General Motors’ bankruptcy heralded change
On June 1st, 2009, America’s largest vehicle-manufacturer, General Motors, filed for bankruptcy. The US Treasury then invested $49.5bn in the company through its Troubled Assets Relief Program, and recovered $39bn of that when it sold its shares in 2013 - a loss of $10.3bn.
The bankruptcy of such a major player in the US and, indeed, the world economy was a portent of changing times. The heyday of General Motors was the era of the big gas-guzzlers, but the oil shock of the early 1970s led to a drive for fuel efficiency, only achieved then through small cars. The Japanese seemed to make better ones, and theirs were reliable, unlike the GM ones.
Most major manufacturers have suffered quality problems and recalls, and GM has been no exception. In 2014 it was fined the maximum $35m for knowingly continuing with faulty ignition switches linked to 124 deaths. The recall cost it $1.5bn, and it now faces lawsuits over the issue that could cost it $10bn.
Concerns over the pollution emitted by petrol and diesel cars is speeding a trend to electric vehicles that GM has followed somewhat half-heartedly. The EV1 it launched in 1996 was available only for lease, not purchase, and three years later it stopped renewing the leases and destroyed the returned vehicles. Both its Volt plug-in hybrid, and its Spark EV were only released in selected areas, and were criticized for their poor range.
I joined the trend to electric vehicles four-and-a-half years ago by acquiring a Tesla. I have found it reliable, fast, clean and quiet, and it is the safest car ever tested. The other trend in America is that young people are driving less. Only a quarter of 16-year-olds are qualified drivers, compared with nearly half just a generation ago. More young people are choosing to live in city centres rather than suburbs; this makes car ownership more awkward and less necessary.
The spread of gig economy transport by firms such as Uber and Lyft contributes to making personal ownership less necessary, as does the prevalence of urban electric scooters. And two developments coming along are likely to accelerate it further. One is the advent of driverless taxis, and the other is the emergence of pilotless people-carrying drones. All of this contributes to a changing world of personal transport, one in which big, slow corporations will find it more difficult to adapt to than smaller, fast-moving upstarts which enter the field. This is Schumpeter’s “creative destruction” in action. It is how neoliberal capitalism renews itself by allowing the new to edge aside the old.
Instead of trying to protect the established industries with regulations designed to thwart and deter newcomers, and to hold on to the status quo, the strategy should be the reverse: to make it easier for the innovators to enter existing markets or to generate new ones. This can converge on offering more consumer satisfaction and on offering more consumer choices. And it can do so more rapidly.