Thinking Managers

Robert Heller of www.thinkingmanagers.comargues that it is not the credit crunch that has caused the problems for US car companies – they have been incompetently managed for years.

The auto industry bailout speaks volumes about US industry

The unedifying spectacle of America’s Big Three car bosses begging Congress for the auto industry bailout depicts a harsh reality of the industrial strength of the US.

Let’s be clear about this: the humiliation of General Motors, Ford and Chrysler isn’t just one more event in the long-running saga of the so-called credit crunch. What we have witnessed is the end of a long road which the Big Three auto leaders have been driving down, without much pause, for several decades.

A vivid illustration of how the mighty are fallen is offered by the term ‘Big Three’, actually. It might have once been an accurate description but they aren’t so big now. The trio dominated their domestic market following the Second World War and faced no competition at all until the Volkswagen Beetle proved a big hit in the US.

However, despite sales of 400,000 or so a year, Detroit’s moguls dismissed the Beetle as a mere fad and showed no intention of adapting their strategies.

The syndrome is all too familiar. A new and unwelcome threat should be met by a willingness to analyse the competition’s strengths, reassess the whole market, and come up with a plan to safeguard existing sales while extending coverage in order to exploit new trends. Too often, though, companies react to such situations irrationally and go into denial.

The profit motive is meant to be the driving force of capitalism. Bosses are meant to compete by pushing their workers towards stretching targets, while outside investors push lagging CEOs – or compensate them for their successes with bags of money. But perhaps there is a flaw in this method that the Western world has taken for granted: maybe it doesn’t work.

A disregard towards the future has been demonstrated by the Big Three’s CEOs; they have put all their faith in an old approach that has been conspicuous by its failure.

The misjudgement of strategy has been incredible when you consider that Toyota’s market capitalisation is over 50 times the relatively modest GM figure of $1.8 billion. The skill of combining flexibility with strict control is the key strength of the Japanese firm. It moves to meet the market and stays connected to the customer. Meanwhile, the likes of GM are psychologically stuck with the formula from the heyday of the Big Three.

The painful truth of the situation was demonstrated by the Congressional hearings on auto giants and their requests for bail-outs. Arriving in separate corporate jets, with no plans or documents (giving the committee a field day), the three CEOs were asked if they would accept a cut in pay to $1 a year. The Ford man reckoned an enormous $22 million was just about right.

Massively overpaid, professionally incompetent, extremely conceited; it just isn’t the way to run a car company – or the world’s economy.

About the author
Robert Heller is one of the world’s best selling authors on business management.