Automotive Tipping Point - Pragmatic Reformist

[Stunt]

Pragmatic Reformist

Automotive Tipping Point

As many of us are aware, the automotive sector is going through some changes as the Japanese manufacturers are eating away at the no longer "big 3" in North America. I am calling this the tipping point as the death of Ford and/or GM could have serious effects on the US, and Canadian manufacturing base (already hurt by a high dollar and over-taxation). The following will be a brief analysis on why the domestics are losing and what they can do moving forward.

If you would have asked anyone 20 years ago: "which car companies have the worst quality?", most would say without hesitation; the Asian car-makers. This reputation has created motivation to do better and prove to the American market they were formidable competitors. Fast forward 10 years and you would have seen a total role reversal; where the Japanese were lacking in the past, they were now global leaders! Over this time period, the domestics floundered; struggling with legacy costs and antiquated manufacturing methods maintaining the status-quo; stagnating domestic automotive innovation. Fast forward another 10 years and you have GM and Ford on the brink of collapse, diminishing market share, rising costs, and a perception of failure.

Everyone I talk to these days rants and raves about the quality of the Japanese producers and how they are willing to pay the price premium for this perceived long term benefit. I introduce you to the "2005 JD Power and Associates Dependability Study"; a global independent research firm dedicated to testing and researching consumer goods. They have ranked the number of problems per 100 vehicles (best being Lexus at 139, worst being 397). What I then did was averaged the North American, Japanese, European and Korean companies by their defects per 100. I linked the report as nationality is a poor indicator; Toyota does significantly better than its country's grouping. The results in defects are; 224 - North America, 237 - Japanese, 290 - European, and 325 - Korean. From a quality standpoint, it is safe to say the domestics are getting their acts together and are not lagging the Japanese as many tend to believe.

So what are the big 3 doing wrong? a) models b) automation c) vision...and that's it! Notice how I didn't include costs; many people like to blame unions and labour, but when you consider the key issue in the domestic's decline, its market share. The demand for a product is based on many factors including cost; but the domestics have the lowest prices! How can they be losing marketshare on price when the domestics are already the cheapest? Therefore the models themselves aren't in demand; this is something that has plagued the domestics many times in the past: GM having no Solstice's to sell with high demand; too many Aztek's with low demand; Chrysler not producing PT Cruiser's fast enough, watching people on waiting lists leave. I advise the domestics to get rid of all the re-badge names (example example example), drop the quirky ugly cars and make something people want and don't compete against other inter-company cars. Attracting Chevy buyers to Saturn is an utterly pointless gesture; you think Toyota, Honda, Nissan are dying with one model per segment and a luxury brand?

The decline in market share has occurred fairly quickly and from a North American standpoint, has been bitter sweet. Honda and Toyota have opened plants here with more robots increasing our productivity and demand for skilled trades (maintaining robots) and continue to grow a domestic manufacturing base. The big 3 on the other hand have been focusing on closing plants and moving everything to Mexico and China. While I agree these plants are too expensive from a labour standpoint, if the Japanese can make automation work here; why can't the domestics? The cost of building new plants overseas, laying off skilled workers here is expensive; I'd really like to see these numbers (cost analysis) considering the inventory and shipping costs of overseas operations.

So what are you buying when you buy a "domestic" or "Japanese" car? These borders are no longer clearly defined, and should also be thrown out the window, much like the quality perceptions or misperceptions I should say. A tidbit of the grey area: Saturn Vue's engine made by Honda, Suburban made in Mexico, Pontiac GTO in Australia, Toyota Avalon 70% domestic content, Honda Civic 75% domestic content, Chrysler PT Cruiser 60% domestic content.

As for vision, the domestics have offered absolutely no choice when it comes to alternate fuel sources, except Ford's tip over SUV and GM's failed EV1. The Japanese have been leading the way in hybrid technology and even though they continue to lose money on these products, they are the future and the domestics cannot afford to get left behind. The big 3 have the benefit of being in the back pockets of the American government and if they put their last remaining brains together they might be able to implement infrastructure for products unique to this market and even better for the environment than sticking electric motors in Toyota Echo's (sorry Prius). Time to end the drought of innovation and produce something consumers will endorse and buy, because if the big 3 don't; Toyota will, just as they did 10 years ago.

Ford's lineup is much leaner than GM's and their latest products are impressive; all around great looking cars (example), focusing on their mainstream cars and less on their bulky gas-guzzling SUV's. Ford's CEO has also dropped his pay to $0 as he turns the ship around; a far cry from GM's $5 million crappy record CEO. Ford and GM deserve their respective messes; one is making an effort, the other looks like it would rather take the easy way out; ie. pulling an Air Canada (default on debt, with gov't support and emerge a smaller, better run company).

In conclusion; Japanese quality isn't as good as people say, the domestics are not as patriotic as they say, allow the free market to determine the fates of all automotive companies, and finally this fierce competition has helped create some amazing products we should be thankful for.

 

[EatSpam]

Good article... I think he makes a lot of good points. And finally, someone who doesn't bash labor and sticks it to management, albeit gently.

I've always bought GM, never really been disappointed in quality, but I am usually disappointed in selection. And GM's minivan line is hideous!

 

[LumbergTech]

a good brainstorming session, although it doesnt prove much to show one source

 

[Stunt]

Originally posted by: LumbergTech
a good brainstorming session, although it doesnt prove much to show one source

I wrote it, and it has a few sources in it.

Stunt = Pragmatic Reformist

 

[Dissipate]

Originally posted by: Stunt

Originally posted by: LumbergTech
a good brainstorming session, although it doesnt prove much to show one source

Stunt = Pragmatic Reformist

Oh really? That interesting. I haven't heard you mention a single way of pragmatically reforming anyting.

 

[Stunt]

Originally posted by: Dissipate

Originally posted by: Stunt

Originally posted by: LumbergTech
a good brainstorming session, although it doesnt prove much to show one source

Stunt = Pragmatic Reformist

Oh really? That interesting. I haven't heard you mention a single way of pragmatically reforming anyting.

Thanks Diss

Notice I looked at the facts and made suggestions for reforms...exactly what the blog aims to do. Expose truths/misperceptions, give advice/insight.

Have any comments on the article?

 

[nergee]

Upper Management is to accept responsibility for the current condition of their company. Look inward at their decisions and policies instead of blaming everybody and everything else. The first reorganization should be in the top tiers, not at the hourly level.

 

[Proletariat]

Have none of you ever visited Stunts blog?

 

[glenn1]

I wrote it, and it has a few sources in it.

Change 20 in the below sentence to 30 (or maybe 35) and it would be more accurate.

If you would have asked anyone 20 years ago: "which car companies have the worst quality?", most would say without hesitation; the Asian car-makers.

Even 20 years ago I'd argue the most popular Japanese models were far better built than most American cars at the time. Just look at the Honda Civic hatchbacks from that period, the damn things were practically indestructible in terms of mechanical breakdown, and you still see tons of them on the road. Contrast that with a similar vintage K-car, Cavalier, Corsica, or such.

 

[catnap1972]

Originally posted by: glenn1

Even 20 years ago I'd argue the most popular Japanese models were far better built than most American cars at the time. Just look at the Honda Civic hatchbacks from that period, the damn things were practically indestructible in terms of mechanical breakdown, and you still see tons of them on the road. Contrast that with a similar vintage K-car, Cavalier, Corsica, or such.

Must be the area you live in...around here, I rarely see anything Japanese earlier than the early 90s still around...OTOH, still plenty of '70s and '80s American cars running.

 

[GroundedSailor]

Originally posted by: catnap1972

Originally posted by: glenn1

Even 20 years ago I'd argue the most popular Japanese models were far better built than most American cars at the time. Just look at the Honda Civic hatchbacks from that period, the damn things were practically indestructible in terms of mechanical breakdown, and you still see tons of them on the road. Contrast that with a similar vintage K-car, Cavalier, Corsica, or such.

Must be the area you live in...around here, I rarely see anything Japanese earlier than the early 90s still around...OTOH, still plenty of '70s and '80s American cars running.

I agree.

I have argued for years that American cars are much better in quality than their perception and in the last few years JD Powers surveys have proven that.

Japanese manufacturers also do a lot of silent recalls (where they don't advertise it - simply do the repair/modification quietly anytime the car comes into the dealership). Domestics, on the other hand, will make headline news for a faulty switch.

 

[Dissipate]

Originally posted by: Stunt

Originally posted by: Dissipate

Originally posted by: Stunt

Originally posted by: LumbergTech
a good brainstorming session, although it doesnt prove much to show one source

Stunt = Pragmatic Reformist

Oh really? That interesting. I haven't heard you mention a single way of pragmatically reforming anyting.

Thanks Diss

Notice I looked at the facts and made suggestions for reforms...exactly what the blog aims to do. Expose truths/misperceptions, give advice/insight.

Have any comments on the article?

Yep. I disagree here:

So what are the big 3 doing wrong? a) models b) automation c) vision...and that's it! Notice how I didn't include costs; many people like to blame unions and labour, but when you consider the key issue in the domestic's decline, its market share.

The unions do add a significant cost to the 'big 3's' production. And now there is even talk of the government bailing out their pension plans, which is totally outrageous.

The other thing I will say is that nowhere in your blog entry do you mention the fact that the market is being hurt by tariffs on imports. All tariffs on imports should be removed immediately. The 'big 3' should not be shielded from overseas competition in any way whatsoever.

 

[Stunt]

Costs are what will ultimately determine how long the big 3 can survive as they have a declining marketshare and limited ability to cut back and reduce economies of scale.

I left cost out as ford and gm are already the lowest price point for consumers. Say they could lower prices further; this would have an insignificant impact on sales or sustainability.

For example, if product X is sold at walmart for $10 and sold at target for $15; offering a product at $9 isn't going to have much impact as people will already buy the $10 item.

 

[charrison]

Originally posted by: EatSpam
Good article... I think he makes a lot of good points. And finally, someone who doesn't bash labor and sticks it to management, albeit gently.

I've always bought GM, never really been disappointed in quality, but I am usually disappointed in selection. And GM's minivan line is hideous!

Labor cannot be given a free pass on the current condition of US automakers. UAW workers are less productive than their non union counterparts. Even local UAW shops are seeing this and beginning to drop assinine work rules that keep them less productive. UAW has dropped such work rules for a new engine and assembly plant. Action like this are an admission of their guilt as well.

Aso think about this, there are more than 10,000 people the GEN pool(those laid off because of automation and get paid to do nothing). Lets assume that it costs 100k per person in wages and benefits to keep someone in the gen pool. That is billion a year that will not be spent on RnD, plant improvements, product development, advertising or whatever else that would make better products or sales.

 

[EatSpam]

Originally posted by: charrison

Originally posted by: EatSpam
Good article... I think he makes a lot of good points. And finally, someone who doesn't bash labor and sticks it to management, albeit gently.

I've always bought GM, never really been disappointed in quality, but I am usually disappointed in selection. And GM's minivan line is hideous!

Labor cannot be given a free pass on the current condition of US automakers. UAW workers are less productive than their non union counterparts. Even local UAW shops are seeing this and beginning to drop assinine work rules that keep them less productive. UAW has dropped such work rules for a new engine and assembly plant. Action like this are an admission of their guilt as well.

Aso think about this, there are more than 10,000 people the GEN pool(those laid off because of automation and get paid to do nothing). Lets assume that it costs 100k per person in wages and benefits to keep someone in the gen pool. That is billion a year that will not be spent on RnD, plant improvements, product development, advertising or whatever else that would make better products or sales.

I still can't blame labor. GM's problems are at the top. Management decides where to allocate existing R&D dollars and which vehicles to build. I doubt GM was so lacking in R&D dollars that they could choose only SUVs or hybrids. Management decided to squander their money designing and building ever bigger SUVs. When the market turned back to fuel efficiency, GM's management was caught with their pants down. Its not labor's fault that GM's management had their head in the sand.

GM's problems aren't that their prices aren't too high... GM makes very affordable vehicles, even without incentives. They just have too many rebadged crappy vehicles and not enough that's unique and appealing. If they didn't build so many different vehicles of the same kind, maybe they could build one vehicle of a kind which is decent. Those are all problems from management. The labor just builds what they're told to.

IMHO, the bottom line is: if GM built products that people wanted, they wouldn't have sales problems, and wouldn't have cashflow problems. Hell, if they built a great product, they might be able to command a premium - see the Pontiac Solstice.

 

[ntdz]

Originally posted by: EatSpam
Good article... I think he makes a lot of good points. And finally, someone who doesn't bash labor and sticks it to management, albeit gently.

I've always bought GM, never really been disappointed in quality, but I am usually disappointed in selection. And GM's minivan line is hideous!

All minivans are hideous.

 

[EatSpam]

Originally posted by: ntdz

Originally posted by: EatSpam
Good article... I think he makes a lot of good points. And finally, someone who doesn't bash labor and sticks it to management, albeit gently.

I've always bought GM, never really been disappointed in quality, but I am usually disappointed in selection. And GM's minivan line is hideous!

All minivans are hideous.

GM takes it to a new level - they're trying to make them look SUV-ish. The previous versions, up until 2003, were acceptable to my eyes. But, I'll probably buy one... aside from the too-small Mazda 5, there aren't any other new minivans to be had for $20k, as far as I know.

 

[charrison]

Originally posted by: EatSpam

Originally posted by: charrison

Originally posted by: EatSpam
Good article... I think he makes a lot of good points. And finally, someone who doesn't bash labor and sticks it to management, albeit gently.

I've always bought GM, never really been disappointed in quality, but I am usually disappointed in selection. And GM's minivan line is hideous!

Labor cannot be given a free pass on the current condition of US automakers. UAW workers are less productive than their non union counterparts. Even local UAW shops are seeing this and beginning to drop assinine work rules that keep them less productive. UAW has dropped such work rules for a new engine and assembly plant. Action like this are an admission of their guilt as well.

Aso think about this, there are more than 10,000 people the GEN pool(those laid off because of automation and get paid to do nothing). Lets assume that it costs 100k per person in wages and benefits to keep someone in the gen pool. That is billion a year that will not be spent on RnD, plant improvements, product development, advertising or whatever else that would make better products or sales.

I still can't blame labor. GM's problems are at the top. Management decides where to allocate existing R&D dollars and which vehicles to build. I doubt GM was so lacking in R&D dollars that they could choose only SUVs or hybrids. Management decided to squander their money designing and building ever bigger SUVs. When the market turned back to fuel efficiency, GM's management was caught with their pants down. Its not labor's fault that GM's management had their head in the sand.

GM's problems aren't that their prices aren't too high... GM makes very affordable vehicles, even without incentives. They just have too many rebadged crappy vehicles and not enough that's unique and appealing. If they didn't build so many different vehicles of the same kind, maybe they could build one vehicle of a kind which is decent. Those are all problems from management. The labor just builds what they're told to.

IMHO, the bottom line is: if GM built products that people wanted, they wouldn't have sales problems, and wouldn't have cashflow problems. Hell, if they built a great product, they might be able to command a premium - see the Pontiac Solstice.

I never claimed gm did not have management problems, as they do. But to say uaw and labor rules are not not part of the problem is stupid. Even UAw recogonized they much change if they want the big 3 to compete. They are talking a tough game at the top, but they are changing their tunes at local shop level.

 

[BaliBabyDoc]

"Working Gal/Guy" (UAW): Baby, its gonna cost you $3k a week.
John (GM/Ford): Oh, that's too much . . . but you lookin' kinda fine . . . I got $1k.

Working Gal/Guy: I wouldn't give you the time of day for $1k. How about a fulltime for $3k and $2k for a parttime.
John: Hmm, that's still a little rich. How about $2k for fulltime and $1750 when I move on to a different tart.

Working Gal/Guy: OK

 

[Proletariat]

Originally posted by: GroundedSailor

Originally posted by: catnap1972

Originally posted by: glenn1

Even 20 years ago I'd argue the most popular Japanese models were far better built than most American cars at the time. Just look at the Honda Civic hatchbacks from that period, the damn things were practically indestructible in terms of mechanical breakdown, and you still see tons of them on the road. Contrast that with a similar vintage K-car, Cavalier, Corsica, or such.

Must be the area you live in...around here, I rarely see anything Japanese earlier than the early 90s still around...OTOH, still plenty of '70s and '80s American cars running.

I agree.

I have argued for years that American cars are much better in quality than their perception and in the last few years JD Powers surveys have proven that.

Japanese manufacturers also do a lot of silent recalls (where they don't advertise it - simply do the repair/modification quietly anytime the car comes into the dealership). Domestics, on the other hand, will make headline news for a faulty switch.

I think the problem with American cars is we don't concentrate enough on interior style.

The new Civic destroys anything American manufacturers make.

 

[MadRat]

Maybe if General Motors concentrated their efforts on making cars and not pornography then they'd had a decent 2005 model. But porn wins every time with them.