In the news, and in a few publications, the Detroit (US) car makers have been blamed for “bad management.” I would like to clarify that definition and ask your opinion. But first, my thoughts…
An obligation of a business is to respond to customer demands. American customers demanded large SUVs, and gadgets for it that made the SUV a home away from home. What drove SUV sales is the North American safety requirements that require car seats for children under 60 pounds (about 25 kilos). SUVs tend to have individual seats per passenger and thus, each car seat takes up a dedicated spot in a SUV. A family of three children with groceries loaded in the trunk and with both parents cannot fit into the normally sized car. But the gasoline crunch that occurred last year, and that will re-occur, is giving the consumer second thoughts about SUV ownership and is forcing adoption of changing lifestyles.
Then there is the difference in lifestyles between America and Europe. In Europe, people live nearer to their work. The majority of family wage earners travel less than 50 miles (80km) each way. Also, as the cost of fuel is very much higher then that in the US, for the European, Asian, and African contents, a small car for travel to/from work and for the family is the more affordable option. Unlike the SUV with groceries locked in the rear, a roof rack is used to hold the groceries.
With the current worldwide credit crunch, American consumers are changing tactics. They want to live within their means. They want bank savings for their shaky economic futures. That translates into cutting expenses to the bone, purchasing and keeping the vehicle for 10 years, and no longer using the vehicle as a status symbol. That also means that the vehicle has to be reliable enough to last 10 years.
If foreign vehicles last more then 10 years, as they do, the message is clear to manufacturers – produce lower cost vehicles, much reduced fuel consumption vehicles, and more reliable vehicles. As this objective appears to be met in Europe, the same should be true for North America.
Is “bad management” the act of responding to consumer demands? Is “bad management” not realizing that with a financial crunch, sales cannot be sustained? Is “bad management” not anticipating this crunch, then according to my beliefs, we do not have to right to say that this current automobile manufacturing problem is due to bad management?
One the one hand, management knows that it can take three or more years to retool a plant. On the other, did they have the foresight to begin planning or integrating changes for the new paradigm? Is not recognizing the rapid change in energy costs, and the uncertainty of the economy “bad management”? Could they have predicted this situation? I believe not.
I do have one idea that can be applied to bad management decisions and that idea is the introduction of “value engineering” in the late 1950s. Value engineering is a methodology whereby the design of components is downgraded so as to function without breakdown throughout the warrantee period. Value engineering for the manufacturer is the application of the saying “a penny saved is a penny earned.” Where American manufacturers were skilled in this area, foreign manufacturers felt that component reliability builds a brand’s reputation, and their idea of “value engineering” was based on providing a 10-year lifespan for a part. The result was that for trivial increases in cost, foreign manufacturers share of the American car market was gained.
Remedies for American Car Makers
The car industry is divided into after-market and before-market selling. The after-market will be most affected favorably sometime in the future, when the repairs begin to increase and it is more advantageous to repair a car then to trade it in for a newer model.
Remedies have to improve the following areas:
Giving cash to the American Big three is not going to increase car sales. Consumers are not going to lose their uncertainties. What is required is to give incentives to consumers to purchase or lease a new car. Car manufacturers need customers, not handouts.
Your Opinion Please
[…] Think of how well the unknown MINI Cooper cars and new unknown alternative energy cars are progressing globally – and even in the traditionally gas-guzzling (and gas price oblivious, if not even careless) US market. Luxury, statement-making? vehicles like Hummers, Escalades, and sport utility vehicles (SUVs) are out – and the Big Three US automakers are dying on the vine as we speak. […]
[…] The “Big Three” (currently languishing) United States (US) auto companies (which now own significant stakes in, or are owned by, foreign automakers) have all divested themselves of their in-house component suppliers. Ford Motor Company was no exception to this trend since it underwent a radical transformation of its supply chain at the turn of the 21st century.? Like the other two major fellow “Motown” automakers, Ford divested itself of the production of many components, as Chrysler? spun off? its Mopar (short for MOtor PARts) division and General Motors (GM) turned its component supplier loose to become Delphi Corporation. […]