GM and Ford Fight Back
"Ford must now adopt a 'change or die' mentality."
by Michael Cooney
Beleaguered by successive years of declining market share and mounting losses, General Motors and Ford are becoming "publicly introspective."
By openly providing insights into management’s thinking, top executives are opening a window into their corporate worlds. Some of their recent statements have centered on damage control, naturally, but by putting pieces of the puzzle together we can learn how they plan to regain their financial strength.
While current headaches are complex, improvements are on the way. Let’s first look at several problem areas and then examine where progress can be made.
Product: It's no secret that the quality of American-built cars was relatively poor from the mid-1970s through the 1980s and even into the 1990s in many cases. During that time Japanese manufacturers Honda, Toyota, Nissan and Mazda stayed focused on build quality and collectively gained a reputation for above-average reliability. That contrast set the stage for a rapid loss of market share that began in the 1990s and continues today. An entire generation of car buyers came to believe that American makes were of poor quality; GM, Ford and Chrysler had shot themselves in the foot. To this day, many in that generation will never consider an American nameplate, even though the Big Three have largely caught up in quality with the Japanese.
Model Proliferation: In 2002 there were 215 model nameplates. Now, just four years later, there are 265. That will continue to grow, even though national sales volume is expected to remain fairly flat for the next several years. With more manufacturers bringing increasing numbers of models to market, there will be downward pressure on market share for American builders. On top of that, China is about to enter our market with inexpensive lines of cars that will place further pricing pressure on GM and Ford.
Legacy Costs: Compare GM with Honda and Toyota, who respectively operate plants in Ohio and Kentucky. GM has been around for 100 years. It honors agreements with workers who have long since retired but still draw healthcare benefits and pensions. The Honda and Toyota plants have a relatively young workforce, with few retirees. Which can build cars at a lower cost? GM pays benefits and pensions to approximately 1.1 million retired workers as well as providing generous healthcare for its present workforce. There is roughly $1,550 of healthcare benefits in each GM car built. And another $680 in pension costs. The Japanese builders here don’t have to contend with that yet to any significant degree. Through no fault of GM or Ford, the playing field is hardly level.
Future Plans: Leadership at both GM and Ford understand what must be done to turn their ships around, and changes are being implemented as rapidly as possible. Returning to product, it appears upper management in both companies has learned its lesson. Quality and reliability are highly desired by buyers. People also want cars that are pleasing to the eye -- not boring lumps of steel. Elsewhere in this issue you’ll see a review of two new Pontiac models that reflect this change, and possess some real flair as well as solid build quality.
Mark Fields, President, Ford of the Americas, was earlier responsible for Mazda’s Millennium Plan which, in six years, turned Mazda around from record low sales to record high sales.
In a recent speech, he said Ford’s new plan "…starts with a sharp customer focus as the foundation for everything we do. We will be relentless in this regard because growing companies…that are increasing their market shares see the world through their customers' eyes." He criticized Ford in prior years for trying to be all things to all people, leading to overly conservative designs, and for launching "me too" products and building in segments the public wasn't interested in. And he said Ford must now adopt a "change or die mentality." (Mark Fields speech January 23, 2006, www.carlist.com.)
Drastic times call for drastic -- and daring -- measures. These hundred-year-old companies cannot live in the past. The automotive manufacturing world is a different place now, requiring new understanding and strategies. The United Auto Workers union must also realize that handcuffing GM and Ford with unrealistic contracts will not protect workers -- it will ultimately threaten their jobs. With both GM and Ford announcing layoffs in the 25,000-30,000 range in coming years, the handwriting is on the wall. “Change or die” is right.
Will GM and Ford be able to turn their ships around in time? Many of the needed changes are already in the pipeline. But have the changes begun early enough? The next five years will tell the tale.