2 - The Structure of the Auto Industry

Summary

In recent years the American automobile industry has undergone a fundamental transformation. Beset by foreign competition, it has reorganized operations and reduced capacity in response to new competitors using new production methods. The industry's restructuring is part of the larger phenomenon of U.S. companies responding to global competition by shifting investments, closing plants, and seeking greater flexibility in labor relations. The economic history of the U.S. auto industry is briefly reviewed here to lay the groundwork for the subsequent discussions of changing political patterns. This discussion also serves to highlight the more strictly economic side of corporate power.

Recent Changes

Although the U.S. auto industry has always seen its ups and downs in sales and profits, lately these ebbs and flows have resembled tidal waves. In 1980, for example, U.S. automakers sustained losses of $4.2 billion – a record at the time. GM, one of the most profitable companies in the twentieth century, experienced its first loss since its 1921 reorganization. (Even during the Great Depression it never lost money.) Meanwhile, Chrysler found itself on the verge of bankruptcy, saved only by a government bailout. In stark contrast, during each year of the previous two decades prior to 1980, the industry never returned less than $2 billion in combined profits (1980 dollars).

By 1983, the industry's fortunes turned around and it earned profits of $6.7 billion. And in 1984 its profits grew to $10 billion.