Challenge and opportunity in the U.S. auto industry: the key role of suppliers

The U.S. economic crisis of 2008-2009 hit the automotive industry particularly hard; sales fell suddenly by 40% in the third quarter of 2008. The U.S. policy response to this automotive crisis was somewhat misdirected, attempting to solve the wrong problems. The U.S. automakers did not have a cost problem. Instead, they faced a price problem: consumers were willing to buy vehicles from the Detroit Three only if they were priced at least two thousand dollars less than their competition. The paper argues that the cause of this price problem was a failure over decades to adapt to new competitive methods introduced by Japanese automakers, methods which made untenable the traditionally hostile relationship the automakers had with their workforce and suppliers. Though the policies adopted by the U.S. government had their flaws, they may still be effective in returning profitability to U.S.-owned automakers, albeit in the context of a smaller and lower-paid industry.