The Death of DeSoto and the Decline of the American Auto Industry
On November 30, 1960, the Chrysler Corporation closed the DeSoto division in a move to cut its losses in the face of a downward trend in the "middle price" car market. That trend was caused by the recession of 1958 and its effects on Chrysler's competitors were equally severe. This story has a great lesson in how capitalism is supposed to work, and when juxtaposed to the bailouts by the government to save failing GM and Chrysler, reveals how today's US Government lost billions of taxpayers' dollars to delay the inevitable further closure of American auto makers.
Thanks to the uncovering of a long stored work by the National DeSoto Club from their November 1990 newsletter, we can review how Chrysler handled their dealers back then, and how they intended to smooth the transition to a leaner company. Thanks to Greg J. Walters who wrote the article I source here and reproduced the "Flip Chart" Chrysler sent out to its DeSoto dealers in regards to the closing of production.
The first question Chrysler raises is "Why did Chrysler Corp. decide to discontinue building DeSoto?" Chrysler goes on in three charts with explanations to show how sales had fallen off since 1955. By an average between 1955 and 1960, Desoto sales had fallen off 83%. The 1955 sales were 104,000 units and higher still in 1956 and its pinnacle year was 1957. The recession in 1958 cut the 1957 number in half and by 1959, the sales were down to 49,000 units. In 1960 through the month of September, which is when they decided to go ahead with the shutdown, the total sales of Desoto's were 19,000 units, which was on its way to half of the year before. The charts show the "Daily rate" for DeSoto sales across the nation were down to 47 units by September 1960.
The second question was "Is it possible Chrysler Corp. let DeSoto fail by not promoting it vigorously enough?" Interestingly, the case was shown that as far as advertising budgets go, they outspent their "normally accepted" budget and it was "about four times" that of their other lines. To quote Chrysler speaking to the dealer at this point "You have spent a good deal of your own money to promote DeSoto. But even our combined efforts have not been enough to overcome the effects of the middle-price squeeze." This was a theme often repeated in the Q&A charts.
There were a few more questions on why the decision "was not made earlier" and why it did not expand its lines into the lower price fields -- they would only take away sales from the company's other established lower priced lines such as Plymouth and Dodge. There were also statistics referring to GM and Ford competitors in that niche market such as Mercury, Oldsmobile, Buick and Pontiac, and how they were hit by the same squeeze -- but they made moves to expand into the lower price fields to help their numbers. It is interesting to note that at this time, George Romney (Mitt's father) was president of American Motors and their steadfast focus on the low price field gave them a leg up on the rest and sent them into their best performing years of 1958 to 1965.
More than half a century later, the pressure continues on the car industry, as the same company's models are just "re-skinned" identical cars with interchangeable name badges. We see the quiet closing of the other names mentioned in the Q&A charts 51 years ago. Pontiac, Oldsmobile, and Mercury are gone. Even the low-end price field of Plymouth could not compete with its sister ships at Dodge. You may recall Plymouth's demise was July of 2001. Buick is reported to be on the chopping block too.
As the euro is about to fall and Italy itself is under water, one has to wonder how the FIAT Corporation can keep Chrysler afloat. It has been talked about Dodge being phased out and replaced by FIAT models at Chrysler dealers. FIAT has said that in a year or two that all Chrysler model cars will be built on a FIAT platform and on that day, Chrysler will have been completely lost. GM will no doubt clear out Buick and GMC leaving Caddy and Chevy. That is "Ruling class and Proletariat". The FIAT is already an all-out proletarian chariot.
This could have been stopped had Congress protected our manufacturing corporations from takeover by foreign creditors and stopped the labor unions from putting such a drag on the competitive viability of companies. But, that goes back to the 1936 takeovers and violent strikes by the newly formed UAW, and by design and support of then POTUS, FDR. It is a shame the unions want to take claim for the successes of the auto industry in good times, but when the industry falls on hard times, they just sit on their hands and fight tooth and nail against the need to be competitive, as if competition itself does not really exist.
In the end, here is how Capitalism is supposed to work, per the leadership of Chrysler, circa November 30, 1960,
"Faced with this discouraging evidence, the Corporation made the decision to discontinue DeSoto. This decision was based on sound dollars-and-cents considerations that any successful businessman would recognize. The continued production of the DeSoto automobile in the volume represented by the sales trend simply did not have the potential commensurate with the effort and energy and money required."
Now that is what I call real Capitalism! If it doesn't work, it doesn't stick around and we all move on to something else...as did Chrysler move on to build the Saturn V rockets that sent our men to the moon. I wonder what planet FIAT wants to aim for. We know that won't be Saturn, since GM closed it under the bailout takeover.
It also shows how the US has destroyed the practice of allowing sharp, short-term pain in the interest of good long-term decision making through corrective action.