroit, Michigan. economy car to luxury/prestige car and are defined primarily in terms of consumer preferences and principal use. The table also contains an assessment of the priorities governing purchase decisions in each segment. Both the segments and the priorities reflect conditions in the mid-1970s before the oil crisis of 1979. Given changes in the relative price of fuel and in household types over the next several years, buyer priorities and segmentation are likely to change. Patterns of change expected for the future are somewhat evident in the shifting pattern of demands by size class over the last 10-12 years. Although not a perfect measure of the diversity of demands in the postwar era, vehicle size has been an important competitive dimension. Larger cars have been associated with luxury, elegance, and prestige, and many important product innovations were first developed for larger cars and then diffused to the rest of the product line. The dominance of the large car reached its zenith in the late 1960s. With the onset of higher operating costs the structure of demand in terms of vehicle size has shifted dramatically. Table 2.2 presents data on new car sales by size class for selected years since 1967. The data document the sizeable shift in the structure of demand that occurred in the 1970s. In 1967 over 70 percent of new car sales were in the intermediate and standard categories, while the subcompact group, which includes imports, accounted for 9.3 percent. By early 1980 the subcompact group

OCR for page 17
20 dominated the market, while standard models held fast at 12.5 percent of the market. The shift to smaller cars has been well publicized, but the timing of the change and the patterns of adjustment within the large-car ranks (intermediate, standard, luxury) deserve emphasis. It is clear from Table 2.2 that the largest change in the share of standard models occurred in 1974, but the downward trend was evident long before OPEC quadrupled the price of crude oil. From 1967 to 1972, for example, the large-car share fell from 71.5 to 57.8 percent, with most of the decline coming from the standard group. At the same time the share of subcompacts more than doubled to reach 22 percent. The shifts evident in the pre-1973 data set the pattern for the rest of the decade: a dramatic decline in the share of standard-size vehicles, a rise in subcompacts (including imports), and only modest changes in the share of other categories. THE AlANUFACTURING PROCESS Changes in the structure of demand in the 1 970s have had a profound impact on manufacturing facilities and processes. Trans- forming equipment, plants, and organization geared to the production of large road cruisers into a system for the design of much smaller and more efficient cars cannot be accomplished overnight. The expense and difficulty reflects the complexity, scale, and integration of the automobile production process. Indeed, the complexity and sophistication of the car itself pale in comparison to the organization and technology used to design, produce, and deliver the finished product to the market. Manu- facturing involves the production or purchase of over 10,000 parts, combining parts into components and systems, and the coordination of all this activity so that the right systems and components can be assembled to produce an automobile. The basic structure of production in the industry is shown in Figure 2.1. The figure includes activities in the chain of supply from raw materials to final assembly. Perhaps the dominant characteristic of the automobile pro- duction process is the importance of economies of scale. Over the last 70 years the production process has become increasingly mechanized, automated, and capital intensive. Indeed, the classic illustration of automation in U.S. industry is the modern auto- mobile engine plant. The modern engine plant can be seen as the outcome of an evolutionary progression from the general-purpose job-shop environment that characterized early engine manufacture. The highly specialized, capital-intensive process in today's plants

OCR for page 17
21 PROCESS SEGMENT r t I Process | Raw i_ i= Flow I Materials I I Processingb I I m n n I l Systems and SubassemblyC | l Final Assem blyC Basic Iron and Castings Bearings Engine Completed Sectors steel Forging Batteries Transmission automobile Aluminum Plastic Spark plugs Axles Silicon forming Shocks Suspension Plastics Glass Tires Steering Fibers forming Exhaust Frame Al I oys Stamp i ng Carbu retor Body Tri m Wheels Brakes FIGURE 2.1 The structure of production in the automobile industry. (Adapted from Byron, 1980.) _Predominantly suppliers. b Mixed OEM/suppliers. -Predominantly OEM. reflects a strategic orientation toward low-cost production of a standardized product. Choices about equipment and process have created a setup in which high volumes are essential to low cost. Existing estimates of the minimum efficient scale in engine pro- duction range from 350,000 to 500,000 units per year, depending on the particular technology employed. Engine plants are more automated than many of the processes in automobile manufacture, but the dependence of low cost on high volume is characteristic of all of them. In general, manufacturing policy has been oriented toward increased standardization and specialization in manufacturing operations and consequent reliance on high volume. At the same time, employment in jobs not directly related to production has increased substantially, possibly reflecting the growing complexity of coordination problems and changing regulatory requirements. In addition, the fixed com- ponent of engineering and research and development costs has grown under regulatory pressure and the need for new design initiatives. The net effect of these developments has been to enhance the importance of scale in the determination of profitability and competitive advantage. The Plant Network: An Illustration The basic structure of the overall manufacturing process, and in particular the plant network, can be illustrated by considering the

OCR for page 17
22 impact of changes in the marketplace as demand has shifted to smaller, more efficient cars.) The shift in demand has been met by "downsizing," by changes in basic components (e.g., shift from rear-wheel to front-wheel drive) and by material substitution. Though each change may have a direct impact on only part of the car, or a part of the manufacturing process, the various types of facilities are so tightly linked that even a small chance ran have major ramifications O ~ _, _. . . _~ - ._. .~ . The key facilities in the manufacturing process and their linkages are illustrated in Figure 2.2. Though highly simplified, the diagram captures the basic relationships among the manufac- ture of materials (e.g., steel, aluminum, plastic), components (e.g., steering gears, brakes), systems (e.g., engines, transmission), and final assembly. The automobile companies ~hereafter, OEMs "original equipment manufacturers)] do final assembly in their own facilities, and they generally produce major systems (engines, transmission) in-house; most materials and many components (e.g., brakes, steering assemblies, valves) are purchased from suppliers. The extent of integration varies significantly by company and even by model. It is not uncommon for OEMs to produce part of their need for a component in-house. while m~in1minina :~Hiti~r`~' sources outside. In Figure 2.2 the impact of "downsizing" is indicated by the cross hatches on various facilities. "Downsizing" involves all new body sheet metal (retool stamping plants), a shift to V-6 engines (change engine lines), smaller and lighter components (retooling at several plants--axles, suspension, brakes, and so forth), and new frames. The changes culminate in the final assembly plant, which requires some new fixtures and tooling. It is not hard to see why such changes require several hundred million dollars and take a few years to accomplish. Yet "downsizing" has a relatively modest impact on the manufacturing process in comparison to the redesign of basic components. The impact of moving from rear- to front- wheel drive and the introduction of unit body construction are illustrated in Figure 2.3. These changes in drive train and frame are accompanied by changes in several major components, as f allows: ~ ~ ~~& ~e O ~~A ~V! I~1 Elimination of the rear axle and addition of a new rear suspension. Replacement of the standard V-8 engine with V-6 and IL-4 engines. - e~m~nat~on of the drive shaft and transmission and replacement with trans-axle and twin front-wheel-drive shafts. Addition of new suspension (McPherson struts) and steering (rack and pinion).

OCR for page 17
23 c _ ~ ~ __ , ~ ^. Hi Q ~ P O Q - ~n ._ ._ ._ o ._ o Q C o ~0 _ _ In A: 3 o o

OCR for page 17
24 Jo o fi c CO Pi \ ~ ,~ ~ >~m , o . . I~ X~ o a: ._ In a) a: o Q o ~ . O oo [OLD Cal - - o ~ Cal

OCR for page 17
25 The impact on facilities is widespread: engine, frame, and axle plants are shut down, and major retooling occurs in the production of transmission bodies and other components. The significant capital adjustments, however, involve only modest use of new materials and do not require major changes in manufacturing processes. Future changes In Meson and in the use of new _ O materials could have even more far-reaching effects. We have already seen the introduction of electronics, which adds another type of process and facility to the overall system. Increased use of plastics, composites, and lightweight metals could make older facilities and processes obsolete and require new manufacturing capabilities. COMPANIES AND STRATEGIES, 1908-1973 The scale and complexity of the auto production process and the emphasis on high volumes is not a recent event. Although the very early days of the industry were characterized by competition among small technological entrepreneurs, the emergence of the Model T in 1908 and the subsequent development of a mass market for automobiles gave strong impetus to the emergence of large- scale enterprise as the dominant form of organization.2 By 1923 Ford and General Motors (GM) held 7 1 percent of the market, with Ford's share amounting to 50.4 percent. Ford lost the leadership position to GM in the late 1920s, and GM has retained a dominant market share to the present time. From 1925 to 1970, competition in the auto industry was essentially competition among a few giant domestic firms. While several so-called independents operated at the margin of the industry until the early 1950s, the bulk of sales was satisfied by the Big 3: GM, Ford, and Chrysler. The nature of competition in this period was strongly influenced by the strategy developed by G M in the 1920s and 1930s. In terms of pricing, product and process technology, and distribution, the Big 3 developed broadly s imilar approaches, although both Ford and Chrysler fashioned distinctive features. Stated quite broadly, the history of competition in the auto industry up to the oil embargo of the 1970s was marked by two d istinctive periods. Table 2.3 presents a brief characterization. In the first period, from 1908 to 1948, major innovative changes in the product played a significant role in the jockeying for profits and share. The second period was marked by relative stability in product technology and increased emphasis on competitive pricing and styling. In the postwar era, competition occurred primarily on the basis of economies of scale, styling, and the dealer network. These broad evolutionary changes are reflected in the changing strategic orientation of the major firms.

OCR for page 17
26 TABLE 2.3 Changing Mix of Competitive Factors Competitive Factor Competitive pricing Stage of Development Early (1905-1948) Secondary Factor Product performance domi- nates price comparisons; initial buyers value per- formance over price. Model change (in- Primary Factor novation in tech- Signuficant improvement in nology) product occurs rapidly; new models have major impact on market share. Channels of distribu- tion (dealerships) Primary Factor Personal contact and dealer reputation are key to ac- ceptance of new product. SOURCE: Adapted from Abernathy (1978, Table 2.5, p. 41). Strategy at Ford Late (1949-1973) Primary Factor Standardization leads to acceptable levels of per- formance; price be- comes significant factor in purchase decision. Secondary Factor Technology is refined and standardized; new models offer styling changes. Primary Factor Availability, cost, and quality of service are im- portant to mature prod- uct. The innovations in product and process that carried the Ford Motor Company to a dominant market position between 1908 and 1927 were motivated by a broad strategic plan. The essential outline of Henry Ford's strategy is suggested by an advertisement he placed more than two years before the Model T was introduced: tThe] idea is to build a high grade, practical auto- mobile that can be maintained as near $450 as it is possible to make it, thus raising the automobile out of the list of luxuries and bringing it to the point where the average American citizen may own and enjoy his own automobile-- the question is not "how much can we get for the car?" but "how low can we sell it and make a small margin on each one?" 3

OCR for page 17
27 The design of the Model T was followed by Ford's innovations in process methods and decentralized assembly plants, with mass production and distribution to provide control of the markets in an era of slow communications. The success of the strategy was evident in dramatic price reductions and in expansion of the market from 1908 to 1926; by 1923 Ford had 50.4 percent of a market that had grown to 3.6 million units. By the early 1920 s the Model T competed in a market far different from that of 1908. Its design had been improved upon, and the lack of variety had given GM an opportunity to differ- entiate and segment the market. Even though Ford added a starter and a closed steel body in the mid-1920s, there was no change in basic design. To retain market share, Ford dropped the price to $290, but GM still gained market share rapidly. Ford closed down completely in 1926 for nine months to design and change over to a new model. Ford introduced a new product in 1927 (the Model A), but the strategy was unchanged. Although Ford briefly regained its prior m arket share, the old competitive approach of low price, stan- dardized design, and mass production did not work for long. After three years, Ford's market share dropped below 25 percent. Product standardization was abandoned in 1932 with the intro- duction of the V-8 engine. Alfred Sloan of GM criticized Ford's strategy as follows: Mr. Ford had unusual vision, imagination and foresight-- ~his] basic conception of one car in one utility model at an even lower price was what the market' especially the farm ~ ~ 1 ~ i_ ~ ~ ~ A ~ ~ ~ ~ ~ ~ ~ ~ , , _ se't_~, Jl`~- C`~ ~11` ~111~- e [His] concept of the American market did not adequately fit the realities after 1923. Mr. Ford failed to realize that it was not necessary for new cars to meet the need for basic transportation.... Used cars at much lower prices dropped down to fill the demand.... The old master has failed to master change.4 Ford's strategy was brilliant but rigid. A market need was identified; the product and the manufacturing, marketing, and d istribution facilities to meet the need were developed and implemented. But Ford's strategy recognized neither the dynamics of market development nor the counteractions of competitors. Under new management after World War II, Ford rapidly adopted a new strategy.5 Independent divisions, each having its own product lines and production facilities, were envisioned. Separate engine and assembly plants for Lincoln-Mercury and Ford divisions were introduced, but the market failure of the

OCR for page 17
28 E dsel thwarted the planned development of three separate car divisions. After 1960 all North American production facilities were consolidated under a centralized functional organization; that is, many of the same Drc)dil~tinn Al Fir; ..--~:--- served all product lines. In describing competitive policies, Lawrence J. White con- cludes that Ford has been a follower in styling but a leader in seeking out market niches.6 New models like the Mustang, Maverick, Pinto, and a combination car and truck called the Ranchero seem to confirm this characterization. Despite these successes, Ford has not been able to excel in head-on competition with GM across the full product line. r ~ ~. ~& &~ ~~ ~~ ~~i 11 IE; lUI 1~ [lQllti Alfred Sloan and GM's Strategy G M's competitive policies evolved out of experience with both success and failure in the contest with Ford. The habit ~nnr^:~-h has been summarized by Alfred Sloan: ~ ~ ,~ ~ & IF ~ ~! ~ In 1921 . . . no conceivable amount of money, short of the United States Treasury could have sustained the losses required to take volume away from [Ford] at their own game. The strategy we devised was to take a bite from the top of his position--and in this way build up Chevrolet volume on a profitable base. Nevertheless--the K Model Chevrolet--was still far from the Ford Model T in price for the gravitational pull we hoped to exert in Mr. Ford's area of the market. It was our intention to continue adding improvements and over a period of time to move down in price on the Model K as our position justified it. We first said that the corporation should produce a line of cars in each price area, from the lowest to one for the strictly high grade quality-production car.... We proposed in general that General Motors should place its cars at the top of each price range and make them of such quality that they would attract sales from below that price.... This amounted to quality competition against cars above a given price tag and price competition against cars about that price tag.... The policy we said was valid if our cars were at least equal in design to the best of our competitor's grade, so that it was not necessary to lead in design or run the risk of untried experiment. The same idea held for production--it was not essential that for any particular car production be more efficient than that of its best competitor--coordinated .

OCR for page 17
29 operation of our plants would result in great efficiency-- the same could be said for engineering and other functions.7 Thus, there were three essential elements in GM's strategy: (1) Product design was conceived as a dynamic process that would lead to an ultimate target through incremental change. Design was not a once-and-for-all optimization as it had been with Ford. This process later became the annual model-change policy of GM. (2 ~ Market needs would be met through the product-line policy rather than independent designs. (3) Radical product innovations were to be avoided. As Sloan said, it was "not necessary to... run the risk of untried experiment." The broad competitive strategy that GM hammered out in specific decisions was to prove unbeatable. The company gained a dominant position in the U.S. market in the 1920s and has held it to the present. Little change in the essentials of GM's strategy was apparent during the period 1923-1973. Increased centraliza- tion among operating divisions, less difference in technological characteristics of various cars in the product line, and greater sharing of common components tended to make the different car lines more like a single product. In general terms, however, the strategy seems to have remained intact. Chrysler and Product Engineering The Chrysler Corporation seized a foothold in the market when Ford faltered in the Model T program and shut down for nine months.8 By 1929 Chrysler offered four basic car lines: Chrysler, DeSoto, Dodge, and Plymouth. Unlike G M, production for all product lines was centralized, and Chrysler apparently did not integrate vertically backward as extensively as either G M or Ford. Because Chrysler produced fewer of its own components, it was less constrained in adopting advanced innovative components. Thus, Chrysler could seek competitive advantages through flexi- bility in product engineering and in styling. Chrysler pioneered in high-compression engines in 1925; in frame designs permitting a low center of gravity in the 1930s; and in the experimental intro- duction of disc brakes in 1949, power steering in 1951, and the alternator in 1960. This strategy of design flexibility and shallow vertical integra- tion proved very successful in the prewar period, when the rate of technological change ir, the product was rapid. As product designs stablized after the war, however, other factors like the strength of dealerships and economies of scale became more important. Chrysler's market share followed a downward trend after World

OCR for page 17
30 W ar II. Chrysler did develop strength in some segments of the market (vans, compacts) but was generally a follower in product development after the war. Cost control was difficult during times of inflation, when cost increases could not be passed on to the consumer. This aspect was particularly troublesome after 1970. Infla- tion, government price controls, and the consumer's loss of real purchasing power have squeezed margins and capital at the very time when resources have been needed to develop and introduce smaller, more efficient cars. Chrysler's product image has not been well defined, and it has suffered a loss of customer loyalty and sales potential. Its current financial difficulties raise serious questions about long-term viability as a full-line producer. A competitive strategy emphasizing flexibility in product design was well suited to prewar conditions. As with Ford's early policies, however, it would seem that the development of the industry changed the necessary conditions for success. The Imports Imports have played a major role in the compact and subcompact segments of the U.S. market since the late 1 950s. Foreign producers, notably Mercedes, BMW, and Triumph, have been important in specialty and luxury cars. The distinguishing feature of import strategies has been their emphasis on Nine in selected market niches. Whether in terms of size, performance, or quality, foreign firms have sought an advantage by creating products that were different from the standard or traditional domestic products. Furthermore, the more successful firms have built strong sales and service networks. The clearest example of the importance of the dealer network in entering the U.S. market is the case of Volkswagen (W). Firmly established before sales were made, the V W system of dealers became a distinctive competitive factor, particularly in comparison with other European manufacturers. VW's strategy of "service first" allowed the company to maintain a strong market presence through the 1 960s. When relative costs of production shifted in the late 1960s and early 1970s, VW established a pro- duction facility in Pennsylvania. The lessons of the VW experience have not been lost on the Japanese or other Europeans. The major Japanese firms have payed close attention to the development of a dealer network. The Renault-American Motors Corporation (AMC) relationship is motivated in part by Renault's desire for an established dealer system. Furthermore, production of Renault designs in AMC

OCR for page 17
31 f acilities is likely within the next few years. Other foreign manufacturers, notably Honda and Nissan, plan to open car and light-truck production facilities in the United States. Firm Performance in the 1970s: Response to Crisis Historically, the auto industry as a whole has earned returns above the average for manufacturing, both in terms of returns on sales and stockholders' equity. At the same time, however, those returns have shown much greater than average cyclical variability. The decade of the 1970s witnessed a trend toward erosion of the profitability of the domestic producers and marked cyclical swings in the recessions of 1970, 1974-1975, and most recently in the 1979-1980 period. The downward trend in profitability may reflect declines in real income, rapid shifts in relative prices, an inappro- priate product mix, and effects of increased price competition from imported products. The importance of price competition is evident in Table 2.4, which presents data on Ford's list prices expressed in constant 1958 dollars and cumulative units of production. The long decline in the real price of the Model T. f rom 1908 to 1926, is indicative of Ford's "experience curve" strategy.9 With the transformation of the market in the late 1920s and GM's leadership in building larger and more luxurious cars, the real price rose for over 30 years. Since 1960 two dips have occurred, both associated with import competition. It seems clear from these data that part of the weakening financial per- f ormance of the domestic producers can be traced to declining real prices, caused in part by intensive competition. The oil DriCe exDlosIons in 1973 and again in 1979 olaYed a key ^ rib rib off r-a ~ ~ role in setting the economic context of industry performance. The oil crises affected the major firms very differently. Table 2.5 summarizes the basic competitive positions and market performance ot the major domestic firms and indicates some of the actions taken in the aftermath of the twin oil shocks. Except for GM, which has gradually increased its share in the last few years, the domestic producers have lost significant market shares. The loss of markets is a reflection of rapid market shifts and lags in response. Ford, Chrysler, and AMC have lagged behind GM in introducing strategic changes in vehicle size or new products. In general, GM has adopted a more aggressive posture, an approach consistent with traditional market leadership and greater financial resources. Financial performance has deteriorated for all firms except AMC, for which 1979 was an exceptionally good year. All of the Big 3 have experienced declining margins, with Chrysler suffering

OCR for page 17
32 punod Jad SJellO - oO on - - Q Sac o o o o a) ~5 ~4 o ~ _ ._ ~ ~ _ _ (I,) c so > :5 ~ o 3 In .o (L ~ .', Q .`n ~ ,~ Sac o ~ ~1 Q ~ I4< ~ _ o 0 1 om.~q' ~ . Seo!Jd IS! I Pled ~ Z

OCR for page 17
33 U. ._ Cal ._ - ._ o o - a~ U. o U. :^ o i_ :: V) ._ c - o so Ct in Ct V) a) ;> ._ ._ a' o V m o ._ - Ct - at U' at ~ o u, Cal O Cal O ~ ~ A _ _ Cal ~ - 00 - o - - 00 to - - 00 - o - O . ~ ~ V, 0 Ct o C: , is, a- E ~ E E ~ =5 ~ c- = ~ ~ ~ O ~ ~ ~ ~ ~ ~ Vat ~ O _ ~ ~ - ~ ~i ~ ~ ~ ~ o o o ~ - 00 Ch 00 ~ ~ - , o, O. e c E E e ~ ~ ~ e Y y 0, ~ 5 ~ ' O E ~ ~ ~ c~ c~ ~ 0 ~ ~ ~ ~ V ~ o o o Cq ;s ._ :S ~: ~s oo .= oo - - .= s~ s - ._ - ._ - ,o ~ ._ _h ce .~ . ~ c,: c~ s _ ~ ~ tq 0 ~ a' Q Ct o s~ a' Ct C5 _ ~D ~ ~ ~i _ o ~ oo O a~ ~s V~ _

OCR for page 17
34 s izeable losses at the end of the decade. The addition of 1980 data would show negative returns for all producers, a situation that became evident in late 1979. In retrospect, most of the 1970s was a time of transition for the U.S. auto industry. The once profitable, vigorous auto firms have experienced major financial and economic jolts; adjustments to the energy shocks and shifts in consumer tastes have not been smooth or easy. As we have intimated in this chapter, the nature of the U.S. firms' response to the crisis and the likely character of the industry's evolution in the next decade have been and will be strongly influenced by the specific pattern of industry develop- ment up to 1973. Several facets of that development might be examined fruitfully; we have chosen to emphasize three: the ~v~=l';~C u1 'produce ana process technology, the international- ization of markets, and the growth of government regulation. Each is examined in subsequent chapters. - Or_ ~ ~ _ i_ ~ _ ~ I NOTES 1. The figures underlying this discussion are taken from Byron (1980). 2. This has been well documented; see, for example, Chandler (1964) and Abernathy (1978). 3. The original source is Nevins and Hill (1954), p. 282; also cited in Abernathy (1978), p. 33. 4. Sloan (1972), pp. 4, 186, 187. 5. For a more extended review of Ford's strategy, see Abernathy (1978), pp. 30-33, and Leone et al. (198 I ) 6. White, L. (1971), p. 207. 7. Sloan (1972), pp. 71-73. 8. For a discussion of Chrysler's strategy, see Abernathy (1978), pp. 36-38, and Leone et al. (1980). 9. See Abernathy and Wayne (1974) of Ford's "experience curve" strategy. for an extensive analysis