Toyota and Hummer: Too Big to Succeed?

From its origins, success in the auto industry has been about scale. In the early decades of the 20th century, Henry Ford was able to democratize the car and dominate the early auto industry because he built, and then continually tinkered with, an assembly line that could churn out huge numbers of cars in a short amount of time. Bigger was always better.

But two items from yesterday's dispatch in the ongoing car dramas indicate why that's not always true.

Item No. 1: The Toyota debacle. The mass failings of Toyota's legendary quality-control efforts are now on full display in the hearings that have subjected CEO Akio Toyoda to a ritualized set of apologies and humiliations. In recent years Toyota rode its efficiency and better financial management—it didn't have to contend with the onerous pension and health-care benefits that sandbagged the Big Three—to large gains in market share and significant growth. In 2007 Toyota surpassed GM as the largest carmaker in the world.

But something got lost in the process. As Toyoda acknowledged on Wednesday: "I fear the pace at which we have grown may have been too quick. I would like to point out here that Toyota's priority has traditionally been: first, safety; second, quality; and third, volume. These priorities became confused." In other words, Toyoda seemed to admit, the company went astray by moving size—i.e., volume—to the front of the line.

Item No. 2: After a series of failed efforts to sell it, GM announced that its Hummer brand would be wound down. Hummer had a different problem with bigness than Toyota has. It wasn't that its production volumes were too high. In 2008 only 2,710 Hummers were sold. Rather, the outsize Hummer was simply too big—too inefficient, too out of step with the times—to succeed in a marketplace in which oil spiked to $150 per barrel and seems to have settled at a plateau above $70 a barrel. As the economy tanked, energy prices rose, and the zeitgeist shifted in favor of conservation, the gas-guzzling Hummer faced a double whammy: consumers had difficulty affording the vehicle's high sticker price as well as difficulty affording its high operating price.

Size does matter when it comes to auto production. But not always in the way manufacturers think.

Daniel Gross is NEWSWEEK's economics editor and the author of  Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation and  Pop!: Why Bubbles Are Great For The Economy.

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