Detroit’s real challenge? Making products customers care about.
Of course America’s car-makers were going to get a bail-out. They employ millions, both directly and indirectly, and are facing an unprecedented collapse in demand. While individual members of Congress could stand on principle secure in the knowledge they wouldn’t be held personally accountable for starving a vital industry of desperately needed liquidity, President Bush couldn’t so easily sidestep his responsibility for the consequences of inaction. Hence the $17.4 billion loan package.
In return for this financial support, General Motors and Chrysler have been asked to commit themselves to a bankruptcy-like restructuring program—replacing debt with stock, cutting headcount, and renegotiating agreements with unions, dealers and creditors. The companies have until March 31 to demonstrate they are financially viable; if they fail to do so, President Obama will have the power to call in the loans.
While GM and Chrysler may now have the cash and the bargaining leverage to stave off bankruptcy, there is little they can do between now and the end of March—short of a complete management overhaul—to regain their long-term competitiveness.
Contrary to auto industry propaganda, Detroit’s problems are not rooted in the recession. Like most other companies, GM, Ford and Chrysler were blind-sided by the credit crunch, but blaming the economy for Detroit’s 30 year slide in market share is like blaming a flu bug for the death of an enfeebled 90 year-old with congestive heart failure.
My first glimpse of the endemic management flaw that would ultimately undermine the U.S. car industry came nearly 20 years ago when I was berating a group of American auto execs for surrendering the lead in engine technology to foreign rivals like VW and Honda. Why, I asked, could these companies produce peppy, high-revving four-cylinder engines, with overhead cams and four valves per cylinder, while this particular Detroit-based company couldn’t? “It’s not that we don’t know how to make a 16-valve engine,” replied a senior program manager, “but it would add $62 to the cost and most of our buyers wouldn’t notice the difference.”
This defense of penny-wise, pound-foolish engineering floored me. While I agreed that a lot customers would probably fail to appreciate the performance advantages of a more advanced power-plant, I argued this was true only because the company’s average buyer was more than 60 years old. And by the way, I interjected, it’s hard to grow when every obituary reduces your market share. But what about all those car-savvy 20 and 30 year olds? Many of those young buyers were, like me at the time, perfectly willing to pay a few hundred bucks extra for a car that had a zippy, responsive engine. Problem was, the senior executives in this company had a hundred ways to parse costs, but were mostly clueless when it came to dissecting perceived customer value.
A company’s productivity is a function of two things: how efficiently it uses its resources, and the value that its customers place on its products. While any half-decent accountant can tally up costs, it takes someone with a deep love of product, a real empathy for customers, and a keen sense of aesthetics to get a fix on value. Trouble is, few such individuals make it to the top of America’s big car companies. That’s why most arguments over cost versus value have been won by the bean-counters.
While there have been occasional attempts to give a “car guy” a butt-kicking role in product development, these individuals, like GM’s Bob Lutz, have inevitably found themselves mired in cultures that focus obsessively on costs while mostly ignoring the subtle things that determine perceived value (like, for example, the quality of plastics used around the instrument panel). While some of these car nuts have had the political clout to launch a “halo” vehicle or two, like the Corvette ZR1 or Chevrolet Volt, they have generally been unable to radically re-engineer the left-brain management practices that undermine sustained product leadership, or force through the comprehensive personnel changes that would alter the accountant-versus-engineer power balance. Without these critical steps, another round of restructuring will amount to no more than a stay of execution.
Sure, Detroit’s problems go beyond a failure to produce lust-worthy products. The UAW has been bleeding the auto industry for years. State franchising laws have made it difficult for GM to rationalize its brand portfolio and weed out weak dealers. Then there are those health-care costs. But in the end, it’s all about product.
For as long as I can remember, Detroit has produced cars that are insipid, clunky, and uninspiring. In 1977, when my wife and I bought our first car, we chose a VW Scirocco. It was a hoot to drive and Detroit made nothing so lithe and entertaining. My most recent purchase was an Audi A4 wagon—the thinking man’s alternative to an SUV. At the time, no domestic car-maker offered an equivalent to the Audi’s direct injected, turbocharged, 4-cylinder engine—at least not to its U.S. customers.
So there are two fundamental questions America’s car CEOs must answer: Why have your companies been on the back foot, product-wise, for more than a generation? And what are you going to do to regain the lead—in every product segment, at every product price-point?
As one of the taxpayers funding the bailout, I’m less interested in what GM and Chrysler are going to do to cut costs than in what they’re going to do to regain lost market share. You can cut costs to zero and still have lousy products, but the only way to regain share, profitably, is to make cars people fall in love with.
We don’t need another mea culpa from Rick Wagoner, Bob Nardelli and their colleagues. What we need is some passion—the kind of fervor for great engineering, and ardor for customers, that can put a company back on the path to leadership.
Management is technique, but business is passion—and if you don’t have it, you should give your job to someone else. What’s needed at the top of GM, Ford and Chrysler are hundreds of executives who are as wantonly enthusiastic about the user experience as Larry Page and Sergey Brin at Google, Steve Jobs at Apple, or Issy Sharp at Four Seasons Hotels and Resorts. America’s car companies need leaders who are as totally devoted to grin-inducing innovation as Ed Catmull, the co-founder of Pixar, or Michael Ramsay and Jim Barton, the co-founders of TiVo.
Toyota didn’t become the world’s most successful car company because it had better accountants. It took the lead because it built better cars and trucks—and had leaders who were passionate about doing so.
It wasn’t a cost deficit that brought America’s car industry to its knees; it was a passion deficit. Let’s hope the patient can be kept alive long enough to regain its mojo.
Readers, if you were leading a big U.S. car company, what would you do to rekindle a passion for product leadership?