Detroit and Me

Why my fascination with the tragic collapse of Detroit?


I had a great professor at USF Law School, J. Thomas McCarthy, this generation's leading scholar on intellectual property. He was an even better teacher. He turned me onto Antitrust.


Between his classes, the literature of the 1960's, and my fascination with cars (like many males I could identify every car on the road), I became convinced that GM had too much power - not so much in American society, but in the largest industry in America at that time - the automobile industry, responsible for 1/6 of the GNP.


GM was at least a quasi-monopoly, if not an outright monopoly using the famous Alcoa case as the basis of analysis, and then dividing the broad automobile market into relevant sub-markets. While GM possessed about 60% of the general auto market, it's market share progressively increased with the prices of the cars.


The Johnson Administration in its closing months filed major Monopolization suits against AT&T and IBM. It came close to also filing one against GM, but choose not to.


I was very fortunate in 1970 to be offered a substantial fellowship by the University of Michigan Law School to pursue graduate legal studies. At my first meeting with my advisor, I suggested doing my dissertation on why GM should be broken up as a monopoly. As you might imagine at that time in Michigan, that suggestion was gently discouraged. That was not a surprise, but I had to try.


In any event, while writing my dissertation, and then upon entering the Academy, I continued working on the GM project and prepared a book length manuscript.


Alas, it never found a publisher, but I have recently posted several chapters of it on the SSRN network, available for all to read for free.


My thesis is that GM's power was so strong as to strangle innovation and competition in the industry. Like many monopolists, it became a follower in introducing new technology. It had the resources to follow without risking failure, or so it seemed at the time. For example,

Ford introduced the Mustang in 1964, but earlier the Edsel nearly bankrupted Ford. The succcess of Ford's Mustang led to the blander Camaro (which I've been told has an interesting translation in French) and the more explosive Firebird. GM never produced viable minivans to compete with Chrysler's.


Like most stogy oligopolists, and especially monopolists, the market would eventually respond in negative ways to the company. One of GM's biggest mottos was "NIH", "Not Invented Here."


The first blow was the 67 day UAW strike in 1970, which GM lost. Then came the two Arab Oil Embargoes of the 1970's, from which GM never recovered.


The company, which manufactured large, heavy vehicles, full of 8 cylinders, chrome, and fins, took decades to respond. GM engineers and execs either couldn't figure out how to build quality, gas conserving vehicles (then called small cars or compacts/subcompacts and now called green calls), or the resulting cars were designed by a committtee dominated by non-engineers.

Quality suffered with the public understanding that you do not want to purchase an American car built on Monday, Friday or the first day of hunting season. GM seemingly escaped unscathed from a series of poor cars, but in reality, Americans switched in ever greater numbers to the imports.


A series of marketing disasters ensued, with names like Vega, Chevette, Nova, Aztep, and Citation. Cadillac went from the classic Fleetwoods, Coupe d'Villes, and Sedan d'Villes to the Catera and Cimmaron. Pontiac lost all sense of identity, going from "Pontiac Builds Excitement" to "Pontiac Charges More For Rebadging Chevrolets." The Fiero looked great, but was poorly designed. Oldsmobile was finally scrapped. I rented an Oldsmobile about 7 years ago. The interior, especially the dash board, looked like it was recycled from the 1960's). Buick hangs on because it is selling in China. (Ford, of course, gave us the Pinto, and American Motors marketed the Gremlin and the Pacer)

GM's profits are in large vehicles, now called SUV's and pickups, when they sell.


GM's volume product was the Chevrolet, and it had a high profit margin from the Cadillac. Its bread and butter though was in the midsize market, dominated by the B-O-P lines, Buick, Oldsmobile, and Pontiac. B-O-P was where most of its sales and profits came from.

The Toyota Corona and Honda Civic started dribbling into California in the mid 1960's while the VW Beetle became the status car, and Hippies loved the VW Van. GM did not respond. It still couldn't effectively respond as the Camry and Accord sales soared because of higher quality and lower prices. America exported coal and iron ore to Japan, which returned them as steel and autromobiles at competitive prices.

And from the 1970's to now, GM continued to close assembly plants and eliminate jobs. From almost 900,000 employees in the 1960's, it has shrunk to less than 1/3 of that today. Ford and Chrysler, in true oligopolistic fashion, followed suit.

I believe that if Buick, Oldsmobile, and Pontiac had been spun off as three new automobile companies, then at least one of them would have found an effective strategy to compete with the imports.

The telecom revolution began after the Baby Bells were divested from AT&T. Sprint and the Baby Bells led the way into new technology in telecommunications while startups, like McCaw led the way into cellular communications.

Deregulation in the airline industry led to Southwest, Jet Blue and AirTran, which represent meaningful competition for travellers.

The new entrants into the automobile industry came from overseas, using their existing plants to produce quality veicles for Americans.

I still love Michigan. I drive an American car, although the Chrysler Pacifica was actually made by a German company, Daimler Chrysler, in Windsor, Canada.

I am truly sorry about the plight of Detroit the City and Michigan the State, but even more so about the progressive unemployment by over a million employees of the Big Three and all the businesses, large and small, dependent upon them for a livihood.

GM is no longer a monopoly. GM is a bankrupt, and we are all, Michigan most of all, paying for its market failure.