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Lessons from the Automobile Industry
By Craig A. Underhill
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What can we learn from the automobile industry? Why is GM facing bankruptcy when other automobile makers, notably companies like Toyota, are surviving? You don’t see Toyota executives flying their corporate jets to Washington begging for a bailout. So what accounts for the difference between failed automobile operations and the ones that are still successful?
From all appearances, GM and the other three failing automobile makers didn’t anticipate changes in the marketplace. They continued to produce gas guzzling automobiles like SUVs while gas prices climbed. They drove revenues through massive cost reductions and special financing schemes that helped them in the short term. And they continued to operate as they always have.
I believe the key to Toyota’s success lies in their culture. They have fostered an environment that embraces change. Their manufacturing methods take advantage of a Lean Manufacturing concept called Kaizen. The premise of Kaizen is that small changes can lead to big improvements. They encourage every employee to constantly question, look, and find better ways to do their job. With every new initiative they look for a connection to customer value and ask ”how will this particular investment benefit our customer?” If a connection can’t be found, they won’t make the investment. And they hold prices steady. They have not resorted to the constant stream of price cutting and monthly promotions that other car makers use to drive sales. Rather they constantly look to cost efficiencies to help them drive more profit out of a given sale. And all of that takes what they call “a keen eye”. Their employees are used to questioning and curiosity is one of their key traits. They look to all employees, particularly the people on the front lines, to make suggestions for process improvements.
This is from Toyota’s discussion of forecasts in their September 2008 financial statement:
Commenting on the amended forecasts for FY2009, Kinoshita said, "Currently, the financial crisis is negatively impacting the real economy worldwide, and the automotive markets, especially in developed countries, are contracting rapidly. This is an unprecedented situation, however, we are already taking measures. We have newly established an "Emergency Profit Improvement Committee", with President Watanabe as chairman, to secure profits for FY2009 and FY2010. This committee is working to reduce total costs and maximize revenues. Also, we are thoroughly reviewing production capabilities by reexamining aspects such as the timing and scale of new projects. Meanwhile, we remain committed to our strategies for mid-to-long term growth. We will steadily implement these measures, by fully utilizing our solid balance sheet. We will respond appropriately to the changes in current market conditions, while taking actions for future growth."
Compare this to GM’s plans for future quarters in their financial statement for the same time period:
“Improving its liquidity position remains a top priority for the company. In response to deteriorating market conditions, GM announced today that in addition to the $15 billion in liquidity initiatives it outlined in July 2008, it has identified $5 billion of incremental liquidity actions. Cumulatively, GM has announced actions aimed at improving liquidity by $20 billion through 2009. To date, $10 billion in internal operating actions have either already been completed or are on track for full execution by the end of 2009.
Even if GM implements the planned operating actions that are substantially within its control, GM's estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business. Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination of the foregoing. The success of GM's plans necessarily depends on other factors, including global economic conditions and the level of automotive sales, particularly in the United States and Western Europe. “
It seems to me from these two statements, that while Toyota is busy looking for improvements within, GM is sitting idly by hoping that market conditions (or congressional action) will magically save them from extinction.
What can we learn from these two companies? We can learn a lesson about planning, about listening, and about embracing change. Companies, like individuals, need to be focused on flexibility. They need to constantly evaluate their plans and direction and be prepared to change. Just as employees can no longer expect to stay in the same job for their whole career, companies can no longer expect to stay in a single market for a generation. The number one trait that we need to foster in our employees is curiosity. People who ask questions are the most valuable asset you can have. And anyone who is in a position to connect with a customer should be empowered to do anything that can help make that customer’s experience more positive.
How will you position your winery for change? What are you doing to allow your customer-facing staff to find a better way to serve your customers? How can you change your approach so that your wines appeal to more distributors? And what about Wine Clubs? Does your current offering appeal to this younger generation? They are a fickle generation that has grown up with choice, with customization, and personalization. How likely are they to join your Wine Club?
