Not Learning the First Time Around. Or the Second.

History is a funny thing; if you don't learn from it you're consigned to living it over and over again.  Who said that?  I don't know, but apparently the Detroit Three weren't listening.

For years, auto and energy industry watchers wondered how high the price of gas would have to climb before consumers in the U.S. -- still the world's biggest automobile market -- would change their driving habits. Now they know.

The change in consumer attitudes about fuel efficiency has been so swift and widespread that the American vehicle manufacturers have found themselves once again behind the curve relative to their Asian and European competitors, just as they did following the oil embargo of 1973.

Yes, it happened before.

Should Detroit have seen that "tipping point" coming? "Maybe, probably," says MacDuffie, admitting benefits of hindsight. "When gas prices spiked in 1980, the U.S. was making very big, gas-guzzling vehicles. So they were very vulnerable to competition from the Japanese and European manufacturers who were used to selling [fuel-efficient cars] in a market where gas prices were much higher. So you would think the U.S. automakers, having lived though that experience once, might be guarded about letting that happen again."

1973, 1980, 2008... history repeats over and over.  Why didn't they learn?

One reason they might have dropped their guard was the irresistible profit margin in light trucks. "The trucks and SUVs had fat profit margins. Even if [the automakers] saw it coming, it would have been hard to shift resources to build more hybrids. The U.S. auto industry has been struggling with a lot of problems for a long time," MacDuffie notes. "They felt that they could not move away from the SUVs and pickups because they needed the profits from those products to cope with the other difficulties they were having. ... Labor and benefits costs were one of the largest problems." Those costs also meant that Detroit "was slow to make their factories flexible," which in turn made it more difficult for them to shift quickly from one product to another, adds MacDuffie.

Of course hindsight is 20:20, or at least 20:40, even if it does give you multiple chances to learn.  So now what?

A question more important than whether Detroit should have seen the coming of the tipping point is what the U.S. Big Three and their competitors in Europe and Asia should do now, according to both MacDuffie and Guillen. "The long-term challenge is to develop truly competitive hybrid or hydrogen cars. We need to make the investments now, so that they become available in 15 or 20 years," Guillen suggests. "In the short run, we need to incrementally improve fuel efficiency and help people switch to more efficient cars." Late as they may be, MacDuffie says he is heartened by Detroit's aggressive investments in alternative engine technologies.

The first jolt created the rise of Toyota and Honda.  The next Kia and Hyundai.  Now...?  Perhaps Tata and Chery.  Pretty soon there won't be much left for the Detroit Three... if they don't learn from this latest reminder.