Is Pride going to decimate the auto Industry? Nero fiddled while Rome Burnt? The Banking sector has been hit hard, the housing industry is in shambles, retail figures are worrying, and now the auto industry?
As per the Bureau of Economic Analysis, Industry Economic Accounts, on a 2006 GDP of 24735.6 Billion Dollars, “Motor vehicles, bodies and trailers, and parts represented 493.2 Billion Dollars or close to 2%. Taken together with associated industries and support infrastructure, the Car industry represents about 4% of US GDP.
The Auto Industry and consequently the US economy needs support, but the focus has been on “the use of Private jets by the CEO’s to attend the meeting” while the politicians are talking of “what do we tell our voters”. Pride on all sides is confusing the issue and people are missing the woods for the trees.
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Frank F.
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Throughout the 1990s and into the early-2000s, I repeatedly told U.S. auto-industry meetings (sector association, as well as internal company-specific) what they needed to do to re-invent themselves.
They invariably agreed with my diagnosis and specific strategic prognosis for specific steps that they could take. But they never took any of those steps.
There are several reasons why this industry is struggling, but it essentially boils down to the following:
1. Incompetent and arrogant top management and Board of Directors (there actually was/is more enlightened thinking in the Unions than in management about what the industry needed to do).
2. Companies driven by blinkered accountants and engineers, rather than by innovative product and customer-focused designers.
- The bean counters cut corners and repeatedly say that the customer will not pay for a value-added innovation.
- The engineers say it is too complex to change to accommodate a new innovation.
So value-added innovations never happen. The industry has always, for decades, been slow to adopt innovations, and usually has been a very slow follower of the Japanese over the past 20+ years.
As a result, the sector has constantly lost market share, has constantly made lower and lower margins per vehicle. In short, the accountants and the engineers have made the companies uncompetitive.
The amount contributed to GDP is actually trivial. If the economy instead invested in new growth sectors with higher value-added jobs, then the contribution to GDP would be far higher than what the auto industry is contributing.
To survive, the industry needs to do at least the following:
1. Eliminate at least 50% of the brands/models which it carries;
2. Fire at least 50% of its accountants, engineers, and sundry others who are resistant to change, and listen to its designers;
3. Move towards mass customization; and totally contract out 100% of the manufacturing and vehicle assembly to companies such as Magna International, which has the capability of assembling an entire vehicle, not just providing slap on modules.
4. Totally revamp its dealer networks to focus on online sales; re-train dealer reps to focus on being customer friendly; revamp the service departments to provide drive-through service at reasonable rates vis-a-vis the service chains.
5. Simply become a service company: design, market, and finance vehicles. Everything else gets contracted out.
But they won't do any of the above, they being too stubborn to change, and incompetent at seeing what they need to do to re-invent themselves. They deserve to fail. And the economy will not miss them.
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Gary B.
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Yes, Sunil, you hit it square. Hammer head, meet nail.
Understandably, people are finding fault with all the players in the game. Is the UAW at fault? Is the management at fault? Are the workers at fault? Yes...Yes...Yes... There's blame for everyone.
But, on the heels of the ongoing credit crisis, this economy can't survive a body blow like this one. Your numbers are correct. The Big Three contribute about $40 Billion a month to the US economy. We're going to throw that away because we don't want to make a $25 Billion loan?
Let's dispense with the myth that GM can file Chapter 11 and reorganize. Any Chapter 11 Reorganization will, in today's bad credit and consumer environment, lead straight to a Chapter 7 Liquidation.
Who's going to pay the rent, mortgages, health care, food, etc., for the penniless pensioners and hundreds of thousands of newly unemployed auto workers? You, the taxpayer will.
Have the economic mad scientists who love offshoring jobs figured out a way to offshore the attending welfare costs, increased crime, urban blight, housing foreclosures, and various other economic and social maladies that follow massive job losses?
There's also national security issues to consider. If you follow the advice of some, you'd fire everybody and offshore the manufacturing to China. Well, once you offshore the country's entire manufacturing base, who's going to build the nation's tanks, naval fleet, aircraft, and missiles? I suppose we should just offshore that work to China, too?
Let's not forget that the playing field is not level. Japanese auto manufacturers enjoy government subsidies that American car makers do not. In order to keep the Yen artificially low, Japan spent over $400 Billion from 2000 - 2004. This amounted to a subsidy of at least $4,000 per Japanese car, and up to $10,000 on higher end models.
See attached link.
Links:
Sanjay N.
CIO at Technology for Business Solutions
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Simple fact is that Japanese make much better cars at much lower cost...it is a consequence of painstaking persistent honest professional hard work over several generations....
There is no way the US will even begin to compete with the Japanese even with humongous subsidized loans and outright grants. It is better to cut your costs and run...
Crying over so called lost jobs, healthcare, pensions, mortgages, food will not help meet these noble objectives....yes the US does make good tanks, warships, guns and fighter aircraft...but that is because the Japanese choose not to compete in those businesses....till then the US should stick to these and hope to sell enough to pay for their pensions, food, mortgages and healthcare....
sanjay9negi@hotmail.com
Randal W.
Vice President, Sales
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The problem is not just pride it is also the fact that perception is reality. If people perceive that those running the companies can not relate to them then they will not be able to make business decisions that will ultimately please them as customers.
In a time of crisis the actions speak louder than the words. Failure to take a pay cut when handing out pink slips appears insensitive. The workers did not make the strategic decisions that put the companies in a hole, the CEO did. Flying a private jet to look for money for a failing company looks like the executive has no idea how budgeting works.
If the CEO's believe hard work and integrity mattered they would do everything they could to demonstrate those characteristics.
The auto industry in the US has big problems but the largest is its compensation. The management and UAW are the problems. Additionally are the congress and lobbyist. It is time for the "goose gander" rule, that is time for the goose (big three) to do what the rest of us have to do when our debt is to high and income low. When times get tough money doesnt fall from trees, you sell what you can for what the buyer will pay.
The US Auto industry needs to cut big. Terminate all current uper level management and replace them with one oversite board compensated by the big three, cancel all dividends, close 50% of factories, renegotiate all supplier contracts and put all dealers on a pay up front status and reduce the price of all new autos by 50%. But hey, I would have let AIG go belly up.
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Lynn W.
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Dumbest People' Industry Image May Cost Wagoner Job
http://www.bloomberg.com/apps/news?pid=20601109&sid=ap8pS2oslvn0&refer=home
a couple quotes from above:
"There's the feeling that next to financial services, automotive execs
are the dumbest people in the world"
"It's pretty clear that management has made some pretty bad decisions
over the last 20 years"
"Toyota generated pretax profit of $922 per vehicle on North American
sales in 2007, while GM lost $729"
... snip ...
possibly 30yrs or more?
there was article (possibly washington post?) 25-30 yrs suggesting a 100% unearned profit tax on the US auto industry ... in the wake of some prior gov. support programs ... where billions were suppose to have gone to remaking the industry ... and it was never spent that way.
Links:
- http://www.bloomberg.com/apps/news?pid=20601109&sid=ap8pS2oslvn0&refer=home
- http://www.linkedin.com/answers/management/change-management/MGM_CMG/363484...
- http://www.garlic.com/~lynn/2000f.html#43
Clarification added November 22, 2008:
related answer:
Tell me why the taxpayer should be saving GM and Chrysler (and Ford) managers & shareholders at this stage of the game?
http://www.linkedin.com/answers/management/change-management/MGM_CMG/363484-28901615
and also archived here:
http://www.garlic.com/~lynn/2008p.html#77
At least since the import quotas, there have been a number of studies about how the industry can be more agile and efficient. I attended some of the C4 meetings, circa 1990 ... which was looking at heavily leveraging IT technologies to improve agility (radically reduce elapsed time from inception to rolling off the line) and efficiency. turns out there is also some relationship between quality, agility, and efficiency ... since all tend to improve when there is better understanding of all aspects.
Clarification added November 22, 2008:
oh ... from a long running thread on the subject in 2000 ... one of my particularly long-winded posts ... including several gov. & industry URL references on the subject (several have since gone 404, so I had to resort to the wayback machine)
http://www.garlic.com/~lynn/2000f.html#43
Clarification added November 23, 2008:
some additional from the "why the taxpayer should be saving ..." question ... also archived here
http://www.garlic.com/~lynn/2008p.html#82
for another facet regarding the problems ... there were a number of articles in the 90s related to the downward spiral of the US education system.
One was that foreign auto makers (establishing plants in the US) were requiring junior college degrees in order to get workers with high school education.
From 1990 census information ... there was articles that half of US manufacturing workers were "subsidized" (i.e. worker benefits exceeded the value of their work) and half of 18 yr olds were functionally illiterate. There were calculations at the time ... assuming trends continued ... that by 2020 ... only 3percent of US workers would not be subsidized (i.e. value of work at least equivalent to benefits received).
older reference to 94-98 international literacy survey
http://www.garlic.com/~lynn/2004b.html#38
recent reports have US education ranking at or near the bottom of
industrial nations ... a couple recent posts:
http://www.garlic.com/~lynn/2007u.html#78 Education ranking
ttp://www.garlic.com/~lynn/2008h.html#3 America's Prophet of Fiscal Doom
Dave M.
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Is pride going to decimate the auto industry?
No, it's the lack of future planning, always looking to make as much money as they can in the here and now, the CEO's protecting their multi-million dollar salaries and bonuses, and products that nobody wants...
Laura H.
Information Technology Consultant
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My perception, as a Michigander and relative and friend of auto industry employees (and having former business associations with them as well) echoes Frank's comments as pasted below:
1. Incompetent and arrogant top management and Board of Directors (there actually was/is more enlightened thinking in the Unions than in management about what the industry needed to do).
These people do not listen to the employees who work for them and cannot relate (in their ivory tower) to their customers.
