“The Downsizing Decision” (May 5, 1980) – A Deep Dive Into the Turmoil and Decisions That Reshaped the Domestic Auto Industry in the 1970s

(first posted 4/9/2018)     I ran into this article in the New Yorker last November, and found it to be an excellent look at the forces re-shaping the auto industry in the mid-late 70s, which were of course rising energy costs, government intervention, greater environmental/social consciousness, foreign competition, and globalization. The massive wave of downsizing that GM undertook starting in 1974 for the 1977-1980 model years, culminating with the FWD X-Cars, was the biggest industrial investment in the US since WW2, totaling over $20 billion (roughly $90 billion adjusted). It propelled GM’s market share and in the process almost bankrupted Ford and Chrysler. And it reshaped the entire industry in the 1980s, for better or for worse.

This article has interviews with the key decision makers, and brings a lot of insight and perspective to what were probably the most challenging years of the industry.

The article is available on-line, here, and a lot easier to read there than for me to scan and re-post it here.

And after you’ve read it, come on back for a bit of my commentary and your comments.

It’s easy to say that the Big Three’s woes were inflicted on it by the government, especially through its CAFE regulations. But there were obviously other powerful factors too.  The price of oil and consequently gasoline has been the biggest single influence in terms of being highly variable and unpredictable. When gas prices were high, Americans rushed to dump their big cars and trucks for small, efficient cars. And of course the recent period of low fuel prices has resulted in continued increase of market share for pickups and SUVs.

And since the CAFE rules now are quite different than before, manufacturers no longer need to depend on small cars to even out their fleet averages, as FCA has shown.

As a postscript to this article, although GM was riding very high in 1980 and at the time and one might likely have predicted continued success due to its massive downsizing, the opposite was about to happen. The 1980’s were the decade from hell for GM, as its market share collapsed faster than at any other time. Over ten percent of market share were shed between the years 1980 and 1987 alone. What happened?

That’s been a focus of our long-running GM’s Deadly Sin Series, but in a nutshell, GM failed to execute its massive downsizing with the level of proper development and quality. The downsized 1977 B/C bodies were a huge success in every way, although quality wasn’t exactly a standout. But from there things went rapidly downhill, culminating in the X-Car fiasco. And that was followed up by a new family of FWD upscale sedans in 1985 and coupes 1986 that largely missed the mark in terms of design, having been shrunk excessively; more than would have been necessary to meet their ambitious efficiency goals. And they arrived at a time when fuel prices had been moderating. And there were massive quality issues with certain engines, transmissions and other components.

GM was obviously overwhelmed by the hugely ambitious undertaking it set for itself; they simply couldn’t execute it properly. That implies that the decisions to do so were made in a vacuum, or simply from the hubris resulting from their decades of success. The corporation simply wasn’t up to the task. And it wouldn’t ever be again, until it died in bankruptcy.

The forces identified in this article that were reshaping the Big Three ended up essentially killing GM and Chrysler and pushing Ford to the edge of bankruptcy. No one could have possibly predicted that in 1980. But it certainly makes the title “The Downsizing Decision” prescient; GM certainly downsized itself, right out of existence.