How to turn around an automaker

So if you’re a CEO of one of the Big Three automakers, you have to fly a private plane, as corporate policy, for safety reasons.

Congress suggested they save money by flying first class, or plane-pool at the very least.I guess the problem with flying first class is that they might run into some angry shareholders. And maybe one or more of those angry shareholders would recognize them and beat the snot out of them?

But that raises another question. Speaking as someone who lost a lot of money in Ford stock (but back in 2000 or so, so don’t cry too hard for me), how many of those shareholders would have enough money left to fly first class? The angry mob would have to be sitting in coach, right?

But seriously. There’s a lot wrong with the three domestic automakers and cutting the corporate jets isn’t going to fix the problem, at least not alone. But let me tell you a story.

In the mid 1990s, I was briefly the treasurer of a student organization while I was in college. My organization had a serious cashflow problem. At midyear, I estimated the remaining expenses for the year based on bills from the first half, and came to the conclusion that we were spending more money per member than we were taking in.

I made this startling discovery by dividing the amount of money we were spending by the number of members we had. It was a bigger number than the amount of money we charged to be a member of the group.

Sure, it’s sixth-grade math, but someone had to do it.

The problem was that I faced a room full of good-ol’-boy, stubborn German Lutherans, some of whom had difficulty doing sixth grade math, and I just couldn’t convince them what we needed to start charging more.

I couldn’t balance the budget by cutting things, but I figured being $100 short at the end of each month was better than being $200 short. And I knew it would get my point across. So I started slashing line items like the stingy Scottish miser I am (and was). Cable TV? Gone. Telephone service? Gone. But most importantly, everything related to parties and beer got cut. That sure got the good ol’ boys’ attention. After all, the only thing more important to a German Lutheran than stodgy hymnals and poorly maintained pipe organs is beer.

When I refused to sign any checks related in any way to the annual Super Bowl party, I got the changes I needed in the budget. They got a slightly cut-down party, and I got the bank account balance back up above zero. This was a compromise, because I wanted to have a surplus at the end of the year. You know, just in case anything broke sometime and needed to be fixed or replaced.

Sometimes you make cuts in the budget not because it’ll balance the budget, but because it sends a message.

If I were the CEO of an auto company, I’d get the rules changed so I could fly in commercial aircraft. I might even go so far as to fly coach. And I’d get rid of those planes.

I’d also get rid of the executive cafeteria. Bob Lutz argued in one of his books that the executive cafeteria isn’t just a perk, it’s a great place to get work done. The problem is the message it sends. I’m not an auto executive, but somehow I manage to get my fair share of work done over a microwaved lunch from Costco that I bring from home every day and eat at my desk.

Incidentally, my boss eats lunch at his desk too.

I don’t need to eat gourmet food provided by the company behind locked doors in a lavish room to be productive. And if you do, you’re not creative enough.

I’d go even further than that, though. I read that Rick Wagoner made $14 million last year. A $14 million salary suggests that you’re the executive of a successful and growing company. Rick Wagoner is not. Time for another story.

In 1997, there was a struggling computer company in Cupertino, California. This struggling company merged with another struggling company, one that specialized in trying to sell underperforming, overstyled computers that ran Unix. I say trying because nobody was buying.

It wasn’t long before the CEO of the struggling company departed, and the erstwhile CEO of the company he bought became interim CEO.

The interim CEO gave himself a base salary of $1. One lousy dollar. The bulk of his compensation came in bonuses and stock options. I don’t know exactly what his motivation was, but it tied his yearly compensation to performance.

It worked. Prior to his taking the helm, pundits had the company on a deathwatch. I don’t have to tell you how the company is doing today or how it got there. All I have to tell you is the name of the company was Apple, and the executive was Steve Jobs.

I don’t know if Apple would have turned around if Steve Jobs had taken a more traditional compensation package. But it’s safe to say that Jobs is highly motivated. And while I personally don’t care much for the products his company makes, he’s obviously successful.

Taking a page or two from Apple’s book seems like a good move for car companies, starting with executive compensation. How Apple manages to remain highly profitable and successful with a market share of around 10 percent would also be a good case study for U.S. automakers, since it’s clear they’re going to have to live with a smaller market share than they’ve been used to having, at least for a time.

Turning the Big Three around isn’t going to be an easy process, and it’s going to take a lot more than a $25 billion loan from the government to get it done. A true turnaround is going to require a change of culture, lots of shared sacrifice, and the motivation to think long term, far beyond the next quarterly report.

Changing things like corporate jets and corporate cafeterias won’t balance the budget, but it’ll help in the shared sacrifice and changing the corporate culture.

And in the long run, maybe some of those perks can come back some day. I don’t know this for certain, but I’d be willing to bet Steve Jobs doesn’t eat lunch at his desk.

3 thoughts on “How to turn around an automaker

  • November 25, 2008 at 7:58 am
    Permalink

    All excellent points. It’d also help a lot if they would market cars that many of us would like to, you know, actually buy. There’s no reason Ford couldn’t mfg. a car that’s just as well-built as a Honda Accord. Heck, Hondas are built in the U.S. by American workers – and we love ours.

    The problem is that the Big Three design cars more poorly than their Asian and European counterparts* and don’t care enough to make the changes in their mfg processes necessary to get build quality up. And if American automotive engineers aren’t up to the task, I’m sure each could go to their foreign partners for help (e.g. GM with Toyota, Ford with Mazda).

    Fix that, along with a severe attitude adjustment in mgmt., and they just might have a chance to come out of this.

    But I’m not holding my breath.

    * Compare and contrast with the engineering culture at Honda. See Honda, where engineers rule.

    • November 30, 2008 at 5:34 pm
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      Yep, I saw that Honda article too. And as for my Honda Civic… My sister and I were talking, and one solution she heard was to put a tariff on all foreign vehicles (admittedly more difficult to do when Japanese cars are assembled here and "domestic" cars are manufactured in Canada or Mexico) to level the playing field. She asked if I’d pay an extra $2,000 or $3,000 for my Civic. I didn’t hesitate. I would. When I want to compliment something’s reliability, I compare it to the Civics my wife and I drive.

      Adopting the Taguchi method would certainly help. So would the Volkswagen trick of sharing resources across all subsidiaries. One article I read speculated what kind of cars Ford could be building if all divisions had access to all Ford, Mazda, and Volvo resources. The reliability of a Mazda plus the safety of a Volvo would be hard to compete with.

      But I think the most important thing is to motivate the people at the top to go looking for these kinds of things. Just give them a blank check, and business as usual will continue indefinitely. Pay them like Steve Jobs, and they’re more likely to pull a miracle. And yes, since I actually remember what shape Apple was in back when it bought NeXT, Apple’s turnaround does qualify as a miracle, and the method is worth copying in other industries.

      • November 30, 2008 at 7:07 pm
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        Dave,
        You have complimented Japanese cars for some time so I googled them after reading your posting.
        There are many complaints on line about both Honda and Toyota. I read about an electrical problem in these cars that reminded me of the complaints on British bikes and cars in the sixties.
        I would never own a Japanese car from any company including Lexus.
        I’m happy with my third small truck built by the company formerly know as Datsun.

        "Start with good people, lay out the rules, communicate with your employees, motivate them and reward them. If you do all those things effectively, you can’t miss."
        Lee Iacocca

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