Auto bailout–what viability means?

December 30, 2008

In order for a manufacturer to be viable, there must be customers ready, willing and able to buy what the manufacturer produces.

Mass producers (like automotive manufacturers) manufacturer products in anticipation of demand. Retailers buy products in anticipation of demand. When supply exceeds demand, the only alternatives are to (1) deeply discount goods in the hope of finding a buyer, or (2) scrap them. Just look at what’s happening this very day in malls all across America.

The financial “bailout” of Chrysler and GM may yield little benefit in the short term as the focus is only on the supply side, not the demand side, of the problem.  Since supply is so out of balance with respect to current demand, until there is greater demand/supply equilibrium, these firms can’t possibly be financially viable.

The auto manufacturers can do little to influence greater marketplace equilibrium as the normal “tricks of the trade” (low/no interest rates, discounting) aren’t effective now. These tactics have become too commonplace to stimulate consumer demand. Consumer access to credit is also a huge negative at this point.

While continuing to produce products creates jobs and stimulates the supply chain, it is only forestalling a larger problem for these manufacturers as they can’t convert what they’ve already built into sales. Does it make sense to continue manufacturing products that can’t be converted into sales? Of course not.

While we can all argue that the business model and cost structure for the U.S. auto manufacturers needs to be rationalized into something far more viable, demand weakness will limit what these manufacturing companies can do to become viable in the short-term/near-term.

Breaking News: In the past 24 hours, there’s been an announcement that GMAC, a financial services company owned by GM that finances autos, is getting $5 billion in bailout money that will enable them to make money available to  broader spectrum of consumers.  For the past 2 months, GMAC has limited auto lending to consumers with credit scores of 700 and higher.  Now, they’ll be able to make loans to folks with credit scores as low as 621. This has the potential to stimulate demand which is good news.

What do you think?

Dave Gardner, Gardner & Associates Consulting http://www.gardnerandassoc.com


Automotive bailout stipulates firms must be viable by 4/1/2009

December 19, 2008

The Bush administration has  finally agreed to a $17.4 billion bailout of GM and Chrysler.  I’m wondering how the Boards of these companies can, in good faith, accept the financial assistance.

One of the stipulations is that the companies be “viable” by 01APR09.  What does “viable” mean?

Does “viable” mean:

  • They don’t come back to Washington again and ask for additional financial assistance?
  • They guarantee some level of employment for automotive industry employees?
  • Does it mean that all the strategic realignments are in place?
  • Does it mean that any non-competitive aspects of labor agreements have been corrected?

How can the Boards accept money given that they are supposed to be “viable” in about three months?  It’s absurd.

And, so the Bush administration can further the illusion of providing  “sound leadership” in this matter, these firms have to rid themselves of perks like corporate jets.  What a bunch of hooey!

While this may play well with the American public, the American public has little insight in what air travel is like and the tremendous inefficiencies commercial air travel creates.  A private jet is a tool to create efficiencies, it’s not a perk!

It is unrealistic to expect these companies are viable 100 days from now.  If they worked diligently, they’d have the beginnings of a plan that they could begin to execute.

What do you think?

Dave Gardner, Gardner & Associates Consulting  http://www.gardnerandassoc.com


Business Execution Hall of Fame: VISA Inc.

December 15, 2008

Earlier this year, I had the opportunity to research VISA Inc.  for a keynote speech I was giving to a credit card manufacturing user group.  I think it is fair to say that we all tend to take credit cards for granted.  When it comes time to use a credit card or a debit card, we assume that the process is going to work flawlessly time after time.  And, there are very rare exceptions when the system doesn’t work.

VISA Inc. does business on a scale that is hard to comprehend.   As of mid-2008, VISA:

  • Processes 81 billion transactions per year
  • They settle $3.8 trillion per year
  • They connect to over 16,000 financial institutions
  • They have a network of 29 million merchants

But, VISA is hardly in a steady state.  They currently process over 65,000 changes to their I.T. infrastructure annually.

The Chief Information Officer, Mike Dreyer, suggests that VISA is a technology company.  Interesting…I had always viewed VISA as a financial services company.  Mike is right.  Their super high-reliability network globally enables the VISA brand 24/7/365

What role would credit cards play in our global economy if there was a 1 in 10, 1 in 20 or even 1 in 100 chance that a merchant would be unable to process a charge?   We’d still be writing checks and have the burden they create for us as well as the financial institutions.

So, for absolutely superb business execution, VISA Inc. is our first inductee in Gardner & Associates Consulting’s Business Execution Hall of Fame.

What do you think?

Dave Gardner, Gardner & Associates Consulting www.gardnerandassoc.com


How business execution improves survivability in tough economic times

December 8, 2008

NBC’s Today Show recently offered a segment called “Get Out Alive: Surviving a Plane Crash. ”  I was surprised to learn that 96% of people involved in plane crashes in the U.S. survive. The point of the piece is that not only is it possible to survive a plane crash, it is likely you’ll survive if you make the right split-second choices. 

Mac McLean, Civil Aerospace Research Institute, was interviewed at the Federal Aviation Administration’s Crash Training Facility in Oklahoma and offered the following insights based on their research and anecdotal evidence:

  • 15% of the people are prepared to “get up and get out”
  • 15% of people are incapacitated in a plane crash–either mentally or physically–and need assistance to get out
  • 70% of people are in between and can either be roused to act properly or lulled into doing nothing

We’re going to see the same phenomena occur during this economic downturn:

  • 15% of companies will thrive during this period of economic downturn
  • 15% of companies are going to suffer and either need assistance or die
  • 70% will either do something to improve their lot to come out of this downturn in a stronger competitive position or hunker down, do nothing and come out of the economic downturn in worse shape to compete in their marketplace.

It is said in nature that organisms are either growing or dying–there is no steady state.  This is true of businesses as well–there is no steady state. 

The marketplace is constantly changing and the top companies are constantly getting better.  Embracing a steady state is a prescription for an even darker future.

There is no better time to focus on closing  business execution gaps than a time when business is slower than normal.  This is a time when management has the bandwidth to properly examine issues and prepare for the next business upturn.

Where should you start?  Look at the core processes within your principal organizations:

  • Sales
  • Marketing
  • Development
  • Operations
  • Service
  • Finance

Don’t just focus on survival; get ready to thrive.  That’s what your competitors are doing.  Shouldn’t you? 

What do you think?

Dave Gardner, Gardner & Associates Consulting www.gardnerandassoc.com


U.S. Automakers must improve business execution

December 1, 2008

Just this past week, I pulled into a gas station and discovered a young, college-age guy filling up a classic 1968 Mercury Cougar XR-7.  We spoke of the large V8 engine, the rumble of the dual exhaust, the fact he struggled to pay for gas to get to/from work and school when gas prices were over $4.50 a gallon this past Summer, etc. I told him about my 1968 White Ford Mustang I owned back when I was in college. He expressed amazement that his classic car could put a smile on the face of guys my age even today.

1968 Mercury Cougar XR-7

1968 Mercury Cougar XR-7

Back in the 1950’s, ’60’s and ’70’s, the BIG 3 (Ford, GM and Chrysler) were “it” in the U.S. market.  They ruled the automotive world.  Sure, we may have had Mercedes and a few exotic autos, e.g., Bentley, Rolls, etc., but the U.S. automakers had no foreign competition to speak of.

During that era, the new models created by the U.S. automobile manufacturers each year were a really big deal!  The marketing was superb.  There was always a huge, exciting build-up each year–America couldn’t wait to see what Detroit had in store for the coming model year.  When is the last time you can remember that happening?

Giant search lights were stationed in front of the auto dealerships illuminating the night’s sky trying to attract our attention.  I remember my father driving towards those lights so we could see what so important that it warranted a huge search light in the sky.

For months after new cars were announced, I would frequently get in trouble for shouting out “there’s a 1965 Ford Mustang” or a “there’s a Camaro” or other such car.  It was exciting to see that people actually owned such captivating vehicles.  The U.S. automakers made everyone want a new car every year.  We refer to this today as “keeping up with Joneses.”

Contrast the situation 40 years ago with today’s situation.  How many auto manufacturers are there today selling cars in the U.S.?  Off the top of my head I come up with:  Ford, GM, Chrysler, Nissan, Toyota, Honda, Kia, Hyundai, BMW, Volvo, Mazda, Mitsubishi, Mercedes, Porsche, Land Rover, Volkswagen, Suburu.  Surely, there are more.

How many brands and models of cars collectively do they produce today?  It’s almost unthinkable.

And, what really stands out today when new models are introduced?  Nothing!

The only car I can think of that has really created marketplace excitement in recent years is the new electric Tesla Motors car (www.teslamotors.com).  At about US$100,000, this high-performance, 2-seater sports car that would be the envy of anyone who likes such cars.  Tesla is just ramping up production.

There’s too much choice and it’s not well-differentiated in terms of appearance, features or functions.  From a distance, I have a hard time telling the Honda from a BMW from a Lexus.  More and more models have resulted in less and less differentiation. There is one key area of differentiation and domination for the foreign automakers:  quality.

For years, the foreign automakers have dominated the perception of quality and value when contrasted with the BIG 3’s products.  Does this mean it’s true?  No.  But, perception is everything in branding.  If the perception is higher quality and higher resale value, those are differentiators that can close a deal with a prospective buyer.

Does GM really need the Chevrolet, Buick, Pontiac and Cadillac brands?  Or, might GM benefit from rationalizing their product offerings into better differentiated, less redundant offerings that create better economies of scale across the entire company?

The BIG 3 auto executives went before Congress seeking an additional $25 billion in bailout money over and above the $25 billion previously committed back at the beginning of November.  They had no plan; they offered no strategy.  What a horrifically embarrassing moment in the history of a once proud industry.  The executives arrived in their corporate jets acting as though they were entitled to this money. They claimed “their businesses are too important to fail.”

Sorry, I don’t buy it. The BIG 3 automakers are not too important to fail.  As business entities, the loss of their products in the marketplace would cause no threat to our economy or our well-being.  There’s too many suitable alternatives for our economy to be compromised.

However, I do see a huge threat to the economy if the BIG 3 do fail.  There are about 3 million people who would be negatively affected and, the negative impact to them, would create a further drag on our already distressed economy.

It is incumbent that the BIG 3 automakers and Congress find a path enabling the U.S. automakers to have viable, relevant, sustainable businesses here in the U.S.  The U.S. auto executives must create and share a vision of why it is worth investing nearly $50 billion of taxpayer money to bail them out.

The U.S. automakers must create and execute a strategy that accomplishes the following:

  • makes the U.S. automakers part of the solution to America’s job and energy needs
  • rapidly develops and produces alternative energy vehicles that consumers crave consistent with reducing America’s dependence on foreign oil
  • promote better fleet-wide fuel efficiencies–don’t just try to achieve the minimum government standards–raise the bar
  • ensure labor agreements allow the BIG 3 to be cost-competitive with other manufacturers
  • replace senior management with executives who know how to create viable, sustainable businesses–including negotiating labor agreements
  • ensures the American taxpayers get the bailout money reimbursed

The status quo can’t prevail.

Personal note to the auto executives:

It’s okay to create some excitement again!  Make us want to buy your products!!

What do you think?

Dave Gardner  Gardner & Associates Consulting www.gardnerandassoc.com