Tag Archives: the American auto industry

Watch Out McDonald’s! The Government May Soon Be Telling You Where You Can Locate Your Next Franchise

Not all that long ago, there was a distinct line of separation between the government and the private sector-like the line of separation between church and state.  Given the recent fiascos in the banking and auto industry, it’s beginning to look like that line has been permanently blurred.  Today, various members of the House and Senate have seen fit to meddle in the operations of GM and Chrysler by playing the role of senior executive for these firms and telling them how to run their businesses.  What’s more, these government officials are thoroughly enjoying this new role.  For example, Senator Tom Udall of New Mexico is lobbying the auto companies to restore the 12 GM dealers and six Chrysler dealers in his state that had their franchises terminated.  Representative Barney Frank, a Democrat from Massachusetts, has lobbied GM to keep a parts distribution center, which employs 90 people, open in his district.  Representative Frank M. Kratovil, a Maryland Democrat, has introduced a bill that would restore the franchise agreements to dealers who have them terminated.  Other members of Congress are debating whether or not they should regulate executive pay in all industries, not just those receiving government financial aid.  The list goes on and on, “…don’t close the assembly plant in my district; don’t build the Volt battery in Korea, build it in my state or don’t build pickups and SUV’s, make smaller, more fuel efficient cars.”

             Where does all this stop?  It doesn’t.  When a group of people, who are in power positions, gets off on meddling in the internal affairs of major corporations, this usually leads to more meddling, not less.  So, look out McDonald’s, Congress may soon dictate where you can locate your next franchise.  As for the Big Mac with all those fat calories, it’s either history or it will carry a large “sin tax” and sell for $19.95 each.  The Quarter-Pounder will probably be taken off the menu and replaced with something nutritious like McChard Pie and the compensation of your executives will be determined by your shareholders.  A rosy scenario, don’t you think?

The Number One Obstacle Facing The Detroit Automakers: Their Image

I can remember when it was considered un-American to drive a foreign automobile.  Today, it’s the other way around.   Many car buyers in their 20s and 30s won’t even consider buying an American car.   In addition, many of the car buyers in their 40s, 50s and 60s, who used to buy American cars, have come around to that same mind set.  I was on a radio talk show last week and I was somewhat amazed when caller after caller adamantly stated that they would never buy another American car.  When I asked why, I got some of the following answers:  “I’ve got 240,000 miles on my Honda and it still runs great!”  “The only time I take my Toyota to the dealership is for regularly scheduled servicing, when I owned my last Chevy it seemed like I was there every other week for repairs!” 

As far as most Americans are concerned, American cars break down more often and don’t last as long as Japanese cars and the data from surveys bears this out.  According to Susan Helper, an economist from Case Western Reserve University, this is why Detroit’s cars, even though they are consistently priced $2,000 to $3,000 below their Japanese equivalents, continue to lose market share.  This is a serious problem that the Detroit automakers must deal with if they expect to have any chance at all for long term survival and it starts with making Consumer Reports a top priority.  www.rossreck.com

The New GM And The New Chrylser Will Not Survive

           Chrysler and GM will emerge from bankruptcy with completely new looks.  The logic is that the new Chrysler and the new GM will be in a much better position to compete companies like Toyota.  As GM vice chairman Bob Lutz put it, “We will be smaller, leaner and we’re going to be a powerhouse.”  Unfortunately, that doesn’t have a chance of happening because Chrysler and GM have not dealt with the one issue that got them into this position in the first place–their management style–the way they treat their employees who do the work that the company gets paid for.  Both Chrysler and GM have a long history of top-down management that uses fear as a motivator–the people at the top are treated like royalty and the people at the bottom are treated like third class citizens–it’s part of the DNA of these companies and Ford’s too, for that matter.  Until these companies address this fundamental issue, they are doomed to eventually be run out of business.

          An employee focused management style has been the competitive edge of the Japanese automakers all along.  They’ve even tried to point this out to the executives running the American auto companies, but nobody listened.  In an August 11, 1980 issue of Fortune magazine, an executive vice president of Honda was quoted as saying, “…capital investment alone will not make the difference.  In any country the quality of the products and the productivity of the workers depend on management.  When Detroit changes its management system [the way it treats its employees], we will see more formidable American Competitors.”  Since then, the Detroit automakers have dramatically changed how the build cars, but they have not addressed the one issue that allowed the Japanese automakers to take over the American auto industry–their management style–the way they treat their employees who do the work that the company gets paid for.