Thursday, March 02, 2006

Near and dear..

The health of the auto industry is and issue that is near and dear to my heart. Not only because I’m a car nut, but my career thus far has been spent completely within the auto industry, albeit partly in the aftermarket.

I must be in the minority though, because when I look at the problems facing the US auto industry my reaction is completely different than my colleagues here. I keep getting asked, why don’t Americans buy more American cars? Why don’t they support their own industry? How about because that is self defeating!

Consumer reports today released the 10 best list and surprise, surprise, the Japanese automakers had a clean sweep. This is the first time in the history of the nine year survey that this has happened. As an American, who was deep in the gut of the industry (Detroit) for 4 yrs, How does it make me feel? Well, I’m happy. I see a bunch of very nice, affordable and innovative vehicles on the list. Consumers are getting better, safer, cheaper more reliable products that have more features than ever before. But what about the US auto industry? Well to be blunt, it’s sink or swim time. In today’s global economy, protectionist tactics will only work for so long. As long as we value consumer choice and free markets over the survival of a relic company, the big three are in trouble.

Who am I kidding, the big three don’t exist anymore, at least not in the historical GM, Ford and Chrysler sense. No, the new big three are GM, Toyota and Ford, with Nissan and Honda gaining ground fast. The Big 5 would be more accurate. Even calling GM #1 is a little bit of a false statement, depending on how one measures the size of a company (revenue vs production vs assets etc.), Toyota is already # 1. And yes, this is good for America. Maybe not certain Americans, but America as a whole has and will continue to benefit from this competition.

What is an American Car. Is it a car that is designed here? Is it a car that is built here? Is it a car whose sale generates profits that stay on American soil? Well by any of those metrics, there is no such thing as an American car. That dodge truck? Probably assembled in Mexico. That Toyota truck, probably built in Texas. How about a nice German car? That might have came from North Carolina. This is the real problem I see with all the protectionist sentiment now surrounding the troubles with GM and Ford. Some have predicted a backlash against foreign competitors. Some (such as the UAW) are actively promoting this. I don’t see it happening. The American people are smarter than that. The choice we have to make is simple. Do we prop up uncompetitive manufacturers to save jobs in the short term, almost assuredly guaranteeing a long term failure. Or do we allow our industry to innovate and compete on a Global level ensuring continuing success for the company and the industry in the US. This is the choice that must be made.

If I were Rick Wagoner, or maybe I should say, if I were Kirk Kerkorian…this would be my strategy at GM.

-Cut capacity. To put it simply…GM has to much capacity. They have the ability to build way to many more cars than they can hope to sell. All this excess capacity is tied up capital that could used elsewhere.

-Confront the Union. The times for games is over. Delphi did it, this alone may force GM to confront the high cost of union employees. If Rick or Kirk need some help…call up Caterpillar and discuss their strategy when they were in the same situation 15 yrs ago. What point does the union serve this day in age? They fought so hard for government intervention in safety, wage laws and working hrs that the only real purpose of the Union is job protection. You should keep your job based on the merits of your work, that’s it. And this jobs bank, well I just find that offensive.

-Dump some brands! 50 years ago brand loyalty was a given. You could expect a consumer to start in a Chevy, graduate into a Pontiac, marry into a Buick, retire into an Olds and die in a Cadillac. But this just isn’t reality anymore. 1 Premium brand, 1 regular brand, and maybe 1 truck brand…this is really all they need. Think about the cost to maintain all the separate dealer networks, design unique fascia’s for multiple brands, tool up and maintain a supply base for all the different parts. Forget it…dump some brands. If GM were to benchmark it’s successful peers, they would notice that NONE maintain so many brands. If it were me, I would keep Cadillac, Chevrolet, and GMC (only for commercial trucks). People don’t care that Pontiac is for excitement, call it a Chevy…the car is or isn’t exciting based on it’s merits, not the badge on it’s fender.

-Cut the white collar ranks. If for nothing more than as a good faith showing that the Union workers aren’t the only ones losing out, GM needs to cut it’s MGT force and salaries. This would be much easier if they were to cut brands as suggested above.

So there you have it, my 4 pronged strategy. So Kirk….When do I get my signing bonus and company jet?

I bit the bullet and started a more political blog. I’m turning into such a dork.