An American automotive duopoly

Nearly every modern American industry seems dominated by a prominent duopoly. Coke and Pepsi, Apple and Android, Visa and MasterCard. The universality of the duopoly is what makes the American automotive industry such a notable holdout. With the emergence of Tesla and other EV start ups, it is easy to forget that less than 15 years ago the auto industry was not nearly as fragmented as it is today.

In fact, there were 3 major companies and when the bottom fell out of the auto industry in 2008, an American auto duopoly seemed not only possible, but inevitable. In a major financial crisis, it is not uncommon for one large player to be sacrificed in order to save the industry as a whole.

This manifested in the banking industry when Lehman Brothers, the fourth largest investment bank at the time, was allowed to fail without a government bailout. At the time, many analysts believed this would be the fate of America’s third largest auto manufacturer at the time, Chrysler.

Ford to the rescue

When the situation looked bleakest, Ford’s Chief Executive Officer Alan Mulally testified that the American government should bail out their two largest competitors, GM and Chrysler. It seemed unthinkable that a major corporation would encourage the U.S. government to save their two largest competitors, while taking no money themselves, but Mulally's testimony went a long way towards convincing the panicked federal government

However, testifying on their competitors behalf was far from an act of altruism. Ford realized that their existence was dependent on the health of their competitors.

The tangled web of the supply chain

Ron Gettelfinger, the then head of the United Auto Workers claimed “If one of these companies was to go into bankruptcy, I would almost bet it would take (down) two of them or possibly all three”. This is because the supply chain was so intertwined, that if Ford’s competitors went out of business, the lower tier suppliers would either go bankrupt or be forced to raise their prices to unsustainable levels.

It was estimated that the three biggest automotive plants at the time were responsible for over 4 million jobs.

The takeaway

In extraordinary economic conditions like the ones we are currently facing, we should remember the lessons of the 2008 automotive crisis and work together to maintain the health of the supply chain. It can be tempting to exploit the delivery failures and long lead times of competitors for short term market share gains, but it is important to remember we all existed in a delicate, shared ecosystem.