The Detroit Cartel

I could scarcely believe that he said it. A retired high automobile company executive referred to the three auto companies -­GM, Ford and Chrysler — as the “Detroit cartel.” He said it matter-of-factly as if it was a given phenomenon, even in purchasing supplies.

The collusion of the three Michigan-based companies — they would call it “cooperation” — has been developing ever more rapidly ever since Reagan tossed out the smog-control antitrust consent decree signed by these companies in settlement of Justice Department civil case in the late Sixties. The lawsuit charged them with using a cross-licensing agreement to suppress research, development and application of pollution control devices. The lawyers called it “product-fixing”, in contrast to “price fixing.”

With the ban lifted, the auto companies began using every pretext to “collaborate” over technology research and development. New technology is the essence of automotive competition. If one company announces a new kind of braking system, engine, safety device and so on, it sends the rest of the companies into a tither. Which of course is what competition is all about. But it also wrecks evenings and weekends for auto company brass, destabilizing their comfortable predictability.

So the company reps go to Washington and get the Departments of Energy, Transportation or whomever to create joint government-industry research ventures to look into fuel efficiency, emission control and other engineering frontiers. In over two decades of this taxpayer drain, nothing practical has emerged that is in today’s car.

These ventures are largely corporate welfare boondoggles that produce further delays under cover of appearing to be doing something. It all reminds me of the GM display at the 1939 New York World’s Fair foreshadowing the cars of the future. Yeah, a very long future indeed.

The strategic functions of these “collaborations” is to avoid the surprise from a single company innovation, and to enable all three companies to present a united front, either saying “it can’t be done technologically” or “this is all we can do technologically.”

During the Reagan government’s first term, the National Cooperative Research Act was passed. It provided immunity from antitrust laws for joint research ventures that are disclosed to the government antitrust agencies and approved.

Earlier this month, the United States Council for Automotive Research, created by the Big Three in Detroit, received its first patent concerning composite materials of plastic that some day may make cars lighter. At the same time, the public was told that the Big Three are discussing jointly building an electric car.

Remember all the ambitious electric car projects announced by these companies going back decades. Well it seems that these firms have to lean on one another for such a vehicle in time for a California air pollution control deadline to begin selling some such cars (a small 5%) by 1998.

Innovation in cars comes from competition, not collusion, collaboration or whatever euphemisms are used. This has been true since the first automobiles were built one hundred years ago. Innovation comes from companies who thirst to be first. Japan has 10 vigorously competing car manufacturers. The U.S. is down to three companies in fatigued boxers’ clinch.

GM alone has 21,000 scientists and engineers. For decades it was the largest and most profitable car company. Look where they ended up with their profits and technical talent — declining market share for their mediocre cars, trying to export more and more jobs to Mexico and elsewhere, closing plants and laying off tens of thousands of American workers. And making a mockery out of the nation’s shelved antitrust laws.

Well, there is a new Clinton government in Washington. Observers are waiting to see who is appointed to head the Justice Department’s weakened antitrust division and the Federal Trade Commission. Let us see if the wisdom of our antitrust laws can be revived and applied before it is too late.