Memo to Detroit: Change Now or Die

The "saving" of the American auto industry has become a comedy of errors, a circus with seemingly no good end in sight.

Feeling somewhat helpless about it all, I decided, in that great American business tradition, to send a memo!

Memo - To Rick Wagoner (GM), Alan Mulally (Ford) and Robert Nardelli (Chrysler):

1) You're all fired.

Please leave this memo behind for the new leaders of your companies.

2) America doesn't trust you.

Most Americans think you have brought this disaster upon yourselves, with inferior, irrelevant products the past 35 years.

(Alan Mulally was head of Boeing, a company with one competitor, when he agreed to a near-$20 million signing bonus to take over Ford, which has between 25 and 50 competitors, just in the US alone. William Clay Ford had run the company before hiring Mulally, and the Ford family member admitted after a year or two on the job, and after pledging to make Ford the greenest car company on earth, that he couldn't handle it. And you have to have a certain grudging respect for that).

3) Stop fighting.

Since 1970, when the EPA and NHTSA were created, you have fought tooth-and-nail every advancement and improvement in your industry.

In doing so, you've wasted untold billions of dollars and the efforts of thousands of your smartest and highest-paid employees.

4) Don't build what we don't need.

Shoe-horning your biggest V8 engines into full-size trucks and SUVs, because it was an easy way to make hundreds of millions of dollars, is wrong. And selling them to an audience conditioned to buy them is also wrong.

5) Create a 21st century franchise system along with your dealerships.

Though there's much to be done, a good start is to instill a version of GM's Saturn sales system in your showrooms; that would surely be welcome by car-buyers.

(GM chief Rick Wagoner, left, with Gary Shapiro, head of CES, at the computer group's 2008 conference in Las Vegas. Sharing the stage is GM's Volt plug-in hybrid, now a dead issue with the car-maker, at least until they get an infusion of as much as $22 billion, which some analysts say is the least GM needs to get their corporate ship afloat once again).

6) Forget about the next quarter.

Detroit lives and dies by one quarterly result after another. All your employees, and you, should be thinking of ways to keep your factories open 50 years from now as well as one year.

7) Stop blaming the unions.

Workers build vehicles only as good as their design. Bad designs = bad cars. And new car "blueprints" come from your white-collar employees, not blue-collar.

8) Stop blaming the government.

Yes, government-mandated rules and regulations cost money. But in spite of the cost they've added to cars and trucks, Americans would not give up airbags, anti-lock brakes, traction control, roof standards and rollover protection, improved mileage, lower emissions or all their electronic in-car gadgets for a slightly lower price.

Companies should never automatically rollover to any government, but common sense and our shared futures must be important parts of all Washington/Detroit negotiations.

(Robert Nardelli, hired by Cerberus Capital Management to run Chrysler. There are so many reasons for this man not to be an auto company executive, that I'll share just one with you: He never worked in the auto industry before taking this job. In the interest of full disclosure, Ford's Mulally didn't have any auto experience either, and GM's Wagoner has been in the company's finance department his entire career. Nardelli, though, is clearly out of his element. Cerberus made a great hire in Jim Press, the highest-ranking American at Toyota/Lexus/Scion. But he reports to Nardelli, and I haven't seen his name in a news story in months; he might be fulfilling his contractual obligations to Cerberus - and not much else).

9) Encourage all sides to participate.

The "enthusiast media," those newspapers, magazines, websites and radio and TV shows which are supported by the industry's advertising dollars and which wax rhapsodic about almost every new vehicle, are, to some, important sources of information. But both the auto industry and government have another responsibility in a free society; that is, to fund media outlets which encourage an ongoing national conversation about your industry and its many ancillary parts. Remember that one out of every ten jobs in America is connected in some way to the auto industry; worldwide, that number is one out of every seven manufacturing jobs.

10) If you build it, we will buy.

A great opportunity awaits us on the other side of this crisis; that rare chance to make a fresh start in our lives, schools, corporations and government. We all get a chance to make a difference. And your companies get a chance to build great, relevant cars and trucks.

One person who made a huge difference in the auto industry, and through it, in Japan, the US and the world, and whom you and all your employees can learn from, was Dr. W. Edwards Deming.

His name is worth Googling. Dr. Deming is possibly the most important American that most Americans never heard of.

In Japan, from 1950 onward, he taught top management how to improve design (and thus service), product quality, testing and sales (the last through global markets) through various methods, including the application of statistical methods.

(Dr. Deming and his wife, Lola, in Japan, 1978).

He was, as I called him in several articles written after lengthy interviews and attending his four-day management seminar at UCLA in the mid-1980s, "The American Who Invented Japan."

Despite being considered something of a hero in Japan, Deming was only beginning to win widespread recognition in the US at the time of his death (at age 93 in 1993).

The Detroit Three should study Dr. Deming at every level of your corporations. Teach his theories and instill his methodologies into action at every level of GM, Ford and Chrysler (spoken like a true believer, right?).

We'll have more memos for you in the future, Detroit Three, so stop by often. And good luck; remember, we're here to support you as soon as those first new and safe high-mileage cars and trucks roll out of those brand-new and retro-fitted, modernized factories of yours.

And if by that time you've merged into the Detroit One, we'd be happy with that, too. Our patriotism knows no bounds; just build relevant vehicles, and never take us, your potential customers, for granted.

And readers, let us know what we may have failed to mention, as well as where you think we're wrong. And answer this: Why do you think Congress and the White House agreed to fund the $700 billion bailout for Wall Street, but can't seem to find the money for Detroit, even though the action was approved last December?

Comments

[IceKing]

I have a better idea. Instead of providing a bailout to companies that seem to miss the point that if your failing in business and losing billions, you do not pay your exec's a "Bonus" of millions for poor work. I dislike the threat they imply "if they go down we all will". I propose that we instead offer up the original $25 billion retro fit money to any company that is new and wishes to tool up to build the type of energy efficient cars we need today and into the future. Give it as an incentive, not as a reward for failure and greed. They might even hire all those soon to be unemployed auto workers.

[kstuff]

As a resident of Michigan, I now understand how the people of Louisianna felt and still feel following Hurricane Katrina. As Americans we could have said that we failed you when you needed us the most. Instead, the vicitms heard "well, you should have evacuated," "it's your fault for living there," etc.

Give me a break. Most people don't choose to screw themselves over. Neither do most companies. It just doesn't make sense.

I'm sure the auto execs spend the past 5 years thinking, "How could we go about destroying our company? No, our whole industry. That would be great! We'd all be out of jobs. No, careers. That would be fantastic! "

Let's continue to blame the victims. It relieves us of having to take responsiblity for our own actions...something like, "wait a second, I own and SUV but I bought a Toyota because my cousin told me they're better. Thank God that he told me, Who has the time to research anything?"

Sound familiar? I thought so.

[Archie1955]

The health of the automobile companies is also tied to the creation of a national healthcare prgram. Those extra costs should reside where they belong with the tax distributing government. The government collects taxes and should fund programs with those taxes that benefit all Americans. It's their money after all. Providing expenditure relief to the car companies will immediately place them in a much enhanced competitive position to continue operating.

[flatus]

A company cannot sell its products without a market. We have been that market. Willingly.

There's just something about driving a heavy, steel encased living room around (especailly when we get to sit high up above the roof lines of those "rice burners" in front of us!).. Weeeee!

Stop blaming them. The problem is our own selfish short-sightedness.

[mikeHAWKhertz]

Let their friends the oil companies bail them out, they could work together since they have been for the past 40 years.

[hopeless277]

For all the high minded arguments and theories regarding the auto industry bailout there is the overarching management philosophy that will make a recovery impossible. What Detroit has done in years past they will do again. Five words that guide these 'industy giants': Take the money and run. They want nothing more than to get their bailouts and head for the door. Five million bucks will last an executive a lifetime, five million bucks will keep a factory open for a matter of hours.

[BerkeleyHills]

Great post, thoughtful, nuanced comments.

This may have to be a generational shift. No young person today would even consider most American cars. Design, quality, adolescent marketing campaigns. I grew up in a Mopar town back in Connecticut. Heck, the high-school parking lot had a Daytona, a Superbird, a few TA's and a Hemi Cuda for good measure. But times change and our car companies have to change with them.

If they expect to save the jobs the big three may have to become UNITED STATES AUTOMOBILE Inc.
Best cars ever in five years.

Ultimatley it may come down to the UAW facing facts. No co-pay for medical visits or procedures? What firm in the US offers that? Tip of the iceberg but make that small concession and reasonable people can begin to talk. And GM's top tier management would have to go. Astounding hubris.

[RoloTomassi]

The UAW doesn't need to face any such thing; the US government and the US public need face the fact that this arrogant habit of making armchair pronouncements about what someone else should be doing, all the while continuing to contribute to problem in question, that has to end with us as a nation and with our industries. A huge portion of these problems boils down to the extreme arrogance of the average American that falls into the middle/upper middle class; the "this is how we Americans do it BLAH BLAH BLAH" is more jarring now than it ever has been, and I sincerely hope the rest of the world will begin calling us on it at every turn. The utterly astounding hubris comes from individuals who refuse to see that workers and not corporations need greater rights and pay, and that healthcare without co-pays should be a right for all Americans, and not just the ones who happen to belong to a strong union.

What so-called conservatives, corporate cronies, blue dog dems and blind mindless followers of a breeds need to come to grips with is that this crisis is NO JOKE. And when the stakes get this high, the natives get very restless. Holding onto the status quo for the corporate crowd and trhe wealthy could well lead to civil unrest the likes of which this country hasn't seen in many years.

US auto manufacturers: no change, no money.

[GoKings57]

I agree with most of the points Mr. Parker brought up, especially 2 & 5. However, I must disagree regarding 4 & 7. A car purchase isn't just about what we "need", it's also about what we want. Unfortunately, far too many people want the big gas-guzzlers (myself included, but I'm too cheap to actually buy one). Regarding blaming the unions, they do share almost equal blame for the problems in Detroit. They were just as short-sighted as the companies in not realizing that the gravy train wouldn't be there forever, and they underestimated the Japanese competition as much as Ford, GM & Chrysler did. While I'm never going to fault a union for trying to get a great deal for their members (that's the reason they exist), sometimes you have to weigh short- and mid-term gains against the long-term ramifications, something the UAW completely failed to do until recently.

[detadman]

Required reading for anyone commenting on the Detroit Auto Loans:

http://www.freep.com/article/20081117/COL14/811170379

BTW, it's not a bailout, like the $700 billion given to the financial industry. It's a loan. And remember, Chrysler paid off their loan 7 years early, and the US made a profit.

[GoKings57]

Was it really a loan, considering the government severely limited governmental purchases of Ford and GM products to buy massive amounts of K-Cars and Dodge Rams for government fleets for several years? The government ensured they would get their money back by buying the Chrysler products, which had the nice by-product of restoring investor and consumer confidence in the company.

[RonRico]

If we've learned anything from history, we must conclude that these executives and their minions running the big three auto companies will go the way of the dinosaur if the companies have a chance at survival. As we've seen in the past, the results of keeping them will bring about no relevant change.

[peterg76]

There is an elegant simplicity to ''Change Now or Die," but don't forget that there's no guarantee as to which they will choose. Some resist change at any cost.

[r11]

A giant point is missed by 99% of people that discuss the Auto issue - industry analysts, righteous citizens and politicos alike . Here it is: if in a year or 2 Chinese will start making a $4000 Corolla-Civic-like cars that gets 35 MPG and is of decent quality, do we expect Detroit to compete with that ?

Do we expect UAW to agree to $10/day compensations ? Drop pensions, health insurance etc etc ?

ARE WE NUTS ? We lost untold millions of jobs here and now we will finish off whatever is left. Boeing will be next - they surely won't be able to compete with Chinese planes (give it 5 years or so).

This Milton Friedman cr@p has driven this country into the ground. We are supposed to re-train tens of millions of honest, hard working Americans, in the name of competitive advantage, into what occupation exactly ?

We have systematically decimated, all in the name of cost-cutting, every single occupation - from manufacturing to IT. Now we will loose around 500,000 jobs in the financial sector. Exactly what do we have left for people to earn a paycheck off ? Freelancing for Blackwater ? Waterboarding ?

[scottowego]

Easy answer: We will all have to become doctors, lawyers and computer programmers. Regardless of education and ability. (that's a joke).

[JMTMichigan]

Speaking as a computer programmer, it isn't that great of a field these days. Check elance.com sometime. Cheap IT labor from Pakistan, India, Russia and Eastern Europe are bidding hourly rates that are in many cases less than you can make with a night shift at a fast food restaurant.

On the bright side, the work quality is often crap and I've had more than my share of work come to me from people needing me to clean up/rewrite/finish the work that the overseas guys messed up.

[Northernmom]

From 11/17 Detroit Free Press - freep.com
6 Myths about the Detroit 3:
1) Nobody buys their vehicles - FACT: in 2007 GM outsold Toyota, Ford outsold Honda, and Chrysler sold more than Nissan and Hyundai combined.
2)They build unreliable junk - FACT: according to JD Power, Buick, Cadillac, Ford, GMC, Mercury, Pontiac, and Lincoln score as high or higher on overall quality than Acura, Audi, BMW, Honda, Nissan, Scion, Volkswagon, and Volvo.
3)They build gas guzzlers - FACT: All 3 build midsize sedans between 29-33 mpg. The Chevy Malibu gets higher highway mpg than the Honda Accord. According to Edmunds.com, the Chevy Aveo is the least expensive car to buy and operate.
4)They already got a $25 billion bailout. FACT: That money may not be available for more than a year, and will have no effect on the shortage of cash the companies face today due to the economic slowdown.
5)The Big 3 are idiots to invest in pickups and SUVs. FACT: Toyota, Nissan, Mercedes-Benz, and BMW all have invested in truck mfg. because it is profitable. The most fuel efficient full size pickups are GM, Ford, and Chrysler products.
6)They don't build hybrids. FACT: Ford and GM each offer more hybrid models than Honda or Nissan, and more will be introduced in early 2009.

I wonder how many people who keep talking about the "trash" the American car companies make have actually test-driven a new American made car lately.

[scottowego]

I think most people would agree that American cars have improved a lot. It's the credit crunch that put the nail in the coffin. Even Toyota and Honda are experiencing a slow down but they were financially healthier than Americas big three before this began.

[Jsens3]

These are good points. I bought a Chevy Impala SS in 2007 and its a great car. I can get 30+ mpg on the highway even with the 8 cylinder engine. The problem isn't the product; the problem includes a mountain of legacy benefits, a "jobs bank" that pays people who aren't working, lease and tax payments on property not used for production, too many dealership that can't be closed because of protective state laws, and other expenses that have nothing to do with the production of vehicles or their distribution. There are just too many non-productive people and entities for whom GM is a "cash cow." But, the old cow is running out of milk. If a bailout goes through, the non-productive hangers-on will still insist on getting their share. GM needs to go into bankruptcy, clean away parasites, bring wages and benefits into the land of the reasonable, and emerge lean and mean. Then they will be able to compete.

[Northernmom]

About those parasites: My mother-in-law is an 87 year old surviving spouse of a WW II vet who gave 41 years to GM as a production engineer. She has severe Alzheimer's. Beginning in 2009 she will buy her own health care, a move the Big 3 have already taken to reduce costs. Would you really want them to deny her the pension she lives on?

[RoloTomassi]

You need a economic mental overhaul--as does a majority of America, I'm afraid. Americans have been sold on the totally nonsensical notion that coroporations cannot survive if they have to pay anything to their employees beyond the minimum required, or offer benefits of an note.

Free market fundamentalism created this mess [practically as well as ideologically], and now we're floundering in an extemely flawed economic/financial system model of our own making.

It may be decades before we can shed this nonsense, but we will remain slaves to Friedman's idiotic dogma until we begin to actively resist it, and educate ourselves on the subject.

[NYZA]

Lets break this down, shall we...



1)GM has how many brands ? So you're saying that Cadillac, Buick, Cheverolet, Pontiac, GMC, Saturn, Hummer, and Saab outsold TOYOTA and LEXUS (same company) . Hmm interesting, that would make sense to me no? But that still doesnt take way that TOYOTA is the TOP SELLING BRAND in the world?



2)JD POWERS is survey, and we all know about these surveys. Everything can be skewed. I will give the notion that the American car brands have improved on the quality but if you are saying they are at the Toyota/Honda level, surely you are drinking some good gatorade.


3)They all do. This doesnt negate the fact that American cars are also the HEAVIEST out there.



4)The govt has given more loans, more favors, more excuses to the Auto industry since god knows how long. This aint the first time they ask, and this wont be the last. Dont kid yourself in thinking otherwise.


5)Wells when you can make a quality car, with a quality design, with quality marketing and profit, wells.. if that was the case, you wouldnt be asking for a bailout.



6)The best selling Hybrid to this date, with the highest demand is still the Toyota. I guess that explains #1 on your list. Also, a HYBRID TAHOE is like adding salad to your FRIED CHICKEN MEAL and calling it HEALTHY, were not idiots so stop treating the public like one.

[peterg76]

Good points, but 33 mpg *is* a gas-guzzler.

[Zenith1959]

During WWII, the auto companies switched over to making tanks and planes in a short period of time, so I know this wouldn't completely save them, but why don't they start making wind turbines and solar panels? And is this a crazy idea, but what about small wind power generators on top of telephone poles and power lines? I really think the country that put men on the moon and invented the internet can get creative and save itself.

[Northernmom]

It's not a crazy idea. The infrastructure is in place, there are skilled engineers, tradespeople, and other workers who would step back into the empty factories in a heartbeat if the work was there. What if the government subsidized the change through incentives, tax abatements, research grants, etc.? If we want the companies to develop the technologies for the future, then let's make it profitable for them to do so.
And let's not forget about developing the next generation of mass transit........

[scottowego]

Maybe it was because in the 1940's auto makers were truly American companies. These days I don't really regard them as being American. They're global. They're only alligiance is to cheap overseas labor and making a profit (greed and folly). They won't change until they are forced to change. I hope Obama reverses the governments ruling barring California from enforcing stricter mileage requirements on autos.

[feo]

It's good to remember that the war switchover was accomplished with huge bags of money from the govt. Example: in 1940 (yes, before the actual war) the govt gave Chryler around $25 million (a lot of million in 1940) to build tanks. In four months, Chrysler went from an open field to factory to full production. All it takes is money. If some of the Iraq war contracts had gone to the Detroit 3, maybe some of this current mess could have been avoided, but Bushies wanted to push the money to KBR, Blackwater etc.

[GoKings57]

Not defending the government's contracting efforts in Iraq/Afghanistan, but other than Humvees and other vehicles, what could Detroit have provided? They had neither the corporate knowledge nor the resources to provide anything that KBR, Blackwater, DynCorp, etc. were contracted to provide.

[mikeHAWKhertz]

Why does GM need Buick, Pontiac, Chevy, Saturn, GMC, Cadillac, and Hummer? They should spin those companies off and see which ones sink. My bet is on Hummer.
What a stupid idea to begin with, especially while Toyota and Honda were developing hybrids.
See ya Detroit!

[feo]

Then explain why Toyota is moving into truck production and how the big Toyota off-roader gets every bit as bad mileage as the Hummer. The Prius has yet to make any money for Toyota (all costs are subsidized by the Japanese govt).