Today, the reverse holds true. Both America’s car industry and the US economy have stalled. GM, the industry’s flag-bearer, has lost leadership of the global car industry; it is also financially distressed and a technological laggard.

A major problem that has potholed the US car industry is consistently declining car sales. Last month, car companies in the US sold 964,000 vehicles, the first time since 1993 that sales have fallen below the one million mark. Moreover, September’s 26.6% drop from the year-ago level extends the sales slide to 11 consecutive months and the longest in 17 years.

Some analysts claim Detroit’s corporate denizens were up-ended by external forces – a slowing US economy, tighter restrictions for car loans and a US$4 a gallon pump price that finally persuaded consumers to end their love affair with high-profit margin petrol-guzzlers. This change in affection left American car manufacturers with truckloads of unsaleable vehicles.

What is noteworthy is despite facing the same pressures in the US, Japanese manufacturers remain roadworthy, financially and technologically. This suggests the American car manufacturers’ woes are largely due to inept management. If so, their missteps could provide useful pointers for Malaysians charged with steering Proton and our car industry.

Reflecting Japan’s growing ascendance in this car industry, Toyota overtook GM in global output last year. In the January to March quarter this year, Toyota also surpassed GM in worldwide sales, selling 2.41 million vehicles compared with 2.25 million for its US counterpart.

However, Toyota captured pole position in sales in the first quarter last year but lost it by year-end. It remains to be seen whether the Japanese car company can maintain its lead in subsequent quarters this year.

Qualitatively, Toyota is now recognised as number one in manufacturing hybrid cars. GM is now trying to play catch-up at a time when it is severely strapped for cash. In the second quarter ended June, GM lost US$15.5 billion (RM54 billion); it is burning through US$1 billion (RM3.48 billion) a month and its debt is rated junk, a status that inhibits it from going to credit markets to raise additional capital.

In contrast, although Toyota posted a 28.1% drop in net income to US$3.4 billion (RM11.8 billion) for the first quarter ended June 2008 – a fall largely due to a stronger yen and higher raw material costs – it is still the most profitable car company worldwide. Unlike GM, Toyota enjoys strong cash flow and the highest AAA credit rating.

To enable the likes of GM, Ford and Chrysler to build more fuel efficient cars, American car manufacturers recently asked Congress for a US$25 billion (RM87 billion) low-interest handout – an appeal that was approved far more promptly and with fewer caveats than the US$700 billion (RM2.4 trillion) bailout for equally troubled financial institutions.

Analysts, however, maintain the US$25 billion handout will provide a temporary relief rather than a permanent solution to problems bedevilling American car companies like GM.

One of GM’s biggest problems is its continuing need to offer higher incentives to sell cars. Last month, its incentive spending averaged US$3,972 (RM13,830) per car – or 2.68 times higher than that for Toyota. This underscores the gap in consumer preference for cars made by Toyota compared with that by GM, a problem the latter’s management needs to rectify immediately.

Manufacturing cars that cannot be sold without massive incentives even in good times suggests the product lacks consumer appeal. That GM’s management has allowed this problem to persist for so long suggests a level of complacency bordering on arrogance.

Another indicator of management’s misplaced priorities was GM’s undue reliance on profits from its lending unit, GMAC. For three years prior to GMAC’s sale in November 2006, the lending unit’s contribution to GM’s net income averaged US$2.8 billion (RM9.7 billion) while auto operations averaged a loss of US$1.8 billion (RM6.3 billion). In other words, GM was making money from lending and losing money from making cars.

For Malaysian policymakers, GM’s decline is a telling reminder that size provides little insulation from managerial incompetence. Profit boosters – whether in terms of sales incentives or protective tariffs – are temporary crutches and an inadequate substitute for making cars that are inherently attractive to consumers.