Sunday, August 20, 2006

Thoughts on the American car industry ...

I heard some talking heads today discussing Ford and GM's financial troubles. Both manufacturers are hemorrhaging money, and both are blaming their troubles on what they call "legacy" costs, meaning pensions and health care for their unionized workers and retirees. They say these add something like $2400 to the costs of their cars as compared to those from, say, Honda or Toyota. And it's these costs, they say, that are killing them.

I say that's bunk. The only thing killing Ford and GM are Ford and GM's top brass. These are the brilliant leaders who bet the farm on big trucks and SUV's, even long after anybody with an ounce of foresight could see that gas prices were going to go way up again. (Actually, they're still betting on big trucks and SUV's). And not only that, but they do very little to improve the design and construction quality of any of their vehicles.

By contrast, look at Honda and Toyota, which are making money hand over fist. These guys decided several decades ago that they were going to build top-quality cars for the average family. Their cars are completely redesigned every four or five years. Not just new styling tweaks, I mean they redesign the chassis and everything in it. So the engineering in your new Camry is, at most, five or six years old. And they do this with every car in the lineup. Then they build it in a factory (often in the U.S.) where every worker is focused on making a quality product.

Ford, by contrast, has been building the same Crown Victoria for FIFTEEN YEARS. And it wasn't exactly cutting edge even when first introduced. The Taurus had two chassis designs in over twenty years production. The last version of the Mustang was originally designed when Jimmy Carter was President. GM isn't any better, except with a few cars like the Corvette and the new Cadillac lineup (which proves these guys can do some good stuff if they put their minds to it).

The military uses the phrase "getting inside the enemy's decision loop", meaning that if you can gather information, make decisions, and react faster than your opponent, then you'll win. By this standard, Honda and Toyota are reacting about twice as fast as Ford and GM. They're making money. Ford and GM aren't. And it has nothing to do with the cost of retiree benefits.

Note to Bill Ford: Try doing something radical, like designing more cars that people want to buy, instead of trucks.

I say all this as a long-time Ford owner who wants to see these companies succeed. We have enough trouble with American manufacturing moving overseas. We don't need to have the American motor industry go down the tubes, too. Particularly when the guys currently driving the industry into bankruptcy will still make millions in salaries and bonuses, while the average working Joe will lose everything.

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