(Readers: Please note the blog about the 5th revolution in the US is constructed as a story. While not all chapters are linked, the story might be more meaningful by starting at the beginning.)

(Want a PDF version for Entries #1-10, #11-20, #21-30 formatted as an e-book?  Entries #31-40 available soon.  Click links for download.  America’s 5th Revolution Volume I (Entries 1-10)America’s 5th Revolution Volume II (Entries 11-20)America’s 5th Revolution Volume III (Entries 21-30)

Scene: Jordan’s office with Matt, reporter for major publication.  Matt has been asked by POTUS’ office to help write the story of GM.  POTUS wants to use the information as part of a plan to help rebuild US manufacturing.  Entries about GM begin #41.

Matt:  “Jordan, now start telling me about the transition of GM from economic engine to sputtering engine to dead stop.  What really happened?

Jordan:  “I’m going to remind you of two things.  The story is my interpretation of events.  Historians and others might not agree.  Second, the story needs the proper context.  Too much emphasis is usually placed on earnings and stock price.”

reporter on typewriter clipartMatt:  “You think there’s a better measure?”

Jordan:  “Earnings and stock price are the result of actions, not the cause.  We want to talk about the cause.  Otherwise the analysis does not contribute to POTUS’ effort to help rebuild US manufacturing.”

Matt:  “OK, let’s get to the next phase.”

Jordan:  “The 1970’s were chaotic for the US-based manufacturing companies.  The country experienced two oil embargos – 1973 and 1979.  There was also hyper-inflation by US standards.”

Matt:  “What was the prime rate for a while, 15%?”

Jordan:  “It stayed over 15% for several years and actually over 20% for a while.  Hard to comprehend now.”

history-of-prime-rate

Matt:  “High interest rates impact housing and autos, right?”

Jordan:  “For autos, while overall sales declined, the bigger impact was the shift in sales mix – away from large cars and toward smaller cars.”

Matt:  “How did GM fare?”

Jordan:  “Not very well.  Here’s a bit of info to show you how rapidly demand changed.  First, the used car market does not care what the list price of a new car is.  In the used car market, price is set by demand.”

Matt:  “OK…now what?”

Oil EmbargoJordan:  “The oil embargo starts in October 1973.  By January 1974 – three months later – demand for large and small cars has shifted so quickly that the price of a one-year old Chevrolet Vega, a small car, is higher than the price of a one-year old Chevrolet Caprice, a large car.”

Matt:  “And the list price of the Caprice was what…about twice the Vega?”

Jordan:  “That’s a good guess.”

Matt:  “So GM had been strong in large cars now faces a market wanting small cars.”

Jordan:  “GM also suffers because the first oil embargo gives the Japanese imports a real chance to make inroads in the US market.  Sales were languishing prior to the embargo.”

Matt:  “OK, back to GM.”

Jordan:  “GM’s first real small car was the Corvair, introduced in the 1960’s.  Great car until…”

UnsafeAtAnySpeedLargeMatt:  “Ralph Nader wrote ‘Unsafe at Any Speed’.  Was that really true?”

Jordan:  “Rear-engine cars, which the Corvair was…VW Beetle another…and the 911 Porsche…used to have an inherent disadvantage in front-end crashes.”

Matt:  “What do you mean?”

Jordan:  “In front-end crashes the engine absorbs much of the kinetic energy of the impact.  Imagine taking your hand, make a fist and hitting the wall.”

Matt:  “Ouch.”

Jordan:  “Ouch is right.  Now put on a glove, ideally a boxing glove and hit the same wall.”

Matt:  “Does not hurt as much, if at all.”

Jordan:  “Think of the engine of the car as the glove…absorbing the energy from the hit.”

Matt:  “And rear-engine cars have no glove.”

Jordan:  “Had, at least not then.  Structural engineering has improved significantly since the 1960’s.”

Matt:  “So Nader’s points were valid.”

Jordan:  “I think some of the points were valid.  And I also think the benefit of the book has been increased emphasis on surviving accidents – emphasis by government and the auto industry.”

Matt:  “But the book effectively killed the Corvair.  I’ve only seen a few of them at auto shows.  Looks like a great car.”

Jordan:  “Here’s a bit of trivia most people don’t know.  As a lead in, what car first comes to mind when I say 1960’s?”

Matt:  “Mustang.  Now that’s a great car.”

Jordan:  “The father of the Mustang?”

Matt:  “Lee Iacocca.”

Jordan:  “How do you think Iacocca convinced Henry Ford II and the other executives to commit funds to develop the Mustang?”

Matt:  “Don’t know.”

Jordan:  “I don’t remember if I read this in a book or heard this from Lee one night over drinks.  But in the Ford executive garage he lined up all Chevrolet products on one side and all Ford products on the other.”

Matt:  “And on the Ford side there was an empty spot.”

spyder64Jordan:  “An empty spot directly across from the Corvair Monza Spyder.”

Matt:  “So that’s how the Mustang came about.  To counter the Corvair Monza.  Interesting.”

Jordan:  “But as you know, the Corvair dies after Nader’s book.”

Matt:  “And the Mustang lives a robust life.  What did GM do?”

Jordan:  “Counter to the Mustang was the Camaro, which lives to this day.”

Matt:  “But the Camaro was not a Corvair replacement, was it?”

Jordan:  “No, Corvair was replaced by the Chevrolet Vega.”

chevy-vegaMatt:  “The Vega reminds me of the Edsel.  What a disaster.”

Jordan:  “I think Vega was a great concept but had a lot of new technology that was never fully tested.  GM rushed it to market.”

Matt:  “How long was Vega in production?”

Jordan:  “1970-1977.  Problems with the early models doomed the car and production was minimal in the later years.”

Matt:  “So GM enters the 1980’s with two recent small car failures – Corvair and Vega.  At the same time the public has experienced gas rationing and higher gas prices, both of which are pushing sales toward smaller cars…away from GM’s strength.”

Jordan:  “Not a good scene.”

Matt:  “Did GM then just give up on small cars?”

Jordan:  “No.  There was another major program to introduce well-engineered smaller, more fuel-efficient compact cars.  All divisions except Cadillac had a somewhat larger model that would be replaced.  Inside GM these were known as ‘X-cars’ because they were built on what was labeled the ‘X’ platform.  Auto speak.”

Matt:  “These models were introduced when?”

Jordan:  “1979 as 1980 models.”

Matt:  “How well did these cars sell?”

SkylarkJordan:  “Extraordinarily well compared to the Corvair and the Vega.  In fact, the Buick X-car, Skylark, outsold the Chevrolet model every now and then.”

Matt:  “Did something happen?  Why did GM phase them out?

Jordan:  “More quality issues…and lots of recalls.”

Matt:  “More egg on GM’s face for small cars.”

Jordan:  “The X-cars were dropped after six years and yet another series of smaller models was introduced.  But sales never really took off.”

Matt:  “So let me go back.  At the beginning of the 1980’s GM has suffered two embarrassments with small cars.  Then introduces another new series of smaller cars, which sells well initially.  What about the other car lines?  It’s not as if everyone is buying small cars then.”

Jordan:  “You’re right.  A lot of people were buying middle-size and larger cars.  But GM models were getting long in the tooth and needed updating.  In some cases massive changes that would be very expensive.”

Matt:  “Weren’t there some mandated fuel economy standards also?”

Jordan:  “Yes.  The Corporate Average Fuel Economy standards, aka CAFÉ, passed Congress after the original oil embargo.  And GM needed to update the larger, heavier models to help meet CAFÉ standards.”

Matt:  “What about the image of the GM brands?”

cleaning-silver-tarnish-2Jordan:  “My view is the brand images had some tarnish but good new product would begin to restore the image.”

Matt:  “The brands are tarnished, need some polish.  What happens next?”

Jordan:  “What happens next is a break, then we will talk more about GM.”

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