The Second Automobile Revolution

Since the 1990s, there has been an almost unprecedented proliferation and succession of forecasts and recommendations that automobile firms are supposed to take into account if they wish to survive and/or maintain their independence over the short term. The list is long: lean production, globalisation, cost-cutting, ‘new economy’, externalisation, modularisation, concentration, commonalisation, innovation, delocalisation, global sourcing, etc. At the same time, many developments and options have been underestimated and sometimes even ignored, despite the fact that the automobile world which they depict is very much at odds with the idea of a global convergence in strategies and practices: heterogeneous demands and markets; emergence of new carmakers; serious problems facing manufacturers that have long been at the top of the pile; the hiccups faced by some of the emerging countries and very rapid take-off of continent-sized countries; confirmation of a divergence in national automobile policies; skyrocketing petrol and raw material prices; increasingly stringent environmental standards; accelerated transition to alternative driving systems; the world financial crisis, etc. Moreover, it seems that some of these changes have paved the way for what might be called a ‘second automobile revolution’. The real questions are why so many forecasts have been wrong; whether current changes were foreseeable; and how to develop more reliable scenarios. A few initial responses can be found in some of GERPISA’s earlier studies.

The automobile industry presents a paradoxical situation. It has a century-old tradition of internationalisation. Together with electronics/electrical equipment and petroleum exploration and distribution, it dominates the list of the top 100 largest transnational corporations ranked by their foreign assets established by UNCTAD, with twelve automobile firms in 1990, and still eleven firms in 2005. But despite this strong presence, these automobile firms were initially much less internationalised than the average.

In 2007, the sales volume of Toyota group’s vehicles as a whole recorded 9,366,418 units, which is slightly behind General Motors’ sales, whereas its production volume reached 9,497,754 units, surpassing that of General Motors (GM). This was largely attained by a rapid growth of its overseas production and sales at the start of the twenty-first century, after production and sales stagnation for ten years (see Figure 4.1). It is as if Toyota deployed its explosive global strategy after patient preparation during the 1990s, a decade of stagnation for the Japanese economy and trade conflicts with the USA. In addition, Toyota successfully launched its first hybrid car, the Prius, with a reasonable price in 1997, and became an innovative leading company in the field of ecologically friendly cars. This new approach to Toyota’s product strategy has increased its share in the North American market, where the old ‘big three’ are suffering, and which is now the most important market for Toyota, accounting for 36 per cent of its global sales in 2006, whereas the share of its sales in the Japanese market reduced from 51 per cent in 1990 to 35 per cent in 2000, and to only 21 per cent in 2006. After such a striking success in its foreign markets, Toyota’s global competitive edge now seems solidly established and invincible, and its high production efficiency and products quality are assured by the famous Toyota Production System (TPS). However, during the 1990s Toyota revised its human resource and productivity management system, which constituted the core of TPS founded by Taiichi Ohno, as if Toyota had changed course in its evolutionary trajectory.

Nissan was founded in 1933 and became a globally competitive automobile producer during the 1960s. In 2006 Nissan had a global workforce of 186,336 employees and sold close to 3.5 million vehicles worldwide, produced at production sites in eighteen different countries. This chapter provides an overview of the period 1994–2007 which arguably has been one of the most eventful episodes in Nissan’s history. Finding itself on the brink of bankruptcy, Nissan took the bold step of entering an alliance with Renault in 1998, and placed far-reaching managerial power in the hands of its European partner.

Mazda has a storied tradition in the auto industry (Shimokawa, 1994). While Mazda’s production of three-wheel motor vehicles for the Japanese market began in 1931, and four-wheel vehicle production began in 1960, Mazda is probably most well known for its successful development of the rotary engine in the mid-to-late 1960s. Yet as of the early-to-mid-1990s, Mazda was a severely struggling automaker burdened with poor profit performance, a heavy debt load, an inconsistent product message and an over-extended product line (see Hino, 2006: 177, 200).

Global competition in the automobile industry and changing consumer demand are resulting in numerous trends: greater product variety and innovation; shorter product life cycles; low unit costs; and higher product quality. It has been theorised that changing market conditions precipitated a crisis of Fordism that then changed in fundamental ways to provide a new form of production system. This system is known for achieving greater functional and numerical flexibility by computer-based automated procedures.

General Motors’ achievement during much of the twentieth century was built on a foundation of some aspects of Fordist production and an organisational structure developed by Alfred P. Sloan, Jr. Sloan served forty-five years at GM, first as an executive and then on its Board of Directors (Sloan, 1990). Following unevenness in its early years, the company attained fairly consistent prosperity. This success continued until the early 1970s. After that, however, GM alternated periods of profitable operations with periods of serious financial losses. Furthermore, the company’s market share in its home market has been declining for years. We argue that General Motors’ problems stem partly from relying too long on Fordist production and also flow from not maintaining some of the valuable aspects of Sloan’s structure. We also contend that the company has been hampered somewhat by its slowness in modifying the Sloanist structure to match it more fully to GM’s growing international operations.

From the mid-1990s onward the Ford Motor Company entered a period of decline, continuing to the time of this writing, although for the first part of this downward trajectory it remained concealed by enormous profits earned from North American sales of trucks.¹ The decline was driven by a loss of strategic direction, which this chapter will investigate. By 2000 or so the trajectory was clear and a series of turnaround efforts was launched, whose eventual results are as yet unknown.

The period under study covers a phase in the Volkswagen (VW) trajectory marked by a particularly close succession of growth and crises, high-flying plans and bitter disappointments. At the end of the period, the VW Group was acquired by the family-owned niche carmaker Porsche. Our account describes the factors and processes which made this shift possible. The shift could have far-reaching effects on the productive model that had determined the company trajectory of VW for more than half a century.

With its 1976 takeover of Citroën, followed in 1979 by Chrysler’s European subsidiaries, PSA was trying to quickly acquire the means to implement a new approach for it — a Sloanian ‘volume and diversity’ strategy. The constitution of a multi-brand group would have given the company a chance to design shared platforms for its Peugeot, Citroën and Talbot models (the latter being the new name given to Chrysler Europe) while hoping for economies of scale and a broad market coverage far superior to the one enjoyed by its direct competitors, Renault, Fiat and Volkswagen. Changing a profit strategy is, however, easier said than done, especially when the newly absorbed carmakers had previously followed quite different profit strategies. Sharply lower automobile demand and higher manufacturing costs following the monetary and oil crises of the time also made this a particularly risky operation.

After a period when everything seemed to come up trumps, Renault has fallen on hard times again. Since the 1980s, the company has run into serious difficulties once every decade: 1983–6, 1992–7 and 2005 to the present. Hard times have sometimes been followed by a spectacular recovery, as when Renault first set up its alliance with Nissan, or made Dacia into the world’s first truly ‘low-cost’ automobile maker, or penetrated the Korean market by taking over Samsung. Of course, there were dissimilarities between these three times of trouble. The first was caused by a crisis endangering Renault’s very financial survival. The second resulted from a performance crisis masking the decision it had made to pursue highly profitable product policies in the favourable context of the late 1990s. The gains from this move allowed Renault to ‘globalise’ in one fell swoop. Lastly, the problems encountered since 2005 seem to be rooted in a crisis of coherency that, although it may not yet be apprehended in this light, could ultimately turn into something more serious than mere ‘turbulence’.

Fiat Group Automobiles,¹ the group that controls automotive manufacturing activities within Gruppo Fiat SpA, has gone through many crises in more than a century of existence. The crisis that arose dramatically in 2002, albeit rooted in the previous decade, presents however some peculiar aspects. On the one hand it was certainly the most serious ever, since only the support by other Fiat Group businesses and a team of banks has prevented the ‘virtual bankruptcy’ of Fiat Automobiles turning into an actual one. On the other hand, however, the crisis has been followed by a recovery that has astonished scholars and observers for the speed and character of the turnaround. We could liken the recovery to a ‘rebirth’ from the ashes like the Arabian phoenix, given the many elements of novelty and change that the management of Sergio Marchionne, CEO of Fiat Group, has achieved since 2004. To describe and to interpret the new strategic trajectory requires, considering its peculiarities, outlining the situation facing Fiat Automobiles in 2004, after a long stage of managerial and competitive involution.²

This chapter outlines the conditions and objectives of the merger between Daimler-Benz and Chrysler in 1998 as the point of departure for a turbulent restructuring story which ended up in the sale of Chrysler to the private equity group Cerberus Capital in May 2007. The company never became really integrated and the German management had to take over the responsibility for the whole group with Chrysler, Smart, Freightliner, Mitsubishi and Hyundai in deep crisis. The nine years of DaimlerChrysler are mainly the story of the failure of former CEO Jürgen Schrempps’ ‘world company’ strategy. The permanent turnaround plans and restructuring programmes slowed down the ambitious internationalisation and synergy strategies and even forced the abandonment of some core projects. The DaimlerChrysler case shows the difficulties of transnational and intercultural mergers and of global corporate governance. The unintended outcome of the story is two new car groups, Daimler and Chrysler, clearly different from the pre-merger companies and with uncertain future. The analytical perspective adopted is a meso-political one concerning firms as complexes of power networks and interest constellations with a variety of internal and external actors involved. From this point of view, the DaimlerChrysler trajectory is a story of dynamic and contradictory interests, actors and alliances far away from neo-classical worlds of one-best-way optimisations and perfect competition in free markets.

BMW is the world’s second most profitable carmaker in terms of the money earned per produced car (after Porsche). BMW experienced a worldwide growth in production and sales between 2000 and 2005 of more than 50 per cent up to 1.3 million cars — only Toyota has a similar high growth rate, but at an even higher level of about 7.7 million cars in 2005. Together with Mercedes-Benz, Lexus and Audi, BMW is one of the most important premium carmakers. BMW changed dramatically over only ten to fifteen years from a regionally producing and thinking company to a global player. How was this possible? What have been the driving forces of these fundamental changes of the consortium since the 1990s?

By the start of the 1990s Volvo had managed to establish itself with a clear and consistent brand identity, a unique manufacturing strategy and a loyal customer following. The world around it has changed drastically since the start of the second automotive century: shifting economies of scale due to an expansion of model range and shortened product life cycles, new efficiency imperatives and a changing competitive landscape in the near luxury segment have placed Volvo’s modus operandi in peril. In this chapter we will briefly touch on the failed merger with Renault in 1993, and leap forward in our discussion to start with Ford’s purchase of Volvo in the spring of 1999. Over the following eight years, Volvo has become an integral part of Ford’s Premier Automotive Group, a move which has resulted in a major expansion of its product range, through product sharing with family partners. We will comment on the success of this merger and — given Ford’s recurring yet conflicting statements of intent to sell Volvo on — also comment on the long-term future for Volvo.

Rover Group’s acquisition by BMW and its dissolution little more than five years later marks the end of an era for the British car industry. This chapter builds on earlier work by the author and others to provide an overview of Rover Group’s formation, the controversy over the break-up of its partnership with Honda and acquisition by BMW, and the subsequent trajectories of each of its principal production sites. Neglected contradictions between the market-oriented approach of BMW and Japanese-inspired manufacturing practices are noted — a striking example, played out at Rover in the 1990s, of a strategic mismatch in firm policy. More generally, the history of a British-owned car industry abounds in instances where strategies not only ‘meet’, but ‘collide’ (Boyer and Freyssenet, 2002). A persistent theme to emerge throughout is that ‘British’ decline is not readily disentangled from the effects of internationalisation on the sector.

China is currently the second automobile producing nation in the world, after Japan. It overtook the United States in 2008 as total car production reached 9.3 million units. Between 2000 and 2008, the passenger car sector in China expanded at a striking annual growth rate of 21.1 per cent. This phenomenal growth was undoubtedly linked to the constant economic development in China since the ‘opening-up’ policy implemented in the late 1970s. China’s average annual GDP growth rate between 1978 and 2008 was 15.3 per cent.

Maruti-Suzuki is the market leader in India’s passenger car market and has remained in this position despite losing ground to the growing competition. Understanding Maruti-Suzuki’s trajectory is interesting not only because it is one of the most successful players in one of the fastest growing emerging markets, but also because the case epitomises the transformation the Indian economy and society has undergone in the past decades. While MarutiSuzuki’s trajectory is strongly shaped by the deregulation and liberalisation of the Indian socio-economic context, this influence is not unidirectional. Being a national champion in the first decades of its existence, Maruti-Suzuki has become a driver of liberalisation and reform as a range of government polices are tailored to the company’s needs. Clearly, like no other automobile company, Maruti-Suzuki has changed and shaped the development of the Indian automobile industry. Drawing broadly on Boyer and Freyssenet’s (2003) work and definition of production models and their contextual embeddedness, this chapter focuses on the transformation of Maruti-Suzuki’s production model between 1992 and 2007. This discussion highlights the close conjunction between changes in the company’s production model and its context. The chapter is structured as follows. In the next section we briefly discuss Maruti-Suzuki’s trajectory until the early 1990s. The following sections discuss Maruti-Suzuki’s trajectory from the early to mid-1990s until 2001, and the period from 2002 until 2007.

Since the 1990s, supply relationships have undergone a number of upheavals, the first of which was incontestably quantitative in nature. Outsourcing has skyrocketed, with external purchases often amounting to 75–80 per cent of the manufacturing cost price of a passenger car. Long comprising average-sized actors, changes in this sector have given birth to global firms structured as oligopolies and occupying a major (and growing) role in the world’s ‘automobile system’.

The first automobile revolution was characterised by the adoption of a global standard — the internal combustion engine, sustained by a liquid fossil fuel (oil) and by the diffusion of automobiles, mainly throughout the industrialised world. After a brief era of confrontation between different energy producers, the tandem ‘internal combustion engine/petrol’ became the global standard and still dominates today (Bardoux et al., 1982). Aside from a dramatic shift in production volumes between the first and the second half of the twentieth century — as in Figure 23.1 — the latter half of the century fulfilled the earlier promise of what can be called the automobilisation of industrialised societies. Achieving this promise was predicated on two political choices: the creation of an adapted and dense road network within a framework determined by state authorities; and the post-Second World War implementation in most industrialised nations of a ‘coordinated and moderately hierarchised’ mode of national income distribution. This mode triggered a self-sustaining process until 1974, one that ‘school of regulation’ economists have called Fordism, in homage to Antonio Gramsci, who was the first to use this term to refer to the variant of capitalism in which increases in real wages are viewed as a precondition for mass consumption and industrial development.¹ The new forms of work organisation and their extension to ever more activities, along with the general development of social protection, education and public services, expanded the middle classes and more broadly the population of individuals who could afford to acquire a new vehicle.