The Big Three

Ever since Henry Ford with his freakishly attuned business mind bought out the Model T, America has been the leader in automobile manufacturing and the Big Three viz. GM, Ford and Chrysler have been ruling the roost. They were the automotive equivalent of the mafia; they weeded out or gobbled up all the small players (the Tucker story would substantiate that fact). They decided what to sell and what not to, the customer just played along, ironic, considering these companies are often considered to be the epitomes of capitalism.

Then, along came the Japanese with their small and fragile contraptions, which the Americans would not even honour with the tag ‘car’. To them a car had to have a V8, had to be two football fields long and should handle like fat momma on Viagra. As a twist of fate, they sneered at the small Toyotas and Hondas to their own peril. The oil crisis rolled in the 70’s and the environment crazies came along with their flower-power shit and suddenly these cars made sense to the gobbledygook Americans and boy-oh-boy ,the Japs took real advantage of the situation.

The American markets have always been the largest but they became increasingly served by foreign car makers, notably the Japs. The Big Three has been consistently been losing market share and have become less and less profitable, they tried offsetting their losses by expanding worldwide, mostly by acquisitions and exporting to countries where people are daft enough to buy them (e.g. Saudi Arabia). But still they kept on declining; the recent recession has hammered in the last nails on their coffins.  To make matters worse, Obama has been particularly against any kind of bailout, he has literally told them to go suck a lolly instead.

Well, what went wrong?  Everything actually, they still operated the old way, the push system. They set targets and estimated requirements and then produced and made the dealers to sell them off, it was prehistoric. They have spent millions to develop complex supply chains and organisations to support this business model. Each new product took several years to develop and hundreds of millions of dollars were tied up in massive inventory and working capital throughout the system. These flaws were masked by the huge demand for Trucks and SUVs.

Then there is the labour problem, the UAW (United Auto Workers) union was and is a pain in the ass. Sergio Marchionne, Fiat CEO, was quite eloquent about his concerns about the workforce when negotiating a lifeline deal with Chrysler, being a hard man, he said unless the union decides to accept major cost cuts- no deal.

So can we envision a turnaround? Even if mildly possible, it would require some radical changes in the system. They need to embrace the pull system, as the Japs and Germans have long back done. They should learn and develop new inventory systems; they can glean from lessons from all over the world; do something radical, challenge dominant thought (e.g. Tata Nano). However, their manufacturing facilities are world class and are capable of producing quality products. It just needs to factor in the details and make changes accordingly. It’s always about the little things.