Do You Trust Detroit?

My clients usually assume that subject matter expertise is the biggest driver of trust.  Usually, they’re wrong—greed, self-orientation and an inability to take personal risks are often the culprit.

But not always.  Sometimes, incompetence matters.  Detroit is one of those cases.  In a post  by Om Malik, The Market Meltdown and the Question of Trust, Malik suggests the Big 3 have lost touch with commonsense. 

Malik is an optimist. 

Allow me to demonstrate.

Toyota introduced the Prius in 1997.  11 years later, GM brought us–the Hybrid Escalade.  The Big 3’s CEOs fly their private jets to Washington to beg for money without a plan.

This level of cluelessness is not random; it is the result of 50 years of really bad management. Detroit became the East Germany of American management.  Here’s one small measure of just how they did it.

Ward’s Automotive Yearbook, the Bible of the US industry, used to annually publish US market share statistics—for models of US produced cars.  For the others, one size fit all—the line item was called “imports.”  The official stats-keeper of the industry tracked 50-60 US car models, but lumped together Rolls Royces with Toyotas and Volkswagens.

In 1963, “imports” totaled 386,000–5.1% of the US market.

By 1967, “imports” were 7.3%–still combining Nissans and Maseratis in one category, while giving the AMC Rebel its own line on the chart.

In 1968, “imports” hit 9.3%; in 1972, 12.6%. The market share table listed 59 separate US passenger car models, yet the 1.2M “foreign imports” were grouped in just one line.  

“Imports” came to equal the entire output of the Chrysler corporation; exceed all of American Motors; exceed all of the Lincoln-Mercury division of Ford, not to mention Pontiac, Buick, Oldsmobile and Cadillac.  Of the Big Three producers, only GM’s Chevrolet division and Ford Motor Company’s Ford division sold more cars than “imports.” 

Yet Detroit was guilty of automotive racism–they all looked the same.  Those "imports."

Over the years, Detroit management blamed the following: a “surprise” shift to small cars in the late ’70s; US tax policy; Japanese industrial policy; dumping; unemployment; US engineering education; a pro-Asian faddish cult of style in California; poor technology; labor costs; health care costs; pension costs; the UAW; suppliers; dealers; government regulation.

Not until the 1992 issue of Ward’s–when the US market share of “Imports” had passed 31% in 1988 and 1989–did the table break out “import” statistics to distinguish a Honda Civic from a Mercedes.

The self-description of an industry says a lot.  It declares to one and all, this is what we believe, and this is what you must know if you want to understand our industry.

Decisions about language and statistics quickly become self-reinforcing.  The more you see the data in a certain way, the more obvious it becomes that this must be reality.  In Detroit’s case, the belief was The Big 3 = the auto industry.

Swanson, the original “TV dinner” failed to capitalize on its advantage; a magazine explained,  “It was one thing to have missed the trend toward Thai; it was quite another to have missed Italian.”

Missing the relevance of “imports” for over 30 years qualifies as “missing Italian.”

There is no rescue for an endemic mindset like this.  It has to be broken up.  Incompetence on this scale and depth demands nothing less.  The suppliers and workers of the US auto industry are the victims here, but we cannot afford to use the sclerotic bureaucracies named GM, Ford, or Chrysler to be agents of rescue.

We really do need bold new thinking here: Obama’s economic team, are you listening?

In the spirit of trying to offer some breakthrough ideas, here are a few starters:

•    Give Toyota $10 billion to be used solely for hiring US workers and establishing a US auto industry de novo; limit repatriation of earnings for political palatability, but get someone running the industry who is not blinded.  

•  Sell the brands, re-hire the workers; blow up the companies, and (severely) retrain the execs for work outside the auto industry;

•    Bail out workers and retirees through massive infrastructure programs and assumption of pension liabilities. 

•    Build up Michigan tourism (as a former Michigander, I’ll testify to the State’s beauty and resources).

•    Ban from the industry anyone who used to have his name on his parking slot. 

•    Move marketing HQs to coastal locations like Miami or Los Angeles 

•    Require all marketing execs to speak at least two languages

I do not have the answers, but it’s going to take something this drastic. 

Trust destroyed this badly cannot be recovered by those who lost it.

 

 

5 replies
  1. Morris
    Morris says:

    With all due respect, you sir are full of it. You cite things from decades ago and conveniently ignore the facts that goes against your case.

    Toyota loses money on every Prius. Prius is a PR strategy (albeit a successful one). In 2006, this same great company decided to build the Tundra full size pickup in Texas. Why? Because they couldn’t resist the dollar signs made from selling these vehicles. (Perhaps to pay for the losses on the Prius). In hindsight, would you consider this a very smart move? Oh by the way, the Tundra gets worse fuel economy than any pickup in the segment.

    Do you think Toyota is any better than any other profit driven company? Let’s wait a few more years when Toyota has to start paying retiree benefits and pensions. We’ll see how they handle it.

    Sir, if I can’t trust you to get all the facts in this area, then why should I trust you on any other area? Answer: I don’t.

    Reply
  2. Charlie (Green)
    Charlie (Green) says:

    Morris,

    Whatever I’m ‘full of’ seems to be going around.

    You don’t have to trust me, but I suggest you listen to Paul Ingrassia at the Wall Street Journal, who suggests that Detroit’s "trouble began long ago" in How Detroit Drove Into a Ditch.

    Or, you might find you have more trust in Alex Taylor III, senior Editor at Fortune Magazine, who suggests "by clinging to the attributes that made it an icon, GM drove itself to ruin" in GM: Death of an American Dream.

    All three of us agree that Detroit’s past is what doomed it–because it couldn’t drag itself into the future.

    You ask if I think Tundra was a good decision. Yes I do. You ask if I think Toyota is "any better than any other profit driven company." Better than average, yes I do; better than the Big Three, absolutely. And, as you point out, those profitable Tundras were built in the US.

    I’m not sure why you suggest "wait a few years." The verdict is in now. Waiting a few years is precisely what drove Detroit into the ground. Always an excuse, always "wait ’til next year."

     

    Reply
  3. morris
    morris says:

    Dear Sir,

    I came to your blog to read about trust. With such a webname, one would expect something more than just your typical rant. To me, "Trust matters" means an objective and balanced appraisal of the situation. Your piece should give me the feeling that you did your homework on this, that you separated fact from fiction. 

    Have you yourself looked at the transformation that has been happening since 2005?  Have you any idea of the technology behind the Chevrolet Volt? Did you know that GM makes more hybrids than any other company or that they have the largest fleet of hydrogen fuel cell vehicles than Toyota being tested now as we speak. Aren’t these items worth a mention?

    Instead, I read the same hopelessly out of date opinion piece that makes its way from blog to blog. I don’t need to come here to read what other authors think. I come here to read what you think from a trust matters point of view.

    You say you agree with the Tundra decision. Why? How is it okay that Toyota builds big fuel consuming vehicles? Did the US market need yet another entry in this segment? Are you okay with the fact that the Tundra has had to be sold with huge incentives almost right from the start? What about now when they have had to scale back Tundra production big time? They are no smarter than anyone else it seems but for some reason you deem them to be the big fix for what ails the industry.

    Reply
  4. Charlie (Green)
    Charlie (Green) says:

    The point of my original post was not that Detroit wasn’t green, it was that Detroit was stupid and consistently decades behind.  I absolutely stand by that.

    Again, go read Fortune and the Wall Street Journal, cited above–don’t trust just me.  But they’ll agree.  Stupid and decades behind.

    As to what’s been happening since 2005, Detroit has been going bankrupt, I’ve certainly noticed that.  Now they’re looking for handouts; did you notice?

    If GM makes more hybrids than any other company, well then I did miss that one.   I was reading things Earthtalk on August 2008, who is reported as saying: "Toyota, currently the world’s largest producer of hybrid vehicles by far thanks to the success of its Prius…"

    And Physorg.com, a science-oriented site which said in 2006:

    While the US has just started producing hybrids, the Japanese are the recognized leaders. Honda and Toyota are the two largest producers with the Insight and Prius. US car makers are well behind. In fact, during recent introduction of a new hybrid by GM – the Mercury Mariner, they admitted they had to license over 20 separate technologies from the Japanese. US car makers still specialize in SUVs and trucks – Ford has even introduced a hybrid version of its popular Escape SUV.

    Industry analysts say US hybrids are just token models – not a serious attempt to get into the market.

    Hey if I’m wrong, please cite the source here; I certainly am not an auto industry expert, so I welcome being corrected. Right now I’m still under the impression that Toyota sells more hybrids than GM.  Until I see a source for your claim, the nature of trust not surprisingly says that I’m sceptical.  Wouldn’t you be?

    My point is a simple one.  Detroit has managed by the same myopic, short-term, US-centric ideology for decades.  At any point of time in the last four decades, you’d have done better investing in Toyota than in GM.  Bad management.  Simple.  Results speak.  Not car by car or model by model–but year year and company by company.  Long run.  What counts.

    Reply

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