4.02.2007

Good and Bad Ideas About Detroit

While much has been written about the Detroit automakers, and the possible sale of Chrysler in particular, a recent issue of Forbes contains both some of the best and some of the worst ideas put forward on this topic. I believe their articles are worth mentioning because what’s being said relates to lean principles.


            First, the worst. The magazine published a brief interview with Glenn Reynolds of CreditSights, who is described as a longtime auto analyst. (His firm is described as one that analyzes corporate capital structures.) Reynolds proposes that Chrysler become a joint venture owned by Daimler, General Motors and a group of private equity players.


            With such a deal, Reynolds says, “GM could control the rationalization of the North American auto industry.”


            Oh, really? I think market forces, such as the strength of the Japanese companies, have a bit more to do with it.


            Forbes, noting that GM already has too many dealers, brands and exposure to a tough market, asks whether there is a case for GM’s getting involved with Chrysler at all. Reynolds responds:


 


            The stock and credit markets will hate it. That said, there are a number of very good reasons. GM could drive a steady and orchestrated restructuring of the industry. GM also could work over the longer time horizon to consolidate many dealers. While GM would be unlikely to admit it for regulatory reasons, GM could also better influence market pricing and production planning.


 


            I think he’s right about the reaction of the stock and credit markets, and that’s because they have more sense than he does. GM’s influence on market pricing is minimal, if it exists at all. And while GM is making progress in its own restructuring, it is far from being at the point where it could take over another troubled company and turn around both Chrysler and itself.


            Fortunately, on the very next page of the magazine, automotive columnist Jerry Flint offers a refreshing dose of common sense.


            Flint doesn’t write about the possible sale of Chrysler here. He focuses on GM’s turnaround efforts. He writes:


 


            Cutting costs isn’t turning around; reducing the dollar losses isn’t turning around; and even moving to the financial black from the red isn’t turning around.


            Turning around means selling more cars and trucks instead of fewer cars and trucks. It’s making volume gains over the year before. It’s gaining market share instead of losing market share.


 


            (I’d argue that market share is less important than profitability, but we’ll debate that another time.)


While Flint gives GM credit for its improvement efforts, including showing a profit, he adds,


           


            It’s too early to say GM has turned the corner. Wait three months.


 


            Funny how there is no mention of sales or profits in Reynolds’ remarks on the preceding page.


            So what does all this have to do with lean? The relentless drive for continuous improvement demonstrated for so long by Toyota is not just about improving operations and cutting costs. It’s about adding value for the customer. That’s something Detroit executives tend to forget.


            Toyota doesn’t strive just to make its processes more efficient. It engages in incredible market research to set directions for new products, something I’ve written about before. Its processes for product creation, described in our book The Toyota Product Development System, are just as important as its production system.


            By the way, since its publication, that book has consistently been one of our best-sellers. Let’s hope executives in Detroit are among the people buying it.


 

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