US auto moguls: learning to build cars all over again
Detroit — US car company executives nowadays are treated like comedian Rodney Dangerfield: They get no respect.
Automotive moguls ''often strike me like the Bourbon kings of France, marching backwards through history, learning nothing,'' snaps Walter Adams, a Michigan State University economics professor.
Professor Adams's rhetorical flight of fancy may overstate the case. But, right under the noses of Big Three auto executives, Japan became the industry's low cost producer, grabbing 27.2 percent of the US market last year with high-quality products.
''Everyone got a little sloppy and a little lazy,'' admits Harold K. Sperlich , Chrysler Corporation's president of North American Automotive Operations. ''Prosperity does that, doesn't it?''
Of course, it has been several years since the industry has enjoyed prosperity. Sales have slid for the past three years, triggered a sea of red ink on corporate balance sheets and caused upheaval in the lives of laid-off workers.
Obscured by the unceasing din of depressing news from Detroit, car company managers have changed. They have moved beyond the traditional belt-tightening maneuvers the industry has used in other recessions. They have started making fundamental changes in the way the industry is managed. If the changes continue, they promise to put the industry on a stronger competitive footing when sales volume picks up.
''What we are seeing is a metamorphosis in the way this industry has functioned,'' says David E. Cole, director of the University of Michigan's Center for the Study of Automotive Transportation.
In the past few months, auto industry management has gained a clearer sense of the fundamental nature of the problems they confront, adds Harvard Business School Assistant Prof. Kim Clark. Recently, he continues, industry executives have began to ''really understand the extent of the Japanese advantage on cost and quality. And they are starting to develop some understanding of the source of those differences.''
Despite the auto companies' public posturing, higher US labor costs -- currently the subject of negotiations between Detroit and the United Automobile Workers (UAW) -- are not the most important advantage Japan has, Professor Clark contends.
Rather, US auto companies are deficient in organization, administration, and production systems, he argues. ''If you want to explain the difference in performance on cost and quality, most of it has to do with stuff that takes place in (running) the plant.''
And there are signs the industry is making headway in boosting production efficiency. ''Truly extraordinary improvements have been made'' in productivity and quality, Clark says. There are now US auto plants ''that have performance that exceeds what the Japanese do.''
The industry's revitalization efforts extend beyond the plant floor. At General Motors Corporation, ''the whole system is being revitalized,'' says Michigan State University Management Prof. Eugene E. Jennings. ''It is a total corporate reorganization in the sense that every aspect of (the company) is undergoing reexamination and change.''
Chrysler Corporation, he judges, also has done a major rethinking of its corporate organization. But the overhaul has been ''less extensive'' at Ford Motor Company.
Of course, the leanest, best managed company will still be in trouble if its products do not sell. Because of high interest rates, shocking car prices, and the uncertainty caused by the recession, automotive sales are not expected to improve until the middle of 1982 at the earliest. For all of 1982, Data Resources Inc., an economic forecasting firm, expects sales to be 9 million units. By contrast, in 1978 the industry sold 11.3 million cars.
Neither does smarter, more effective management mean the US industry will escape major upheaval. Because of population trends, the growth in demand for cars will slow in the long term. Competition from well-heeled international firms may force poorly financed firms -- such as Chrysler -- to close or merge. And the trend toward smaller cars will require fewer workers.
''We will probably never again have the number'' of people at work in the industry as in 1978, says Donald Ephlin, a UAW vice-president who heads the union's Ford department. Auto industry employment in 1978 was 1.03 million vs. 740,000 this month.
For both individuals and corporations, predicts University of Michigan professor Cole,''there are going to be winners and there are going to be losers.''
Managers have reacted by ''trying like crazy,'' says Donald Hurter, an auto expert with the research and consulting firm, Arthur D. Little Inc. ''They realize they are in a life and death struggle.''
Lloyd Reuss is typical of the auto company executives who are adopting new management methods to insure their firm survives the struggle. When he joined General Motors in 1959 as an experimental engineer, Mr. Reuss recalls, the auto business was ''fairly predictable.'' GM battled other US companies that usually were managed by other Midwest born and bred executives. Competition centered on developing flashy styling, powerful engines, and memorable advertising.
Today Reuss runs GM's Buick division, a unit that still slugs it out with other Michigan-based rivals. But he also matches wits with executives in Japan who have been battling -- and often beating -- Detroit in production efficiency, product quality, and competitive pricing.
The young, fast-talking GM vice-president has stepped up to the competition by eliminating layers of management from his organization, experimenting with a Japanese style inventory control system, involving workers more deeply in quality and productivity improvement, and seeking advice from lower level managers on ways to reach division objectives.
''There is no question that everyone throughout our organization understands'' that the US auto business has to be run in a different way, Reuss says.The understanding is not confined to Buick. The management changes other Detroit executives are making include:
* Eliminating layers of white-collar positions in a bid to boost efficiency. Until recently, a management position with an auto company was normally a job for life. That is no longer the case. For example, Ford has eliminated 25 percent of its North American salaried personnel, notes David McCammon, Ford's vice-president for corporate strategy.
''We are getting away from one or two people reporting to one executive,'' says GM vice-chairman Howard Kehrl. ''We are trying to get five, six, eight people reporting to one.'' The resulting reduction in layers of management is one reason GM announced layoffs of 13,000 white-collar workers in December.
Besides reducing salary costs, the moves also boost efficiency. For example, when Buick recently eliminated its regional sales manager postions, it took out one level of management. Comments Buick General Manager Reuss, ''Now decisions get made quicker.''
* Stepping up inventory management to cut operating costs. One reason Japanese cars can be produced for what Harvard professors estimate is $1,400 less than US products is the tight control Japanese manufacturers hold over inventory. Under the Kanban system, suppliers deliver parts just before they are needed.
By contrast, American plants often had an 20-day inventory of parts. The goal is to have enough on hand so the plant never would be stopped for lack of a particular wigit.
In an experiment with the Kanban system at its Flint, Mich., engine plant, the Buick division has been able to cut inventory from more than 20 days to 10 days, Reuss says. Such a reduction cuts inventory carrying costs significantly. And cutting inventory also ''surfaces any problem you have either in production of the part or in transportation,'' Reuss adds. The division plans to expand its use of Kanban.
* Forging closer relationships with suppliers to boost quality and trim costs. GM has started a program for bringing outside suppliers in on product plans at an earlier date. This gives outside suppliers a better chance to compete for business with the company's own parts plants. ''We are going to bring them in earlier and take a harder look at cost comparisons,'' GM vice-chairman Kehrl says.
Meanwhile, Ford plans to trim the number of suppliers it uses by sticking with those that provide the best quality. Then it can work more closely with the remaining vendors on improving quality.
* Expanding programs to get worker help in improving production processes and product quality. GM has long had a Quality of Work Life (QWL) program to get help from workers in boosting quality and productivity. The program, which also is designed to produce more satisfying work, continues to be expanded.
Recently, Ford has stepped up its Employee Involvement Progam. UAW vice-present Ephlin says that in recent months Ford has had ''more activity proportionately'' than GM in this area. ''But we are starting at a much lower plateau.''
Ford has launched a separate program to boost quality. Under the ''Quality Upgrade Operator'' program, foremen are given extra workers to help with quality related problems when new models are being launched. For example, at a recent launch at the Wayne, Mich., plant some 200 extra workers were assigned to quality related tasks. The program now is being used on all new model launches, notes Blair Algie, manager of salaried personnel for the body and assembly division. The program is one reason Ford data shows car quality improved 25 percent in 1981 over 1980.
* Buying sophisticated equipment to reduce product defects. One way to eliminate human error is to eliminate workers. ''Our major thrust has been to make our operations less operator sensitive,'' says Howard Stahl, general director of reliability for GM's Fisher Body Division. GM has announced plans to install 14,000 robots by 1990.
In addition to handling assembly chores, robots also allow products to be thoroughly inspected without slowing the rate of production. For example, a robot equipped with laser detection system checks the fits of windshields and backlights on all the new GM ''J'' cars.
The diversity of Detroit's revitalization efforts underscore the fact that cost and quality gaps with Japan ''are the summation of little bits and pieces, '' as University of Michigan professor Cole puts it.
The faster the individual problems are attacked, the better, since the Japanese industry is a moving target. However, since Japan has already made major strides in cost and quality, further gains will be expensive. Catching Toyota may be tough, but it will be easier for the US to close the gap than for Japan to widen it.
Closing the cost and quality gaps is essential if the US industry is to prepare to take on potential competitors with even lower wage costs, such as South Korea.
Auto executives are eager to catch the Japanese and polish their reputations as managers. Cost and quality matters ''will be handled well,'' says Chrsyler president Sperlich. ''The domestic companies are turned on - embarrassed, and stunned.''
Detroit executives ''have bitten the bullet,'' Professor Cole maintains. ''All the elements to heal the industry are in place.''