For many years the leaders of the American economy were the big three auto companies based in Detroit – GM, Ford and Chrysler. If you were an automobile fan – the big show was the Detroit Auto Show which would preview the new models. The factories in Detroit produced them, the talent of manufacturing and engineering was great, the office towers hummed with activity and the shops were second to none as  Detroit was the place to be. The skyline changes slowly but if you have not been to Detroit in the past years – the city proper has vacant lands and houses; one exhibition seen a few years ago was the city did not issue a building permit all year; however the suburbs are good. How did it slip away? A Globe and Mail automobile writer Peter Cheney is going to this year’s auto show and he writes about the Detroit he knew and where in went wrong.

In Mr. Cheney’s estimation, Detroit is producing the best cars and trucks it has ever made, but Detroit will never be the same. The city is a fallen empire and the gravitational center of the auto industry has moved elsewhere. Today there is a decentralized supply system in which components flow from around the world for final assembly in plants dominated by robots. The plants are all over the planet and the engineering talent is in Silicon Valley.

In the 1960’s Detroit ruled the world of transportation. The assembly line created by Henry Ford, combined with the stylistic manipulation and social engineering of GM masterminds such as Alfred Sloan and Harley Earl made for record sales and an unquenchable demand.

By the 1970’s cracks in the business model appeared. Detroit expertise was in big, powerful vehicles and the world demanded smaller for efficient cars. Part of the problem was Detroit made more money with the bigger cars and people wanted them and Detroit was in love with them. Part of the problem was the solution offered by Detroit for smaller vehicles were terrible – working for them was considered second tier on the way to the executive suite. This left big openings for VW, Toyota and Nissan to walk in.

In the era when money was coming in hand over fist; labor costs soared as quality went down. Once labor costs went up, it was very difficult to change that. One of many stories is some Detroit workers welded coke bottles in the sills of cars creating a rattle which could never be fixed.  In addition management was no better and perhaps worse.

The business model tried to keep imports out at the same time they fought efficiency and pollution control measures. If they had actually produced cars that people wanted rather than fighting the US government perhaps things would have been different.

Linking to dividend paying stocks, for generations the automobile stocks were ones to own and provided billions of dollars in dividends and capital gains. Over the years of owning a dividend paying stock, once has to review the company to see if it is maintaining its profitability or for you to look at other dividend alternatives.

There are more questions than answers, till the next time – to raising questions.