Thursday, November 13, 2008

Motown's meltdown, redux

With the idea of a multibillion-dollar bailout for the auto industry front and center in the news, here is a an encore presentation of a post originally produced two years ago. It is relevant not only to the auto industry but the media business, too.

The hubris that led to the humiliation of the American auto industry was painfully evident 30 years ago, when I took a brief spin on the beat for the Chicago Daily News.

Even at this late date, my Motor City adventure is worth revisiting, because the complacency and self-deception I witnessed then are alive and well today in other industries facing fundamental, disruptive change. Among those that come to mind are – you guessed it – the media business.

As you read this, kindly bear in mind that I visited Detroit just three years after the Organization of Petroleum Exporting Countries had throttled the world’s oil supply, creating frantic gas lines and introducing a taste of the pain we would come to feel when Shell-ing out $50 for a fill-up. Here goes:

To put the press in the mood to write about its new 1977 gas-guzzlers, one auto maker hired Benny Goodman to play at a banquet featuring a booze-rich reception, a seafood appetizer accompanied by a fine white wine, filet mignon accompanied by a fine red wine and baked Alaska accompanied by vintage cognac and fine cigars.

After dinner, a reporter could head for the hospitality suite, where a complimentary hot buffet and fully hosted bar succored the suckers at the marathon poker games.

Some of the reporters (not me) received first-class airline tickets from one or another of the car makers to travel to Detroit. A few enterprising souls downgraded to coach and pocketed the extra cash.

Several of the reporters (not me) scribbled their bylines on a few press releases and handed them, otherwise untouched, to a Teletype operator who wired them – “Collect, night press rate, Honey” – to the correspondent’s waiting paper.

With the gentlemen of the press sufficiently lubricated and sated, I saw my colleagues rise up angry only twice.

The first time was when the newsmen circulated an angry petition to protest the serving of fish, instead of red meat, at a luncheon hosted by one of the Big Three. The PR guy swore it wouldn’t happen again and was promptly forgiven.

The second time my colleagues erupted was when they hooted me down at a press conference for asking Henry Ford II why his company didn’t make safe and fuel-efficient cars. “We tried it once,” responded Hank the Deuce. “That stuff doesn’t sell.”

With that settled, we went to lunch. My colleagues, unfortunately, did not excuse me as readily as they forgave the flack who served them snapper. But they seemed genuinely happy that no halibut would be harmed in the making of our meal.

While everyone partied hearty in Detroit, Toyota, Datsun and Honda were busy, building tinny little clunkers they often upholstered in grotesque, psychedelic plaids. In the intervening years, as we know full well, the newcomers got smarter and more sophisticated. Now, Toyota, a leader in hybrid technology, is poised to overtake Ford as the second-largest seller of cars in the United States.

What went wrong?

:: The auto makers lost touch with their customers. For all the resources potentially available to research and develop new vehicles for the future, the companies were too smug to imagine the market for their products might change, much less recognize that it already was getting away from them. Too comfortable for their own good, they attempted, when challenged, to emulate their historical successes, instead of embracing the risks and potential rewards associated with innovation.

:: The auto makers competed with the wrong guys. Detroit was such an insular fraternity that executives benchmarked their efforts strictly against their peers across town, each matching the other and none daring to differ. As history soon proved, the American auto market was not a zero-sum game to be dominated by a threesome of self-selected players. While the Big Three cozily conducted business as usual, the initiative was seized by efficient, inventive and bold new competitors who weren’t in the club.

:: The auto makers stuck with a failing strategy for too long. Faced with growing competition, declining share and a marketplace they hadn't taken the pains to understand, Detroit fixated on optimizing a rapidly unraveling business model. The Big Three severed workers and closed plants to cut operating costs and offered ever-escalating incentives to reverse sagging sales. The problem is that their fleets are loaded with cars people don’t want to buy. Worse, Detroit doesn’t have many market-pleasing alternatives readily available in the pipeline. Still worse, they wouldn’t know how to build them efficiently.

For the most part, the auto industry’s woes were self-inflicted by decades of insular and unimaginative senior management. The problems are not the fault of the workers, the customers, the suppliers, OPEC or the competition. They result from management’s lack of vision, objectivity, originality and courage.

If everyone hadn’t been in such a rush to go to lunch 30 years ago, maybe Toyota wouldn’t be eating Ford’s sushi.

5 Comments:

Anonymous Dave D. said...

...The news industry didn't help anyone, least of all Detroit, by selling out and becoming shills for the industry. They've done the same thing by selling out and shilling for Obama and the Dimwits in Congress. People don't buy your product because they've found you to be untrustworthy and they do have an alternative. That the anti-newspaper is free to them is icing on the cake. Choice, for free ? From home, dry and warm ? Newspapers can't compete with that. Sell the presses for scrap. It's over. The patient died. He refused to take his medicine when it might have done some good. To late now.

9:27 AM  
Blogger Brian Cubbison said...

If we're going to compare cars to newspapers, let's keep going:

Suppose that someone designed a car that could be shipped to your driveway in boxes and you would spend an afternoon putting it together yourself. There have been kit cars before -- odd-looking replica sports cars -- but this would be an inexpensive, stylish daily driver like the Mini or Versa.

Citizens can't manufacture their own cars, traditionalists would say. But hot-rodders and car restorers have been doing excellent work for several generations. And this car would be designed for you to build, like Wordpress templates, maybe.

You might not feel up to opening Fed Ex boxes in your driveway and putting the parts together in an afternoon, but the retired gentleman down the street might do it for a fresh-baked pie. Auto manufacturing for the cost of a pie? That's practically a Craigslist model.

Someone else might open a shop in town, hire some high school kids and put together these cars for people. And start to make a little money from a disruptive technology as the auto industry collapses.

Fed Ex and UPS would make some money, of course, as the ISPs of the personal manufacturing age. Auto parts suppliers would jump in this market, even though it means competing with their original customers, like the AP model.

Some people might still want the big Mercedes, the Suburban, the F-150, and lament the passing of professional automakers. Somebody would still have to build the trucks for Fed Ex and UPS.

Then people would ask why General Motors didn't invent the iBilt.

Then iBilt Corp. would be bought out by Google, Ikea or Lego.

Brian Cubbison

11:43 AM  
Anonymous Evil Pundit said...

Dave D. raises an interesting point of possible difference between the motor industry model and hat of the news industry.

Did the car industry in the 70s actively work to produce large numbers of ex-consumers such as Dave D and myself, who loathe the industry and would love to see it bankrupt?

Was there a significant number of American car buyers who not only sought out better value for money in Japanese cars, but had come to despise American cars so much that they would not only refuse to buy them, but actively encourage their friends and neighbours never to buy one again?

The news industry has deliberately alienated anything up to half its potential audience, as seen by the comments on here.

Has there ever been an industry which committed commercial suicide in this way, turning its former customers into active enemies?

1:59 PM  
Anonymous Auto Industry Writer said...

Your story is emblematic of Detroit c 1977, and some of those attitudes remain. A few things have changed, though.

First, Ford got an outsider as CEO, Boeing's Alan Mulally. He instituted the management accountabilty that no member of the Ford family had been able to, and is turning Ford into a single company that develops cars for any market in the world and builds essentially one entry in each segment rather than a separate car for each continent. The first fruit of this strategy (the Fiesta subcomopact) will arrive in the US as a 2010 model.

Second, the quality difference between US and Japanese brands has narrowed almost to irrelevance, as the entire scale has moved toward better reliability. Excellent quality is now the price of entry, and every carmaker knows it.

Finally, Detroit has gotten the message about fuel economy. But it takes four to five years to put a new car into mass production. Two years from now, there will be vastly better small cars on offer.

Detroit is paying the price for half a century of arrogance--not to mention battling every single effort to regulate its products in any way. That includes seat belts, which they fought viciously.

In some ways, Michigan is one of the least culturally progressive areas of the country. And that's now a huge problem.

There's a 50-year history of the Big Three setting up research units or advanced design groups in Southern California, where most auto trends start. Their advice--build small cars / build small pickups / build fun-to-drive FWD cars / build high-mileage cars--was routinely ignored by executives.

When soccer moms drive three-ton trucks and tow three-ton boats on weekend trips--and that's normal in your local culture--you may assume the rest of the nation / world lives that way. Perhaps it may be a nice way of life, but America no longer lives the way Michigan does (or perhaps even aspires to).

And I think that's the core of the problem. Detroit is no longer the center of the universe, and it's taken far too long for THAT message to sink in. Their way of life is largely irrelevant to modern global challenges.

The sad part is that the smarter execs there know that, but the cultural inbreeding prevented movement until it was too late.

4:17 AM  
Anonymous James Raider said...

Alan,

Stumbled across your site, and found an enjoyable read. Thanks.

I'm also enjoying your meanderings on the changing face of the news media, and three cheers for signs of its evolution.

As for the U.S. owned corner of the auto industry, the shift may come faster than its executives ever anticipated. IMHO it should be bailed out, but the plan should have teeth, and the oversight should not be relegated to Congress....

http://pacificgatepost.blogspot.com/2008/11/solution-for-detroit-gm-friends.html

There is much creative talent hidden inside the U.S. Big 3 that has been smothered by mismanagement and the UAW. ... and they actually "make" something, .... unlike Wall Street.

... looking forward to more from you on this news business. Keep up the good work. It will also be going through radical, and likely sudden shifts its executives had not foreseen.

2:31 PM  

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