Big Three: "From Kings of the Road to Roadkill"

Link is to a speech made at Hillsdale College on January 26, 2009.

Joseph B. White writes for the WSJ. I think what he says is probably the most complete and accurate synopsis of what we can expect from the mainstream media on this matter.

I'm not an expert on the matter, but I think we don't necessarily give the Big Three a fair and balanced shake. For example, White (as well as most Leansters) portrays Japanese quality as being rock solid as soon as they rolled off the boat. This simply wasn't true. Toyota themselves early on found that their engines weren't up to the endurance Americans subjected them to on our long distance highways. And I don't know about you, but the one thing that sticks out in my mind about early Toyotas are the pickup beds that COMPLETELY rusted out. Owners replaced their beds with pressure treated lumber rather than risk another shakedown through several Vermont winters with a metal one. It was kind of an underground aftermarket product up here in New England for many years! See craftsmanship above!

Anyway, the point isn't that White missed some of these low points in Toyota's entry into the U.S. market. He simply made the standard declaration that by some magic of Japanese management principles, imports were of better quality because they were better engineers.

I believe this is only (sort of) half true. What I understand is that companies like Toyota, LEARN HOW TO LEARN from their mistakes. For a few years pre-2000, there were some really bad paint problems with Ford products. I can't remember the model line, but certain Ford paint products were peeling off. Just recently, I saw another Ford car with the same problem, nearly ten years later. Why hasn't this problem been eliminated? Has Ford learned from their mistake?

It seems that they may be, but I'm not convinced (again, chronic quality problems are perceived to be only with Big Three). As Jim Harbour points out in his new book, Factory Man, the Big Three have closed the productivity gap. A lot of those gains came from better quality design. But the Big Three have a long way to go regarding quality in other aspects of their business.

White makes a strong case for how this quality mindset is still lacking in Detroit. He quotes Rick Wagoner to set up his premsie, recently in front of Congress, as he reflected on what GM could have done differently instead of paying off UAW concessions:

"Obviously, if we had the $103 billion and could use it for other things, it would enable us to be even farther ahead on technology or newer equipment in our plants, or whatever."

This 'whatever' is the sticking point of course. Wagoner's acknowledgment of 'whatever' either illustrates that he was too exacerbated to explain 'whatever' to Congress (can't say I blame him) or perhaps he doesn't have a good grasp of whatever 'whatever' really is. Leansters have an idea, (of course!), but the thought of dragging a company as big as GM out of 'whatever' and into a different level of thinking is overwhelming to say the least and beyond the grasp of any one lean thinking individual.

White uses Wagoner's Cognressional testimony of whatever as a launching point to paint a picture of the overall problem: quality. The cost, level and perception of quality is strongly tied to inventory, technology, employee involvement and hundreds of other business concepts; a holistic approach that requires lean thinking. White does a fantastic job of tying together the labor relations, overproduction of fleet inventory to make up the Japanese-American cost gap and its devestating impact on value, quality perceptions and how all of that currently put GM in its dire situation.

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At March 10, 2009 at 12:29 PM , Blogger Jason said...

Two comments: one on "cheap gas," the other on a flexible workforce:

"GM (and Ford and Chrysler) relied too heavily on a few, gas-hungry truck and SUV lines for all their profits... They did this for a good reason: When gas was cheap, big gas-guzzling trucks were exactly what their customers wanted—until they were not."

"When gas was cheap, big gas-guzzling trucks were exactly what GM customers wanted. Consumers didn't want Detroit's imitation Toyota Camrys...But federal laws allowed "light trucks" to meet a lower mileage standard. This kink in federal law allowed GM, Ford, and Chrysler to design innovative products that Americans clamored to buy when gas was cheap: SUVs."

"We have two contradictory energy policies: The first demands cheap gas at all costs. The second demands that Detroit should substantially increase the average mileage of its cars to 35 or even 40 miles per gallon across the board."

In a world of cheap gasoline, of course customers are going to want 5.0L V8 engines. Performance makes for an exciting car! These customers make up the market: could we have expected the "free" market to be forward-looking and demand cars that were more fuel-efficient? Of course not...auto makers always pointed to their customers and said that they "didn't want Detroit's imitation Toyota Camrys."

Who was responsible for this "kink" in federal law, as well as the CAFE staying at 27.5 mpg for as long as it did? Wasn't it auto makers lobbying Congress in order to improve their own market position?

Should a company always be concerned about its short-term survival over any long-term goal, like a more efficient fleet? From what I know about Toyota, the company does more long-term (goals over shorter-term profits to ensure future profits). This planning, however, is only possible in an environment (encouraged by government policy) that allows this to happen.

"Moreover, the new American manufacturers didn't have to compensate workers for the change from the old mass production methods to the new lean production approach. GM did—which is why GM created the Jobs Bank. The idea was that if UAW workers believed they wouldn't be fired if GM got more efficient, then they might embrace the new methods. Of course, we know how that turned out. The Jobs Bank became little more than a welfare system for people who had nothing more to contribute because GM's dropping market share had made their jobs superfluous."

It sounds like GM tried to convert their workforce into a flexible workforce, but only did half the work. Is Mr. White commenting on the method or GM's implementation of it?

At March 10, 2009 at 1:47 PM , Blogger Unknown said...

Thanks for the comment Jason. There is a lot of blame to hand out over the current CAFE situation. I tend to agree with you: ultimately the automakers control their destiny - either they adapt to the economic an political environment or they die. We are seeing the results of their efforts. However, I do not think we can demonize ONLY the Big Three when we are handing out criticism.

What about Toyota? There Tundras are GAS GUZZLERS in their own right. Right along with the Sequoia and Nissan's own Titan and Armada. Why do these cars exist? Because of the market and a company's desire to enter that market. Is this short term thinking or part of Toyota's long term plan? Why aren't legislators coming down on the Japanese in the same fashion?

The story is complex, but for some reason we are refusing to call out ALL of the players in this game.

At March 10, 2009 at 6:28 PM , Blogger Jason said...

Bryan, you make a good point. I don't want to imply that Toyota or the other Japanese companies are blameless for making large, gas-hungry trucks. My wife & I chuckle whenever we see a Nissan Armada drive by; why buy one galleon when you can buy the whole armada? :)

I think the key strength the Japanese companies have shown is that they have the flexibility to build either fuel-efficient cars or huge trucks. But they, Toyota included, have learned some bad habits from the Big Three: http://blog.wired.com/cars/2007/08/toyota-joins-bi.html

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