Oil Shock I and II – 1973 and 1979

Made in Japan

Six Stages of the Energy Crisis

• Between 1955 and 1971, demand in the U.S. was outstripping supply

• 1972 rise in oil prices – OPEC• 1973-74 – Embargo and panic• 1975-78 -- President Ford – focus almost

entirely on supply – no long term policy• 1979 – Iran and a Second Oil Crisis• 1980-84 – Regan Era – OPEC

overproduction and new sources

Nye – pp.222-3: “The oil shock of 1973-74 was a symptom, not a cause. The shortages revealed the

energy dependence and the vulnerability that the United States had been building up for decades. The high-energy middle-class standard of living was not a victim of the energy crisis; it was the

source of the crisis. Compared with equally affluent Europeans, Americans used roughly twice as much energy per capita. Half the difference was directly

attributable to their transportation systems, and much of the rest was due to their preference for

widely spaced detached houses.

We will mine more, drill more, cut more timber."

--Secretary of the Interior James Watt

World energy use

Coal

Nuclear

Oil (34.9%)

Gas

Hydro

Biomass

Geothermal, wind, solar, etc.

RE (13.4%)

Total

~400 Quadrillion Btu

World: ~84 million barrels/day; US: ~21 million barrels/day

U.S. Energy Consumption

Energy Information Administration / Annual Energy Outlook 2006

U.S. Energy Production

Energy Information Administration / Annual Energy Outlook 2006

Electricity Generation

Energy Information Administration / Annual Energy Outlook 2006

Fertilizer Production Efficiency

Frank Moore – Black Pillow (1996)

Turning Petroleum into Food or Fuel

Energy and Crop Yield

World per capita cereal production

0.25

0.27

0.29

0.31

0.33

0.35

0.37

0.39

1960 1970 1980 1990 2000 2010

To

nn

es

/pe

rso

n

Cereal Shortfall

M. King HubbertOctober 5th, 1903 -- October 11th, 1989 "Our ignorance is not so vast as our failure to

use what we know."M. King Hubbert

MITI – Ministry of International Trade and Industry – Behind the

Success of the Japanese Automobile Industry

• Organizational Structures• Policy Programs• Conscious Planning

W. Edwards Deming – 14 Points

• Create and communicate to all employees a statement of the aims and purposes of the company.

• Adapt to the new philosophy of the day; industries and economics are always changing.

• Build quality into a product throughout production. • End the practice of awarding business on the basis of price tag alone; instead, try a

long-term relationship based on established loyalty and trust. • Work to constantly improve quality and productivity. • Institute on-the-job training. • Teach and institute leadership to improve all job functions. • Drive out fear; create trust. • Strive to reduce intradepartmental conflicts. • Eliminate exhortations for the work force; instead, focus on the system and morale. • Eliminate work standard quotas for production. Substitute leadership methods for

improvement.• Remove barriers that rob people of pride of workmanship • Educate with self-improvement programs. • Include everyone in the company to accomplish the transformation.

Complex Factors Contributing to the Japanese Success Story

• Floating Yen to Dollar Values

• Tariffs

• Import Quotas

1936 Toyota

1957 Toyota Crown

1969 Corona

Honda History

1969 Datsun 240Z

1968-1971 –The American Automobile Industry Began to Die

• John Jerome, The Death of the Automobile: The Fatal Effect of he Golden Era, 1955-1970 (1972).

• Helen Leavitt, Superhighway-Super-Hoax (1970).

• Kenneth Schneider, Autokind vs. Mankind (1971).

• Emma Rothchild, Paradise Lost (1973).

American Lemons of the 1970s

• 1970-1976 Ford Pinto

• 1971-1975 Chevrolet Vega

• 1971-1977 Ford Torino

• 1975-1980 AMC Pacer

• 1977-1980 Dodge Aspen

• 1978-83 GM 350 Cubic inch Diesels

Post Oil Shock II Nadir -- 1979

• The small-car share of the U.S. market doubled from 27% in 1978 to 54.2% in 1979, then rose to 61.5% by 1981.

• The share of the U.S. market held by imports correspondingly increased from 17.7% in 1978 top 27.9% in 1982

The Key to Management – A Quarterly Review System

• What are your objectives the next 90 days?• Charting goals with your immediate supervisor• It holds you accountable• Decisiveness!!!• Managers must be motivators• You Must be able to communicate your ideas• You Must be able to listen• You must love everyone on the team

Oh the price of gas is rising out of sight,And the dollar is in sorry shape tonight What the dollar used to get us, now won't buy a head of lettuce No the economic forecast isn't bright But amidst the clouds I spot a shining ray, I can even glimpse a new and better way And I've devised a plan of action, worked it out to the last fraction And I'm going into action here today cho: I am changing my name to Chrysler, I am going down to Washington DC I will tell some power broker what they did for Iacocca Would be certainly acceptable to me I am changing my name to Chrysler, I am headed for that great receiving line And when they hand a million grand out I'll be standing with my hand out Oh yes I'll get mine

Tom Paxton – “I’m Changing my Name to Chrysler”

Lessons from the Chrysler Bailout

• Many people forget that Chrysler was forced to come up with $2 billion in concessions from unions, white-collar employees, dealers, suppliers and banks as part of the deal. State and local governments connected to plants provided tax concessions, and Chrysler was required to adhere to tight government supervision after they received the loans.

Japanese Automobile Production, 1955-1984

Year Production

1955 68,932

1960 481,551

1965 1,875,614

1970 5,289,157

1975 6,941,591

1980 11,042,884

1984 11,464,920

From Mass Production to Lean Production – 1980s onward

• Lean Production uses less of everything compared with mass production

• Half the human effort in the factory

• Half the manufacturing space

• Half the investment in tools

• Half the engineering hours to develop a new product in half the time

• Half the needed inventory on site

The goal of lean production is perfection

• Continually declining costs

• Zero defects

• Zero inventories

• Endless product variety

Mass Production vs. Lean Production, 1986, GM vs. Toyota

GM, Framingham, MA Toyota, Japan

Gross Assembly Hours per Car

40.7 18

Defects Per Car 130 45

Assembly Space Per Car

8.1 4.8

Inventories of Parts 2 weeks 2 hours

Japanese Assembly Plants in North America, to 1989

Firm Location 1989 Production Capacity

Honda Marysville,OH; East Liberty, OH; Alliston, ON

351,670 360,000

NUMMI, Toyota/GM Fremont, CA 192,235 340,000

Toyota Georgetown, KY; Cambridge, ON

172,000 290,000

Nissan Smyrna, TN 238,640 480,000

Mazda Flat Rock, MI 216,200 240,000

Diamond Star, Chrysler/Mitsubishi

Bloomington, IL 91,839 240,000

SIA, Subaru/Isuzu Lafayette, IN 120,000

CAMI, GM/Suzuki Ingersoll, ON 200,000

North American Assembly Plants Opened or Closed by American-Owned Automobile Companies, 1987-1990

Company Plant Year Closed

GM Detroit 1987

GM Norwood,OH 1987

GM Leeds, MO 1988

Chrysler Kenosha, WI 1988

GM Pontiac, MI 1988

GM Framingham, MI 1989

GM Lakewood, GA 1990

Chrysler Detroit 1990

Chrysler St. Louis 1990

GM Pontiac, MI 1990

Robots: 26,000 in use by 1987 in the U.S.

• Flexible robotics thus has reconciled Fordism and Sloanism, with truly revolutionary implications for automobile manufacturing.

• The result: more diversity of product, manufacturing techniques are more precise, quality improved, labor costs reduced.