Newspaper companies may seem a bit hapless as they flounder about trying to adjust to new business models and market conditions, but for sheer cluelessness and self-delusion, it’s hard to beat that supreme icon of American capitalism, General Motors.
In its weekend edition, The Wall Street Journal quoted GM Chairman and Chief Executive Officer Rick Wagoner as saying early this year:
"We’ve been ahead 73 years in a row, and I think the betting odds are we’ll be
ahead for the next 73 years."
That was in the context of this story, which led with this statement:
Toyota Motor Corp. is making a big bet that it can ride a host of new
models past struggling General Motors Corp. next year to become the
world’s biggest maker of cars.
This is something I can look at with somewhat greater objectivity than I can the news biz, and my snap reaction to the move by Toyota is, "More power to them."
Why? Because Toyota has produced a higher-quality product at a reasonable price (or at least "reasonable" by 21st century standards). Given that, the company deserves to come out on top. Does it hurt my national pride a little to see my country outstripped by something it has historically done best? Sure. But by our own standards of fair play, Toyota at this point it entitled to take the lead. If the American company starts doing its thing better again, it will retake the honors.
Instead, GM’s reaction is the standard, knee-jerk, stock market-driven reaction of many threatened companies: Cut costs. Having retrenched on benefits, the maker of Chevrolet et al. is planning to lay off 4,000 employees — a tenth of its white-collar work force. It’s a little hard to get all sentimental about an American company that is putting that many Americans out of work.
Meanwhile, Toyota will be hiring Americans to build its cars, possibly even in Michigan itself. Toyota isn’t contracting, but growing. How? Through quality and innovation. Toyota not only makes the world’s most reliable cars, it also has earned the reputation of being the industry leader in new technology. Next year, the Camry will be available as a hybrid. And personally, I think the company is being overly conservative predicting it will only sell 30,000 of them.
As I’ve said before, I’m no biz wiz, but I continue to have this gut belief that the way to grow a business is not to cut costs, but to improve the product.
Despite what some Japanese guy said awhile back about Americans being "a work force too lazy to compete with Japan," I think we can do that over here. We just need to go back to doing what we used to do: Make the best product. The first step is to stop being complacent and wake up to the fact that right now somebody else is beating you at that game, fair and square.
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Brad, A few years back, GM wanted to put some new technology in to speed car production and improve quality. The union fought it so GM negotiated a solution where the union guys come to work, sit in a lounge at the plant, get paid about $27 per hour, while the robot does their job faster and with better quality. Toyota isnt strapped by this kind of union ball and chain. Add to that the pension and health care overhead and GM has 2 strikes against it. So, they will have to go into bankruptcy to kill the stupid contracts and a lot of people who were overpromised lucrative pensions are going to be burnt.
When GM had the “employee discounts” on, I went to look at a brand new Tahoe. In short, they offered the discounts but offered me only half of my trade-in book value. I told the rep there was no way I accept that trade since it negated the discounts. Would you believe he came back a few days later, raised my trade to retail, and actually told me that that now disqualified me for the employee discount. These people deserve to go down, stupid from top to bottom.
Most large companies have too much overhead. GM could probably use a reduction in non-production, non-engineering personnel.
Likewise, all of America has too much overhead in the form of government at all levels.
10% of the entire workforce is dedicated to filling out income tax forms. Eliminating the personal and corporate income taxes would add millions of educated people to the workforce full-time, and free up more productive time for very educated and intelligent workers who are now wasting their work days on useless paperwork.
There are a lot of myths about quality and productivity of American, Japanese and German automobile manufacturers, circulated by business reporters who don’t bother to do basic research.
Some facts:
1. GM has 4 of the top 10 most efficient automobile factories in North America. Toyota has one, which is 16% below GM’s.
2. Mercedes requires 38 hours to build their SUV, compared to 19 for GM, and 20 for Ford.
3. People pay too much attention to the JD Powers impression of initial quality, and too little to the warranty service reports. Jaguar has ranked near the top in reliability for over a decade, since they were acquired by Ford.
Lee –
Your points are valid, but incomplete. GM can efficiently turn out product the public yawns over. Mercedes has never been a marker for efficiency — Toyota has been the king for some time –, and Jaguar has always lost money for Ford and is yet another example of the ineptitude at the helm of both Ford and GM.
Ford, you will recall, went on a high-end shopping spree, buying up Jag, Aston Martin, Land Rover, and, later, Volvo. Here’s the Ford family. They wanted to purchase prestige and respect, but got boutique manufacturers whose reputations have been tarnished through their association with Ford. In the meantime, Ford has had to pump billions into these acquisitions to modernize plant and product. The only good deal they got was Volvo because that outfit’s safety know-how has been propagated throughout the organization. That’s why, with a few exceptions, Ford’s traditional product doesn’t match the competition: Ford hasn’t had the money. The 2005 Mustang was a home run, but volume is low. How many Ford Five Hundreds have you seen on the road? Yeah, it’s a nice package, a fine replacement for the Taurus, and does have a huge trunk, but it doesn’t have a market. Nobody is buying it. At least they’ve gotten smart in using Mazda designs for their Contour / Mystique replacements.
GM has been even worse – dare I say “Saab story”? — but does have more new product that seems to be attracting some interest; chalk that up to car guy Bob Lutz beating some sense into his peers. The bad news is that the product is at the low end, price and profit-wise, so GM will still be scrounging around for profit as long as it can stay out of Chapter 11; Cadillac and the new Corvette won’t save them. At least GM has blogs.
I could rant about the impact of unions and government regs, but the dynamic duo’s problems have more to do with the fact that their head shed doesn’t swarm with folks who want to make the best cars in the world. How do they screw up? Who really wants to buy a GM minivan for any reason other than price? When Ford introduced the FWD Windstar in 1995, they could have added the driver-side sliding door, but did not because their market research indicated that the public didn’t see a need for it.
A year later (1996), Chrysler introduced its re-designed Town & Country (Caravan / Voyager) with the driver-side sliding door! Home run! Windstar sales sank. Not until 1999 re-design did Ford offer the driver-side sliding door, but that vehicle looked like a Chrysler clone. Idiots! Ford changed the name to the Freestar (to protect the innocent?), but the Japanese have finally figured out full-sized minivans.
Am I the only one who thinks that GM and Ford are adopting the HP, Canon, LexMark printer strategy? Give the durn things away and make money on the refills (parts for the auto guys). Brad’s right: Toyota, Honda, and, to a lesser extent, Nissan have improved domestic models through competition. Kia and Hyundai are doing their part too. That’s great for the consumer.
Full disclosure: We own US-made vehicles. All were bought used. First-year depreciation is so great on US makes that we can’t see buying new. I do lust after the 2005 Mustang and the Mazda RX-8. Perhaps in a few years I’ll buy one. A 2005 model, that is.
I think Jaguar is a phenomenal success for Ford. It’s quality is there with Mercedes and Lexus, and its retail price today is 1/2 what it was in 1989. Ford may be losing money from that, but it learns enormous lessons, and proves to itself and its employees what they can do.
General Motor’s lead over Toyota in assembly plant efficiency is even greater when you consider that GM builds larger, more complex automobiles with many more customer variations, in less time than Toyota builds few models of small vehicles.
GM’s financial problems are financial – pensions and medical benefits. They are going to be forced to modernize their benefits system, a relic of World War II wage controls, by replacing it all with personal retirement accounts and medical accounts, just as the German automakers have. Hopefully, that will lead the way to the end of company benefits, government employee benefits, Social Security, Medicare, and other rotten schemes which cheat the workers and drag down our entire economy.
GM’s (and probably Ford’s) legacy (healthcare for retirees, pensions, etc.) costs are $1,500 per car. Yet, according to Edmunds, both are stuck with an average of $3,500 per car to make sales. The Japanese average less than $1,000 per vehicle in incentives. You can’t tie their financial woes to legacy costs – overall they are missing the market.
The Jag is a nice car, but to protect its investment Ford has had to spend a fortune developing an aluminum monocoque chassis (a la Audi) for the line, something expected in premium automobiles. Had Ford spend that money on improving its domestic line, it probably would not be in the straits it’s in.
Mike C –
The fact that GM has the wrong products, or has to offer rebates on SUVs, do not negate the pension costs. Those are all problems. There are 2.5 retirees for every GM worker, and the average age of those workers is 49 years.
Full disclosure: I drive US cars (now), and have worked as a manufacturing process and quality consultant to every division of GM, as well as for Ford, Audi, Porsche, VW, Toyota, Nissan, Honda, Lexus and Ferrari.
I saw an interesting description of GM recently; a health and pension corporation with automobile production as a hobby.
…a health and pension corporation with a few services as a hobby… government.
Any employer which uses promises of extravagent benefits to attract employees is not going to attract the best workers. They are going to attract the types who just want to show up for 30 years and do the minimum to stay, punch their ticket, and run out the door at the whistle.