Saving the US Auto Industry

[tw]

The ultimate pattern ... is that today's metal-bashers will disappear. In their place will be vehicle brand owners (or VB0s). They will do only the core tasks of designing, engineering and marketing vehicles. Everything else, including even final assembly, may be done by the parts suppliers.

… Already Magna, a Canadian company with innovative manufacturing techniques for body parts, is taking over more contract assembly from Detroit. Significantly, the car factory that DaimlerChrysler is selling in Austria is being bought by a Magna subsidiary (Magna Steyr), which will continue to make Chrysler Voyager minivans there under contract. Magna Steyr also has contracts to assemble niche cars for Mercedes, BMW and Saab.

Before anything goes that far in volume car making, the assemblers have to redefine their relationship with their suppliers. They need to become more co-operative and less adversarial before design and engineering processes can be re-assigned. This re-drawing of the boundary between the car company and its suppliers is least advanced in America. In Japan and in Europe it is already working quite well.

The task for American manufacturers is to bring their relations with suppliers into line with Japan's. Ten years ago, the big three manufacturers in Detroit turned aggressively on their suppliers as they sought to recover from heavy losses. The charge was led by Jose Ignacio Lopez, head of purchasing at GM, ... the traditional Detroit way of dealing with suppliers is “to beat them over the head”.

Head-bashing, however, was not enough to rescue the American industry, although the failure was disguised by the unexpected boom in profitable minivans and sport utility vehicles (SUVs). ... The resulting over-capacity encouraged firms to sell extra cars at marginal prices in order to bring in cash. ... The reality is that American manufacturers have been losing money on cars, while they have been coining it on SUVs.

The handsome profits and shareholder returns achieved at points in the 1990s were, to some extent, illusory. When operating profits are measured in relation to the size and cost of capital, the suggestion is that Detroit has for some time been consuming rather more wealth than it has been creating. Mr Ferron maintains that the business model of the traditional American car manufacturer was broken as its return on capital plunged from around 20% in its heyday.

Throughout the 1990s boom, the car makers of Detroit never managed to raise their return on capital above 3%.

By ignoring even spread sheets, Detroit management made low tech, high profit SUVs without innovating. Assembly techniques described by Boortz in TheMercenary's post happen when 'car guys' design and build cars. Boortz simply demonstrates another innovation long stifled by MBA trained management who viewed everyone as an enemy.

Cars were assembled from many individual parts all attached to one frame, one part at a time. Drop an engine into that frame somewhere during assembly. Even the very first Hondas did it differently. For example, engine, front suspension, steering, and drive train were assembled elsewhere, merged into a sub assembly, and then pushed up from underneath the car in one integrated assembly - that even eliminated wheel alignment. (By this point, everyone should understand why an engineer designed car never needs wheel alignment.) Even dashboards were designed and installed as a complete assembly rather than assembled part by part inside vehicle frames. When GM did this (only because everyone else was already doing it), well, the world had long moved on to other innovative assembly processes. Therefore GM, et al had what (according to The Economist in 2002)? Only 3% ROI.

Described above was how suppliers delivered parts directly to the assembly line. Twenty years later, GM addressed the same problem using part delivery robots - throwing money at a problem rather than fixing the problem. About the same time, car companies without bean counter management had now advanced to whole subassemblies delivered 'just in time'. That Boortz video simply describes it; what was well known even six years ago even in The Economist on 21 Feb 2002. It’s not about outside suppliers. It’s about integrating whole assemblies long before the final assembly plant. Performing assembly work in parallel; not in series. And it's about working as a team with suppliers; not beating them up and down.

What was GM’s solution? Well the Chevy sold in Thailand is actually made by someone else in Korea. GM management solved the manufacturing problem by having someone else to do all innovating. But that is really all that a MBA manager understands. Paying bills and selling something.

Rather than innovate, GM used grossly overpriced SUVs to mask 1968 technology engines and obsolete manufacturing methods. GM's problems are very old, known, and ignored. Boortz video manufacturing methods were international standards - innovation kept out of America by business school manager using cost controls.

What was necessary to make that innovation possible? W E Deming taught this stuff to Japan in the 1950s. Only MBA management beats on employees and suppliers like they were the enemy. The solution is not about having outsiders assemble cars or blaming the unions. It's about having suppliers provide what is necessary on the assembly line as even exampled here on 18 November.

Who asked a silly question of why tw hates MBAs? Common knowledge makes that contempt obvious. Boortz video only demonstrates that MBAs (like George Jr) stifle solutions for 20 years. Boortz video does not say it. But the Boortz video again demonstrates that Americans are finally doing today what was innovative 20 years ago. A boss who stifles innovation must then blame unions, unfair competition, legacy costs, government, environmental laws, greedy suppliers, fuel economy standards, tax structures, the education system ... everything but the few grossly overpaid executives who are 99% responsible for those problems. Boortz video demonstrates what can happen once suppliers are trusted – no longer the greedy enemy.