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.



Evaluating Paulson and the Biggest Trust Me Since Iraq

Economist Paul Krugman , in his NY Times blog, wrote yesterday about The Trust Problem raised by the bailout proposed by US Treasury Secretary Paulson, Fed Chairman Bernanke, and President Bush. Never mind the merits of the case. The point Krugman is raising is about trust:

"The whole premise of the bailout push has been “We’re the grownups, we know what we’re doing, just trust us.” Sorry, but that’s how Colin Powell sold the Iraq war. Fool me once, shame on you, fool me twice … you shouldn’t get fooled. " [revised last line courtesy of GW Bush]

I try not to write about US politics in this blog: but this issue is non-partisan, arguably international—and undeniably huge. It’s an 800 pound gorilla for trust—it can’t be ignored. If trust as a social issue isn’t relevant here, I don’t know where it would be.

So—for someone focusing on trust, these are interesting times. And Krugman’s observation is valid. Let’s evaluate it.

The Trust Equation suggests Trustworthiness is a function of (credibility + reliability + intimacy), all divided by the self-orientation of the one who would be trusted. How does Paulson fare?

As Krugman points out, Paulson’s got a ton of Wall Street cred—less so as a Treasury Secretary. Only months ago he was calling the economy firm, and one gets the strong sense he’s making this up as he goes along—like the rest of us. As evidence, Krugman contrasts Paulson’s plan—which famously and clearly called for no oversight—with his testimony of yesterday, which welcomed oversight. For credibility—maybe a B-minus.

On reliabilty, it’s tough for anyone. Reliability takes repeat experiences. But no one has this issue on their resume. One has to stretch to find comparable experiences, and unfortunately, the line stretches to another Bush cabinet member—Colin Powell and Iraq. Another good man who, it turns out, blew smoke at us. Given that track record, anyone in Paulson’s chair rates a C-minus at best.

The third factor, intimacy, is mainly determined by a willingness to be open and transparent about oneself. Paulson has done nothing to explain the theory behind his plan, which of course leads people to wonder if he has one—or if so, why he’s hiding it. Worse yet, given his mixed credibility and his (and anyone’s) inability to have a track record on this issue, that opacity makes him look even worse. In particular, it calls into question the demand by Paulson (and Bush) for immediate action, and the dire consequences if the demand is not met. Got to give him a D.

Self-orientation, the lone factor in the denominator, is the most powerful of the four. I don’t think anyone doubts Paulson’s commitment, nor his good intentions. Then again, most people this side of psychopaths have good intentions.

It’s not a good sign that he acquiesced to a political demand to reduce high compensation for masters of the universe who would be rescued. It suggests not only that Paulson is politically tone-deaf, but that his plan was not free of moral hazard. It’s not that Paulson is in it for himself, but it suggests there’s a lot in it for his old buddies. And absent a "theory of the case," or data, this looks pretty self-oriented. Another D, I’d say.

Remember the National Lampoon Magazine cover of the cute dog with a guy pointing a pistol its head? "Buy this magazine or we’ll kill this dog," the tag line said.

It sold a lot of magazines. Will it sell a mega “trust me” for a mega-bailout?