NPR was interviewing some Brit business administration guru early this morning. The Brit was discussing the American automobile market, and how Japanese imports rose from nothing to 25% market share. He said the imports entered the low end of the market and then the domestic makers "retreated" from that end of the market. He obviously thought the domestic makes should have stood their ground and fought the imports on the beaches, on the landing grounds, and never surrender. He didn't quite say it like that, but you got the message.
And this guru was spouting nonsense. Detroit never retreated from the low end of the car market. They were never in it. Detroit was building famously large cars, six passenger, eight cylinder, automatic transmission, land yachts. The imports were way smaller cars, four passenger, four cylinder, manual transmission. Detroit never made anything like that. And these minimal cars sold for about two thirds of what Detroit was getting for baseline sedans. And a whole lot of customers decided that a minimal car at a good price was all they needed to get to work and chauffeur the kids around in.
The decision facing Detroit was not whether to defend the low end of the market, it was a decision to enter the low end with a totally new small car design, or just keep on making what was selling well.
Only GM took the plunge and decided to produce a true low end car, Saturn. Ford and Chrysler punted. Saturn could have worked out, but GM suits saddled the operation with too much expensive overhead.
Our Brit guru doesn't understand that the importers created a new market for a new kind of car. The imports didn't invade the existing market, their created a whole new market. And did very well at it.
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