Toyota-Tesla joint venture announced

May 20, 2010

About 3:30 pm PDT today, I heard the fantastic news that:

  • Toyota and Tesla Motors have formed a joint venture to produce electric vehicles
  • The production will take place in Fremont, California
  • It will utilize the production facility that closed on April 1, 2010, known as the NUMMI plant, a joint venture between GM and Toyota

This is very exciting.  When the NUMMI plant closed, it displaced 4,500 workers and had a negative impact on nearly 25,000 jobs through the supply chain, shipping, logistics, etc.

The NUMMI folks fought long and hard to save their jobs and did not prevail resulting in the closure of the last automotive manufacturing facility in California.

Well, no more.  Here is an article summarizing this news story.

The news could not be more welcome here in the San Francisco Bay Area.

Thank you Toyota and Tesla Motors for reaching an agreement that will stand to benefit thousands and thousands of people right here in my back yard.

Wahoo!

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


Demise of GM’s Saturn-Another Business Execution Failure

October 1, 2009

13,000 employees and nearly 400 dealers received the news yesterday that GM failed to secure a deal to sell GM’s Saturn business to Roger Penske.  Why?  Penske could not find another manufacturer willing to produce the vehicles beyond 2011.

An automobile manufacturer without manufacturing support is doomed.

The problem didn’t happen overnight.  Saturn has not made a profit since 1994.  15 years with no profit.  This is beyond comprehension.

This is not only a business execution failure, it is a failure of leadership–management and the board–that a brand is allowed to flounder for 15 years.  This failure is going to create incredible pain for those who relied on this brand for their livelihoods.

Would Jack Welch have allowed this to happen?  Maybe for one year.

What do you think?

Dave Gardner, Gardner & Associates Consulting

http://www.gardnerandassoc.com


WSJ Article Claim about GM is ludicrous

June 8, 2009

As the world has watched GM fall into bankruptcy, I’ve awaited the folks on the sidelines offering their pithy insights into the whole debacle. The most ludicrous claim I’ve seen yet comes from a June 2, 2009, Wall Street Journal article titled “A Saga of Decline and Denial:”

GM set the standard of how a company should be run, how utilitarian products could be made cool and how they should be sold.  It helped win a world war, driver American prosperity and reinvigorate business-school curricula.

In the end, GM was a victim of it’s own success–its path to bankruptcy paved with the very management, marketing and labor practices that made it the world’s largest and most profitable company for much of the 20th century.  Strategies that had once been deemed innovative “became a millstone on the whole company,” said Mr. (Gerald) Meyers (former chief executive of American Motors Corp.).

A victim of its own success?  How about a victim of its own blindness to seeing that for almost 30 years, GM senior management and the board had bought into what was an unsustainable business model bleeding red ink.

Recently, my father asked me to help a restaurant owner look at her business.  She claimed that the dip in the economy was making her business unprofitable and that she was waiting for the economy to rebound so her business would return to its prior level (of mediocrity).   I showed her how there were real systemic issues in her business that indicated that she might not benefit from a rebound in the economy unless she took action to correct the deficiencies.

Unlike the restaurant owner, GM has vast quantities of expertise and knowledge at its beckon call.  The GM insiders had to know long ago that what they were pursuing was not sustainable.   For example, the GM automobile market share had declined from over 50% in the mid-70’s to less than 20% in today’s economy.  Hello!  What’s wrong with that picture?  If you’re not growing, you’re dying.

There are many systemic issues facing GM in the months and years ahead.  Can they reinvent themselves?

Unless there is a fresh look at the business model and leadership that believes there are no sacred cows–that everything about the business is up for debate and questioning–my sense is that the thinking that got them to where they are today won’t get them to where they need to be.  If GM were to get a leader like a Jack Welch or Lou Gerstner, they might have a chance.  If they stay with inbred leadership, I don’t think they have a prayer.

What do you think?

Dave Gardner, Gardner & Associates Consulting

http://www.gardnerandassoc.com


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


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