The Essential Fact About Capitalism

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What makes success so hard to sustain? What causes some companies to flourish and some to burn out? Look no further than the Detroit automakers for a clue... (Full transcript below)

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Full transcript:

A great example of this process of disruption is in Detroit. So, Toyota basically killed the Detroit auto makers. But, they didn't do it by introducing Lexuses to compete at the high end with Detroit's most profitable products.

But instead, they came in, in the 1960s, with this rusty little subcompact model called a Corona. And then, Toyota went from a Corona, to a Tercel, to a Corolla, to a Camry, to a Forerunner... to an Avalon, to a Forerunner, to a Sequoia, and then, to a Lexus -- step by step, moving up market.

And, General Motors and Ford were making big cars for big people. And, every once in awhile, they would see Toyota coming at them from the bottom, and say, "You know, we ought to go compete against those guys." And so, they would send down a Chevette, or a Pinto. But then, they would compare the profitability of the little subcompact with the profitability of a Cadillac Escalade, or an F350 pickup; and, it just didn't make sense to invest to defend the least profitable part of the business, when they had the option to invest to strengthen their share in the most profitable part of the business.

And, now that Toyota has come up to the high end of the market, it makes consummate sense that General Motors and Ford should have worried about this twenty years ago; but, the game is over.

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