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Why car makers are in trouble

By Sunita Narain
December 19, 2008 14:37 IST
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Have you noticed how the mighty automobile industry in the US is beginning to sound like the now infamous tobacco industry at the time of its collapse, taking cover behind the people it employed to whitewash its inefficiency and perhaps its sheer inappropriateness?

Today, Detroit's three big guys - General Motors (GM), Ford, Chrysler -  are wrangling before the US Congress (and now the US government) for a $30 billion bail-out package arguing for its workers' employment.

Not so long ago, the tobacco industry, even after it became clear that the science of toxicity of this leaf was real, hid behind farmers who grew it. It argued (as it still does in India) that if cigarettes went out of favour, it would destroy the livelihood of thousands who toiled in the fields, as also its workers and ancillary infrastructure. Of course, nothing like that happened. The farmers switched to another crop.

Then cigarette manufacturers of the US were creating desirable symbols of macho growth. But soon the car took over. Just compare the image of the Marlboro man, astride his horse, the monarch of all the rugged land he surveyed, with the General Motors man -this time, riding in his massive sports utility vehicle, mowing through the wilds. We forgot that the vehicle was only a machine that needed to get us from one place to another.

This car trouble is not confined to the US alone. European automakers have called for a $50 billion aid package; Australia has already passed a $2.3 billion aid package and even Chinese carmakers are now begging Beijing for help. Remember, we are talking of different worlds, but more or less the same companies. In 2005, five multinational car companies - GM, Ford, Toyota, Volkswagen and Daimler Chrysler -produced about half of all motor vehicles in the world.

There are many issues that plague these companies, but two are most important. One, it is widely agreed (even in auto circles) that there is massive production over-capacity in the world.

It is no surprise then, with recession at people's door, that they have shut out this non-essential purchase. In the boom days, companies sold cars by pretending they were much more than mere machines to move people around. Now, in this situation of glut-capacity, surplus is predicted to hit 30 per cent - or a staggering 29 million vehicles in 2009 in the US alone.

Two, they completely ignored the writing on the wall that fuel efficiency was the business of the future. In fact, US car manufacturers continue to produce, what can easily be called, the world's most fuel-guzzling machines on the road.

They have been so out of touch that even after the price of fuel increased, the auto companies responded with lollipops for buyers - free fuel coupons for limited periods (this was also done by their variants in India), instead on investing in smaller and more efficient cars. This out-of-touch factor probably also explains why the three company heads took three company jets from the same city to fly to the same session of the US Congress. No wonder American public opinion has turned against its superheroes.

And be clear that our Indian heroes are in the same super league. Two years ago, under pressure from environmental organisations, the government agreed to set up a committee to mandate fuel efficiency. But the automobile companies ganged up, refused to give data on their current fuel efficiency and asked for a long-term research to establish the baseline.

Then when the Bureau of Energy Efficiency, mandated to set standards for energy conservation, finalised the norms, the companies launched a new attack.

They said the vehicle was not an 'appliance'- and so the Bureau could not set standards for them. At a meeting two months ago, in a move that spoke clearly of the tremendous clout of the industry, the Prime Minister's Office gave in and passed on the job to the Union Ministry of Surface Transport. This 'promoter' ministry has done its master proud. It has revised and weakened the fuel efficiency standards set by the Bureau and said status quo should continue till 2015 at the very least. Ridiculous!

What amazes me is that big industry never seems to learn. This is possibly because they never listen. Today, even with the credit-tsunami, industry leaders and their sycophants in the finance world are all saying, "We never saw this coming".

The reason is simple. The Davos-glitterati has no space for opinions from outside its gilded doors. They have no space for opinions they do not agree with - certainly, no time for discordant or inconvenient voices.

But is this not why dinosaurs too lost the battle against change? Are we now looking at 21st century's greatest extinction stories - the death of the modern dino?

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Sunita Narain
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