US auto industry should be more like the US gun industry

One thing that the US gun industry has going for it is that it is too politically correct to ever receive a bailout from anybody. They know this, and as a result, the US civilian gun industry consists of a handful of medium sized companies, some profitable and some going bankrupt, and a whole slew of small, nimble gun companies hoping that their new product or manufacturing process will propel them into the ranks of the medium sized elites. In a nutshell – the US gun manufacturing industry is efficient. It possesses the ruthless efficiency of BMW and Toyota.

This efficiency is the by-product of the fact that American gun manufacturers are allowed to fail. The old legacy gun companies – Smith & Wesson, Colt and Winchester – have all gone bankrupt or come perilously close to it. This despite the fact these companies have more history than any of the big three car companies. For instance, Winchester was 140 years old when it went under.

Periodic bankruptcies are good for industry because man-made organizations, like organic bodies, have a natural life cycle to them – they are new and virile when they are young and growing, they are powerful and level-headed when they are mature, and they are frail and backwards looking when they are old. Take the big three auto firms for example. As layoffs progress, fewer and fewer workers support more and more retirees. This is a death spiral where productive assets are increasingly diverted from life-giving R&D to pay people who don’t work any more. Such companies no longer look to the future, but rather look warily over their shoulder at their past. According to Mitt Romney, $2,000 from the sale of every car Ford makes, goes towards benefits and payments that Japanese carmakers don’t have to make. The Japanese spend this money on quality and features instead – or just lower the price.

One of the strong points of the free market system is that old organizations are allowed to die a natural death, making way for new, vibrant, forward-looking companies that take their place. Bankruptcy is an essential part of the economic renewal process. It may be painful but it means that precious, finite capital is not being absorbed by unproductive bodies. It is part of the way capitalism constantly reinvents itself.

 When Winchester went bankrupt in 2006, it didn’t mean that its excellent Model 70 rifle would no longer be produced. All it meant was that it would no longer be manufactured at Winchester’s 140 year old plant in New Haven, Connecticut (by unionized workers). A new corporate arrangement ensured that it would henceforth be made at a modern facility in Columbia, SC (by nonunionised workers). Something similar happened when High Standard went belly up in the early 80’s due to quality control problems and the recession. A new company bought all the tooling and the name, and as a result, today, these great .22 target pistols are still for sale – great because they are almost as good as high-end European pistols for a fraction of the price.

Doubtlessly something similar would happen if Ford was allowed to fail. Who wouldn’t want to buy an F-150 pickup, if the only difference was that it was made by the F-150 Corporation (located in a Sunbelt state) instead of the Ford Motor Company? And, oh yes, the truck is now cheaper and comes with fewer defects. Presently, Detroit makes plenty of great cars: Camaros, Mustangs, Challengers, Corvettes, Chevy pickups, Crown Vics, etc. Just because the big three companies that make these vehicles depart the scene doesn’t mean these vehicles won’t be produced tomorrow. Once the tooling is sold to a new company, one unencumbered by legacy debt and union arrangements, all of these vehicles can be made again, only better and cheaper.

For years, Colt’s bread and butter was its Model 1911 .45 auto and its AR15 rifle. People loved these guns but, lets face it, Colt got sloppy over time and their quality went down. Then, when its patents expired, a whole host of new companies came along that made literally dozens of clones of both these venerable firearms. Some are cheaper, some are better, some are better and cheaper. Colt had a near death experience as a result and was only saved by defence department contracts, but the consumer couldn’t have been happier. What allowed this to happen was that small companies with new ideas about an old product were able to access enough capital to make a go of it. To prevent finite capital from being diverted to unproductive sinks is why bankruptcy is periodically necessary. 

This could happen to the American car industry. Right now there are dozens of craft car companies slowly incubating, waiting for the opportunity to take their place in the sun. Just think of what they could accomplish if the billions Congress wasn’t thinking of giving to the big three was instead loaned to the most deserving of these. For one thing they wouldn’t be emulating the 1930’s practices of the big three. But they wouldn’t be copying the 1960’s practices of the Japanese and the Germans. Instead they would be doing the 21^st century American way.

In other words, if GM, Ford and Chrysler go belly up, it might just be a renaissance for the American car. But this will only happen if we are prepared to make a decisive break with the past.

Comments

[WiseGuy]

Too bad it won't happen. The problem is that the Democrat Congress has no interest in the car industry, only in the unions, and this is where the bailout is directed.

The only hope is in a stubborn veto from the lame duck President, and fast action by the auto execs in declaring bankruptcy. Perhaps this is their plan, or is it too much to hope for.

[WiseGuy]

The more I read this post, the more I agree with it. The market will always correct itself, if left alone by government (excepting criminal behaviour). Unfortunately, successive liberal governments have passed legislation which makes ordinary market behavior, criminal.

[Peeter Leppik]

A good comparison to another industry...couldn't agree more.

One thing the author might have mentioned is the problem of complexity of these large organizations. Complex problems calling for complex solutions - creating more complex problems. This makes a case for the Ol' "small is beautiful" view.

These huge industrial age cultures are particularly prone to breakdown.

Well, Toyota is huge too, but they manage so far ...with the "Toyota Way" and lean and Kaizen, and a culture altogether different.