Toyota’s “exceptionalism” came back to bite
– Edward Niedermeyer is the editor-in-chief of The Truth About Cars. The views expressed are his own. –
(Paragraph 7 corrected on February 10.) Life rarely offers easy answers to important decisions, but up until a few weeks ago, it seemed that new cars buyers simply couldn’t go wrong buying a Toyota. For decades, the Japanese automaker had built up an unmatched reputation for quality and reliability, on its way to becoming the best-selling automaker in the U.S and the top car producer worldwide. A Camry might not have been a particularly glamorous or exciting choice of vehicles, but consumers could buy one without doing a lick of research, and expect it to run reliably and efficiently for years. At least they could until a flurry of defects and recalls suddenly brought Toyota’s untouchable reputation back down to earth.
In a matter of days, Toyota’s good favor in the eyes of consumers has been replaced with suspicion and doubt. Having first ignored reports of unintended acceleration in its vehicles, Toyota then blamed floor mats before finally recalling some eight million gas pedals worldwide. When a brake software problem on the Prius hybrid emerged within days of the gas pedal recall, and Toyota’s leadership moved slowly to get in front of the burgeoning PR nightmare, the automaker’s spotless image suddenly found itself in shreds.
This rapid reversal of Toyota’s fortunes indicates that its reputation as an unquestionably logical choice in car brands was already wearing thin. Having refined the most efficiency and quality-focused manufacturing system in the industry by the late 1980s, Toyota responded to currency fluctuations in the early 90s by cutting costs on the design-end of the business.
According to the company’s logic at the time, a “lean” manufacturing operation couldn’t afford to build “fat” or “overquality” products in the face of intense pressure on profitability.
The result was 20 years of decontenting, in which Toyota reduced the cost and quality of its products, while coasting on the reputation of its most famously “fat” products of the late 80s and early 90s. The fact that this occurred as America’s domestic automakers were facing their own major deficits in quality and reputation allowed Toyota to build on its reputation without incurring the high costs of overquality.
In short, Toyota’s fall from grace was decades in the making, and in retrospect, the real surprise is that Toyota maintained its perceived advantage for as long as it did. Millions of dollars are won and lost in the car business by balancing cost and scale against quality and reliability, and Toyota is no exception. Only the longevity of its reputation with consumers makes Toyota’s decline so noteworthy.
The uncharted waters of government ownership
– Louis E. Lataif, a former president of Ford Motors of Europe, is dean of the Boston University School of Management. The views expressed are his own. —
Government ownership of General Motors (60% U.S. and 12% Canada) will be fraught with difficulties.
Given the large taxpayer stake in the company, it will be impossible for elected officials to stay out of the fray. Congress inevitably will interject itself in business decisions affecting employment, the kind of vehicles the company builds, or the company’s position on nationalizing health care – just as it is now asserting itself on the question of dealership closures.
Imagine the new General Motors (i.e., the government) attempting collective bargaining with the United Auto Workers’ union (on whose behalf the government stepped into the fray in the first place).
Consider the company lobbying Washington on an issue favored by the government (e.g., tax policy or the elimination of secret ballots for workers) but ill-suited for the company. And there there’s the matter of types of vehicles to be built.
With a strong environmental agenda, the government will understandably favor alternative fuel vehicles. Yet, there is no company in the world making any real money on such vehicles, given the current economics of alternative propulsion methods.
The government points to Toyota as a car company that has been responsive to the need for small, fuel-efficient cars, but Toyota reported a first quarter loss much worse than that of General Motors. That’s because the vehicles that keep these businesses viable — larger cars, SUV’s and trucks — are not selling in sufficient volume during this consumer credit crunch.
Don’t worry about the bargining between the new GM and the UAW. The US taxpayer should be worried about the tax for clunkers legisl;ation talk about another handout to the carmarkers at the expense of a ballooning deficit. No wonder the bond year is going up ! Why would forgien investors finance the US in upgrading the cars
Revival of U.S. automaking awaits if UAW will follow Toyota
– Peter Morici is a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission. The views expressed are his own. –
General Motors and Chrysler are on the anvil of history. United Auto Workers President Ron Gettelfinger holds the hammer and will determine whether they emerge more competitive or shattered in pieces and sold to foreign investors.
In December, George W. Bush granted $17.4 billion in temporary loans on the condition those firms convert two-thirds of their debt into equity. Another condition was to persuade the UAW to accept stock for one half of what these companies owe to fund retiree health care and align wages, benefits and work rules with those of the Japanese automakers operating in the United States.
GM and Chrysler must complete these negotiations by March 31 or repay the money and face bankruptcy.
At U.S.-based Toyota factories, workers receive about $25 dollars an hour and good health care benefits. But they don’t retire at 50 after 30 years or get as much time off and huge severance packages. Toyota does not endure the medieval work rules and job classifications imposed by UAW contracts.
Most other Americans would be happy to get Toyota pay, benefits and working conditions. If Gettelfinger continues stubborn resistance to a better package than most Americans enjoy, then Detroit automakers will continue to require government subsidies or not have enough profits to invest and compete in hybrid and other new technologies that will transform personal transportation over the next decade.
Eventually, Washington will tire of their begging, they will march through bankruptcy, and their factories will be sold off to Japanese, Korean, European and Chinese automakers.
The problem throughout our economy is that we, (by that I mean all of us, including me) including and especially unions, have placed a greater value on our worth as individuals ignoring our fellow countrymen. I hope that that is what Mr. Obama meant in his inaugural speech regarding taking responsibility for our own actions. I wish he had plagiarized JFK’s speech regarding asking not what your country can do for you, but what you can do for your country.
Green business and the conscience premium
Welch is the publisher and editorial director of Ogden Publications, home to Mother Earth News and Utne Reader. Any opinions expressed are his own.
Green business is arguably the most important marketing innovation of the century. And it’s here to stay.
When we talk about green business, we’re really talking about the provenance of the products and services we sell. A business is green if its creators take into account its impact on the environment, and on society. Like a historic work of art, a pair of running shoes now has a provenance – a chain of collaborators, stakeholders and events that led to its appearance in your closet.
Did the factory owner in Guatemala employ child labor? Are the materials carcinogenic? What about the environment downstream from the factory, is it threatened? Did the shipping company control the pollution from its freighters? Does the U.S. distributor pay a living wage?
Consumers care.
And because consumers care, businesses can charge a premium for conscience.
Take the green building sector for instance. People often mistakenly assume that the boom in green building technologies was driven by conscientious consumers. In fact, contractors and manufacturers largely invented green building, then introduced it to the consumer as a way of differentiating, and premium-pricing, new products and services.
Don’t let U.S. automakers delay restructuring
– Peter Morici, a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission, testified before the Senate Banking Committee on the proposed bailout for the domestic auto industry. The following is his written testimony to the committee. The opinions expressed are his own. —
The domestic automobile industry has two major components—the Detroit Three and the Japanese, Asian and European transplants that also assemble and source components in the United States and Canada. Both contribute importantly to the vitality of our national economy. Ensuring these companies have the means to compete globally is vitally important.
The gradual erosion of the market shares of the Detroit Three over the last several decades stems from higher labor costs—having origins in wages, benefits and work rules–poor management decisions, and less than fully supportive government policies. Although the U.S. government has been sympathetic to the needs of the industry, the industry has fallen victim to currency manipulation and other forms of protectionism in Japan, Korea, India, and China.
The Detroit Three are rapidly running out of cash and face filing for Chapter 11 reorganization. It would be better to let them go through that process and reemerge with new labor agreements, reduced debt and strengthened management that would permit these companies to produce cars at costs comparable to those enjoyed by their Japanese and other foreign competitors assembling vehicles in the United States.
Circumstances are dramatically different today than in 1979 when Chrysler received assistance from the federal government. In those days, the challenge at Chrysler was to become competitive with Ford and GM, and Lee Iacocca had a clear plan to achieve that objective and succeeded. Today, the Detroit Three, though improved in productivity and with lower labor costs thanks to concessions from the United Auto Workers, are still not as competitive as the Japanese transplants.
Margins in automobile manufacturing are thin and there is no such thing as being competitive enough. Either a company is competitive or it is not—either it accomplishes the cost structure enjoyed by Toyota and Honda, operating in the United States, or it will continually cede market share and run into financial difficulties.
By assisting the Detroit Three, Congress can delay one or all of them going through Chapter 11 reorganization but sooner or later one or all will face reorganization. The communities and suppliers dependent on these companies would be better off going through that process now than by delaying it with assistance from the federal government.
The impact of the collapse of the US auto industry will be massive and therefore it is reasonable to consider proposals to avert this scenario.
The problem is that in the current situation the big 3 have admitted that they are “burning” cash and the problem is that under present economic circumstances they are likely to continue burning cash. If 25 billion dollars was loaned to them then how will will change their position?
Will the 25 billion loan end up as a cash bonfire?
A restructuring of the auto industry would take some time to implement and will also be very costly to implement and with the time frame in which the cash pile will be burnt it will not be achieved.
“alert, well-trained drivers will continue to be the only factor capable of preventing inevitable quality slips from becoming fatality statistics.”
Perhaps true, but not if the federal agency tasked with protecting their safety blows them off such as the Oct. 20th, 2009 “Denial of a Petition for a defect investigation” from NHTSA to a very savvy consumer who insisted that there was more to the Toyota pedal issue than floormats. NHTSA couldn’t find anything and refused to look deeper. Three months later, Toyota issues the gas pedal recall, installing ‘shims’ on pedals involving over 2 million cars. Someone at NHTSA should be red-faced?