The recent turmoil among the Detroit auto manufactures has finally surfaced into a “national crises” with the CEOs of GM, Ford, and Chrysler begging for taxpayer dollars so they won’t have to make tough decisions about the companies they run. I’ve blogged here before about the decades long incompetence of the U.S. automobile leadership. There is a lot of history among the U.S. auto executives with regards to not understanding their markets, ignoring quality, producing poor designs, and many other issues. The so-called "leadership" of the UAW is equally culpable for Detroit’s decline for hiding their heads in the sand for three decades while foreign competition decimated their market share and jobs.
Over the last 30 years, the challenge to Detroit from Japanese, Korean and German manufactures has been about incremental improvement within the realm of how the basic automobile business model works – you build cars people want to buy and your dealer network sells them.
Over the same 30 years, the computer industry has faced a lot more disruption than the auto industry. Many of the companies that helped define various stages of the industry are no longer with us. Think about Digital Equipment Corporation (DEC) whose CEO couldn’t figure out why anyone would want a computer in their home!
What would happen if Detroit faced the kind of innovation and disruption the computer industry has endured? They may be about ready to find out.
Shai Agassi was a software entrepreneur. One of his companies was acquired by German software giant SAP. He soon became an SAP wunderkind, and was poised to take over as CEO of SAP. The incumbent CEO decided to stay in place, so Shai left the company.
Shai applied his computer industry background to the auto industry and came up with a plan to radically change the auto market. His new company -- Better Place – aims to build a standards-based electrical vehicle network comprised of charging stations and automated battery swapping stations where you work, eat, and shop. If you want to have lunch, charge the battery. If you’re in a hurry, swap it. Of course you can charge the battery at your house overnight.
The business model for a Better Place works a lot like the mobile phone industry. The electrical vehicle network provider will subsidize the cost of your car and you’ll pay for what you use, but instead of paying for minutes, you’ll pay for miles. Forget about the traditional auto industry and think about AT&T, T-Mobile and Verizon. Basically, it’s Car 2.0 -- a proven business model applied to a different industry.
Do you think that Detroit could have thought of this with their inbred, hidebound leadership? No way. In fact, GM snubbed Agassi while Nissan and Renault partnered with him.
25 years ago, IBM was run by a lifer – John Akers -- who ran the company into the ground. Lou Gerstner was brought in from outside the computer industry to save IBM. Perhaps, it’s time for someone from outside of the auto industry to come in and help save it.
Showing posts with label GM. Show all posts
Showing posts with label GM. Show all posts
Thursday, December 11, 2008
Thursday, November 13, 2008
Auto Industry Bailout: JUST SAY NO
Barack Obama is pushing for a $50 billion bailout for the U.S. auto industry. We are essentially being told that without this bailout the world will come to an end because the U.S. auto industry is just “too big to fail”.
Here is the essential question: Why is the U.S. auto industry in such terrible shape and in need of a bailout? High gas prices? Unfair competition? Bad luck? Nope. They are on the verge of collapse because collectively they have suffered from four decades of the most brain dead management on the planet.
The U.S. auto companies took too long to figure out that producing quality cars actually costs less, not more, and results in higher customer satisfaction and stronger brand loyalty. As a result of not understanding this, they lost their mindshare and market share in the U.S. a long, long time ago. The big thing that has propped these companies up for the last two decades were cheap fleet sales that were subsidized by their financing ventures. For example, a couple of years ago, the most profitable division of GM was GMAC, which was even in the mortgage business.
They were also completely clueless on how to compete in international markets. For example, they used to constantly whine about how Japan was unfairly closed to them. When I went to Japan for the first time in 1998, I noticed three things: A.) The Japanese drive on the left side of the road, like the British, B.) there were a lot of German cars on the road, and C.) there were very few American cars. The problem was that the U.S. auto companies took forever to sell cars that were suitable for the Japanese market (i.e., with the steering wheel on the right side). The complete misunderstanding of the market, along with their chronic quality problems doomed GM, Ford, and Chrysler in Japan.
The UAW “leadership” is equally culpable for the industry's long decline for refusing to enable necessary operational changes. For example, guess who has the most advanced and efficient auto manufacturing facility in the world? Ford. It’s in Brazil. The UAW would never allow a plant with that level of flexibility and supplier integration to operate in the U.S., which is a huge part of the problem.
My view is that there is no reason whatsoever why the taxpayers should be stuck subsidizing decades of gross mismanagement. GM, Ford and Chrysler are NOT "too big to fail". Even if they do fail, companies with smarter leadership will put their resources to better use. We'll all be better off.
So, it's time to “JUST SAY NO” to the auto industry bailout.
Here is the essential question: Why is the U.S. auto industry in such terrible shape and in need of a bailout? High gas prices? Unfair competition? Bad luck? Nope. They are on the verge of collapse because collectively they have suffered from four decades of the most brain dead management on the planet.
The U.S. auto companies took too long to figure out that producing quality cars actually costs less, not more, and results in higher customer satisfaction and stronger brand loyalty. As a result of not understanding this, they lost their mindshare and market share in the U.S. a long, long time ago. The big thing that has propped these companies up for the last two decades were cheap fleet sales that were subsidized by their financing ventures. For example, a couple of years ago, the most profitable division of GM was GMAC, which was even in the mortgage business.
They were also completely clueless on how to compete in international markets. For example, they used to constantly whine about how Japan was unfairly closed to them. When I went to Japan for the first time in 1998, I noticed three things: A.) The Japanese drive on the left side of the road, like the British, B.) there were a lot of German cars on the road, and C.) there were very few American cars. The problem was that the U.S. auto companies took forever to sell cars that were suitable for the Japanese market (i.e., with the steering wheel on the right side). The complete misunderstanding of the market, along with their chronic quality problems doomed GM, Ford, and Chrysler in Japan.
The UAW “leadership” is equally culpable for the industry's long decline for refusing to enable necessary operational changes. For example, guess who has the most advanced and efficient auto manufacturing facility in the world? Ford. It’s in Brazil. The UAW would never allow a plant with that level of flexibility and supplier integration to operate in the U.S., which is a huge part of the problem.
My view is that there is no reason whatsoever why the taxpayers should be stuck subsidizing decades of gross mismanagement. GM, Ford and Chrysler are NOT "too big to fail". Even if they do fail, companies with smarter leadership will put their resources to better use. We'll all be better off.
So, it's time to “JUST SAY NO” to the auto industry bailout.
Monday, July 7, 2008
General Motors: Farwell and Adieu?
The news that General Motors stock hit a 54 year low last week shouldn’t be too much of a surprise to anyone who has been following the company for a while. GM is hemorrhaging money so fast that it will need to raise $15 billion to cover their operating expenses over the next two years. They are now facing the very real possibility of bankruptcy. As a result, GM is now considering laying off thousands of white collar workers and selling off some of their brands.
GM’s problems aren’t new and are only partially related to the current high price of gasoline. Their problems go back several decades, when they started to let their dominance of the U.S. auto market slip away to the Japanese and then the Koreans. GM has lost over half of its market share over the last four decades. It’s now at 20%.
General Motors has had some of the most brain-dead management in the industry, starting with Roger Smith who fostered the worst labor relationships in Detroit. At one point their relationship with labor was so bad that GM's UAW leadership were indistinguishable from suicide terrorists, determined to punish the company even if it meant killing themselves in the process.
GM also suffered from three decades of poor, uninspiring design, where for a while most of their cars pretty much looked like a wedge of cheese.
Like all U.S. auto companies, it took GM too long to figure out that producing qualitiy cars actually cost less, not more, and results in higher customer satisfaction and stronger brand loyalty.
They were also completely clueless on how to compete in international markets. For example, they used to constantly whine about how Japan was unfairly closed to them. When I went to Japan for the first time in 1998, I noticed three things: A.) The Japanese drive on the left side of the road, like the British, B.) there were a lot of German cars on the road, and C.) there were very few American cars. The problem was that the U.S. auto companies took forever to sell cars that were suitable for the Japanese market (i.e., with the steering wheel on the right side). The complete misunderstanding of the market, along with their chronic quality problems doomed GM, Ford, and Chrysler in Japan.
They also have a maddening plethora of largely indistinguishable brands including Chevrolet, GMC, Pontiac, Saturn, Cadillac, and Buick. Let’s not forget about Oldsmobile, which GM shut down a few years ago. Yes, they also have Saab and Hummer, but these are niche brands which are also not doing well.
Finally, years of overly generous pension arrangements have spun GM’s costs out of control. The cost of supporting GM retirees is more than $1,600 per car.
Shutting down a brand is a costly proposition, in part due to state franchise laws. In 2001, GM spent $1 billion to buy out Olds dealers and close some plants. Litigation with dealers dragged on for years and the final cost of shutting downs Olds is estimated to be $2 billion.
Throttling back on production isn’t an easy answer either, given GM’s union agreements which stipulate that they can’t close a plant or lay off workers without stiff penalties no matter how bad the losses become. Plants must run at 80% capacity or more whether they make money or not. Even if it stops its assembly lines, GM must still pay laid-off workers and also foot their extraordinarily generous health-care and pension costs.
So, what’s the answer? I for one can’t think of any reason why General Motors as a single entity makes sense any longer, because they just don't seem to be able to get out from under their own history. They have proven to be too big, old, and stodgy to undertake any serious reform. The only real answer may be to break the company up and let the market reallocate the resources to more productive uses.
GM’s problems aren’t new and are only partially related to the current high price of gasoline. Their problems go back several decades, when they started to let their dominance of the U.S. auto market slip away to the Japanese and then the Koreans. GM has lost over half of its market share over the last four decades. It’s now at 20%.
General Motors has had some of the most brain-dead management in the industry, starting with Roger Smith who fostered the worst labor relationships in Detroit. At one point their relationship with labor was so bad that GM's UAW leadership were indistinguishable from suicide terrorists, determined to punish the company even if it meant killing themselves in the process.
GM also suffered from three decades of poor, uninspiring design, where for a while most of their cars pretty much looked like a wedge of cheese.
Like all U.S. auto companies, it took GM too long to figure out that producing qualitiy cars actually cost less, not more, and results in higher customer satisfaction and stronger brand loyalty.
They were also completely clueless on how to compete in international markets. For example, they used to constantly whine about how Japan was unfairly closed to them. When I went to Japan for the first time in 1998, I noticed three things: A.) The Japanese drive on the left side of the road, like the British, B.) there were a lot of German cars on the road, and C.) there were very few American cars. The problem was that the U.S. auto companies took forever to sell cars that were suitable for the Japanese market (i.e., with the steering wheel on the right side). The complete misunderstanding of the market, along with their chronic quality problems doomed GM, Ford, and Chrysler in Japan.
They also have a maddening plethora of largely indistinguishable brands including Chevrolet, GMC, Pontiac, Saturn, Cadillac, and Buick. Let’s not forget about Oldsmobile, which GM shut down a few years ago. Yes, they also have Saab and Hummer, but these are niche brands which are also not doing well.
Finally, years of overly generous pension arrangements have spun GM’s costs out of control. The cost of supporting GM retirees is more than $1,600 per car.
Shutting down a brand is a costly proposition, in part due to state franchise laws. In 2001, GM spent $1 billion to buy out Olds dealers and close some plants. Litigation with dealers dragged on for years and the final cost of shutting downs Olds is estimated to be $2 billion.
Throttling back on production isn’t an easy answer either, given GM’s union agreements which stipulate that they can’t close a plant or lay off workers without stiff penalties no matter how bad the losses become. Plants must run at 80% capacity or more whether they make money or not. Even if it stops its assembly lines, GM must still pay laid-off workers and also foot their extraordinarily generous health-care and pension costs.
So, what’s the answer? I for one can’t think of any reason why General Motors as a single entity makes sense any longer, because they just don't seem to be able to get out from under their own history. They have proven to be too big, old, and stodgy to undertake any serious reform. The only real answer may be to break the company up and let the market reallocate the resources to more productive uses.
Tuesday, June 3, 2008
Bob Barr Democrats
It looks like Barack Obama has won the Democratic nomination. Congratulations to him. My guess is that he is going to be the next President. Not because he’s so great. Rather because George Bush has ruined the party that Barry Goldwater, Ronald Reagan, Newt Gingrich, Bob Barr, Dick Armey, and others tried to build.
Obama has a big challenge ahead, namely that white, blue collar voters in the industrial Midwest don’t seem to be inclined to vote for him. The big question for Bob Barr is how he turns these “Hillary Democrats” into Barr voters.
One thing that Barr should propose is to bring our troops home to save our manufacturing base. The U.S. spends countless billions of dollars every year stationing troops in Japan and South Korea. These countries respond by doing everything they can to put GM, Ford, and Chrysler out of business. They are able to compete effectively because their total tax burden is significantly smaller than ours, in part because we are subsidizing their military defense. We need to end the huge defense subsidy that American taxpayers are shelling out to over to 130 countries around the world and then use the savings to cut taxes to help make us more competitive.
We know why McCain won't propose this – he is admittedly clueless about the economy and he is too vested in his antiquated Cold War view of the world to make any real change. I do find it very odd that Obama won't talk about this either. Perhaps his elitist disposition makes him too tone deaf to the plight of blue collar Americans to care.
This gives Barr an opportunity to win over a lot of folks who voted for Hillary in the primary, while upholding our American libertarian values at the same time.
Obama has a big challenge ahead, namely that white, blue collar voters in the industrial Midwest don’t seem to be inclined to vote for him. The big question for Bob Barr is how he turns these “Hillary Democrats” into Barr voters.
One thing that Barr should propose is to bring our troops home to save our manufacturing base. The U.S. spends countless billions of dollars every year stationing troops in Japan and South Korea. These countries respond by doing everything they can to put GM, Ford, and Chrysler out of business. They are able to compete effectively because their total tax burden is significantly smaller than ours, in part because we are subsidizing their military defense. We need to end the huge defense subsidy that American taxpayers are shelling out to over to 130 countries around the world and then use the savings to cut taxes to help make us more competitive.
We know why McCain won't propose this – he is admittedly clueless about the economy and he is too vested in his antiquated Cold War view of the world to make any real change. I do find it very odd that Obama won't talk about this either. Perhaps his elitist disposition makes him too tone deaf to the plight of blue collar Americans to care.
This gives Barr an opportunity to win over a lot of folks who voted for Hillary in the primary, while upholding our American libertarian values at the same time.
Subscribe to:
Posts (Atom)
Posts
