Good news

Reductions in employment at General Motors and Delphi

...in an industry at the heart of American manufacturing have fed a popular belief that anyone who makes things in the United States is struggling against an onslaught of foreign competition. Whether American firms are building plants overseas as a way to exploit cheap labour, or closing down factories because they cannot compete any more, the widespread assumption is that the country's entire industrial base is being "hollowed out". "Our media act as if American manufacturing is going to grind to a halt at around two o'clock this afternoon," says Cliff Ransom, an independent analyst who scours America for the most assiduous metal-bashers.

But someone forgot to tell American manufacturers the bad news. Most of them have enjoyed roaring success of late. Net profits have risen by nearly 9% a year since the recession in 2001 and productivity has been growing even more rapidly than is usual during economic expansions [see article for chart]. The country's various widget-makers, moreover, show no sign of losing their innovative edge.

And then there's the American consumer: It's a golden age for new-car buyers

When things gradually improve, we may not notice how good things are. Proof of that is the quality of modern cars, which would astonish a time traveler arriving from 1966 or even 1986. Today, we take it for granted that cars are not supposed to break down. Once upon a time, we took it for granted they were destined to spend much of their lives in the shop.

The change is a tribute to the transformative power of capitalism and global commerce. A few decades ago, American automakers were the titans of American industry, bestriding the economy like a colossus. But in recent years, they have been relentlessly outcompeted by foreign automakers that have forced them to strive for ever-rising standards. This translates into misery for Detroit, but bliss for consumers.

The latest Initial Quality Survey from J.D. Power and Associates, released last week, illustrates this unnoticed phenomenon. It says that in the first 90 days of ownership, 2006 model vehicles experienced the fewest problems of any year on record--a 59 percent reduction since 1992.

Consumer Reports, which does more extensive, long-run surveys, found comparable results. Since 1980, the trouble rate for new cars has been cut by some 80 percent. Just about every automaker has gotten better and better--to the point that the worst makes are now more reliable than the best ones were back then.

What brought about this drastic makeover? More than anything else, it was competition from Japanese automakers. They started making serious inroads into the American market in the late 1970s, thanks in large part to soaring oil prices that made their small, gas-stingy cars far more attractive.

...consumers enjoy the best of both worlds: rising quality and bargain prices. The government says that since 1981, the average cost of a new car (adjusted to account for improvements in standard equipment and other features) has risen by 49 percent--while the Consumer Price Index has risen 126 percent.

American manufacturers have found the challenge doesn't get easier with time. Last year, General Motors lost $5.6 billion in North America, and Ford spilled $1.6 billion worth of red ink. Both companies have also been losing market share.

Part of the reason is that quality sells, and Ford and GM, despite vast improvements, can't match the reliability of the major Japanese companies, or even Korea's Hyundai. Lately, the Asian makes haven't had to rely on quality alone to attract customers--as in the 1970s, they also offer better fuel economy at a time when that really, really matters.

Capitalism and globalization create fierce, relentless pressure for companies to give consumers what they want, which in this market has been more reliable vehicles for less money. Modern automakers have to operate by two simple rules: Be good, and get better. What is it like to live in a Golden Age? Anyone in the market for a car doesn't have to ask.