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Ford: Epiphany in Dearborn | The Economist

December 9th, 2010 Comments off

Here’s a lengthy piece from this week’s Economist magazine that outlines the culture shift at Ford that has allowed it to survive (and thrive) while other automakers required bailouts.  The opening paragraph says a lot about how things began to change:

SOON after Alan Mulally arrived as Ford’s chief executive in September 2006 he organised a weekly meeting of his senior managers and asked them how things were going. Fine, fine, fine, came the answers from around the table. “We are forecasting a $17 billion loss and no one has any problems!” an incredulous Mr Mulally exclaimed. When he asked the same question the next week, Mark Fields, head of Ford’s operations in the Americas, raised his hand and—in what once would have been a moment of career suicide—admitted that a defective part threatened to delay the launch of an important new car. The room fell silent, until Mr Mulally began to clap his hands. “Great visibility,” the new boss added.

From a strategy standpoint, culture is often ignored because it can be one of the hardest things to change.  That, however, doesn’t meant that it isn’t necessary to address.  It appears that Ford has been able to go down a path of culture change that is necessary to be a world-class competitor today.  Sometimes even companies have to hit rock-bottom to realize that things aren’t “fine.”  Sometimes even then it is too late to recover.  I recently read a great book called Dethroning the King: The Hostile Takeover of Anheuser-Busch, an American Icon that detailed the complacency of management at Anheuser-Busch prior to being purchased by InBev a few years ago.  The executives at A-B realized too late that changes needed to be made and it was only when they were about to be swallowed up that they even tried to act.  For them it was too little, too late.  It appears, for now, that Ford has been able to avoid a similar fate.

Read more at: Ford: Epiphany in Dearborn | The Economist.

Fiat plays double or quits with Chrysler

November 28th, 2010 Comments off

Photo credit Familie Gevaerts on Flickr

Auto makers tend to get more focus in strategic management accounting discussions than participants in any other industry.  They also seem to take paths that have led before to failure so it is kind of like watching a slow-motion train wreck at times.  Fiat’s flirting, engagement, and soon-to-be full-fledged marriage to Chrysler could be another disaster in the making…or it could be pure genius as two borderline competitors join forces to latch onto economies of scale currently enjoyed by bigger players.

Returning to a country from which Fiat was driven out by poor quality—Americans used to quip that its name stood for “Fix It Again, Tony”—is a big risk. But the reward is to get back into one of the world’s largest markets and gain the scale that will promote Fiat from a smallish European firm (albeit with a successful business in South America) to the ranks of global carmakers. Its home market in Italy is too small, and its operations there too uncompetitive, to provide the basis for long-term survival. Merging with Chrysler will mean sharing development costs and technology, but will also mean having to turn around an ailing firm with competitiveness problems of its own. In sum, Fiat is playing double or quits.

The Economist has a nice summary of the current position of Fiat and some of the risks involved in the near-term.  With Fiat’s plans to open dealerships (inside existing Chrysler dealers) to sell the Fiat 500 next year, this will be interesting to watch in the next year or two and I’m sure the executives at former Chrysler suitor, Daimler, are scratching their heads (or perhaps laughing).

Read more at the Economist:

Carmakers: Fiat plays double or quits with Chrysler | The Economist.

Toyota Image as Quality King Takes a Blow

January 27th, 2010 1 comment

With the announcement that Toyota was suspending production and sales of eight models in the United States and Canada (including the Camry, the most popular car in the US) the image of Toyota quality being the pinnacle of the industry is starting to crumble.  Although it appears that a single defect is responsible for this move, how Toyota responds to it in the coming days/weeks/months will impact the company’s image for years to come.  Below are a few recent links, but much of this story has yet to be written and this will be interesting to watch as things play out.  Are we looking at this decade’s Tylenol scare/recovery?  Will it go as badly as it did for Ford/Firestone?  It remains to be seen…

Toyota Halts Sales Over Safety Issue. Jay Miller. Wall Street Journal. (Eastern edition). New York, N.Y.: Jan 27, 2010. pg. B.2

In a stunning and unprecedented move, Toyota Motor Corp. on Tuesday halted sales of most of its popular models in the U.S. in response to growing concerns that possible defects may cause the vehicles to accelerate unintentionally.

The Japanese car maker, which long has been viewed as the leader in automotive quality, said it told its dealers to stop selling eight models, including the Camry and Corolla sedans, two of the biggest sellers in the U.S. market. Other models affected by the move include the RAV4 and Highlander sport-utility vehicles and the Tundra pickup truck.

The eight models represented 57% of Toyota’s 2009 U.S. sales. Toyota also said it will stop producing the affected vehicles at several North American plants for one week starting Feb. 1.

Toyota: Make or Brake.  From the Economist Online.

Toyota’s dash to become the biggest carmaker may have had unfortunate consequences. The pursuit of volume seems to have dented the company’s enviable record for reliability. In 2006, after another bout of recalls, the company promised a “customer first” strategy to restore its slipping reputation. But recalls continued and Toyota started to slide in customer-reliability polls while Ford, VW and others such as Hyundai, which added to sales in America last year, caught up.

Toyota Sales Halt Raises Quality Questions

Toyota Motor Corp.’s unprecedented decision to halt sales on its most popular models in the U.S. underlines the biggest question dogging the world’s No. 1 car maker: whether it has sacrificed quality in its quest to capture global market share.

The Japanese car maker, which long has been viewed as the leader in automotive quality, told dealers in the U.S. and Canada on Tuesday to stop selling eight models, including the popular Camry and Corolla sedans, in response to growing concerns that possible defects may cause the vehicles to accelerate unintentionally. The eight models represented 57% of Toyota’s 2009 U.S. sales.

Supplier Perplexed by Toyota Recall

When asked why Toyota would stop millions of its selling and producing some of its best-selling models if the problem identified only affected eight vehicles, Mr. Walorski said CTS officials were perplexed.

“We don’t know. You have to hit them up with that question. They’re they ones who did the recall,” he said.

He added that the story has attracted enormous media hype, which may have contributed to Toyota’s bold move Tuesday.

“Every day a new article comes out. There is a lot of hype out there,” he said. Of Toyota public relations strategy, he said “either they’re brilliant or they don’t know how to handle it.”

Free Trade Threatened?

September 15th, 2009 Comments off

economist_logoIn Chapter 12, we briefly discuss the legal aspects of pricing.  One issue that we discuss is a practice referred to as “dumping,” which is the practice of goods from one country being under-priced in a foreign market typically because a government subsidy exists in the originating country.  There is a situation brewing currently between the United States and China that has the potential to escalate into just such a contest.

Yet a decision by the White House to impose punitive tariffs (35% for the first year, falling by five percentage points a year, to 25% in the third year) on Chinese-made pneumatic tyres now raises serious doubts about Mr Obama’s commitment to free trade.

The duties are to be imposed on September 26th under a part of American trade law known as “Section 421”. The American government argues that these tyres are being imported into America from China in “such increased quantities and under such conditions as to cause or threaten to cause market disruption to domestic producers” of competing tyres.

Allegations of dumping crop up from time to time and measures such as tariffs or import duties are enacted to protect domestic producers of competing products, but this can have the effect of beginning a trade war where more and more regulation is put in place.  In the end, it can be difficult to even determine if the entire exercise was worth the effort in the first place.

Poultry and tyres sound like small change in the context of the economic relationship between the two big economies. But Eswar Prasad, a professor of trade policy at Cornell University and a former head of the IMF’s China desk, argues that the American action and Chinese retaliation may presage “more protectionist measures to come from both sides”. He notes that China could retaliate much more broadly than by raising a few tariffs: it could, for example, supplement its implicit export subsidies, including an undervalued exchange rate, with more explicit measures to support its export industries and block imports. This could “easily ratchet up into a broader trade war and inflict economic damage on both countries”.

It will be interesting to see how things pan out in the coming months.

America, China and protectionism: Wearing thin. Sep 14th 2009. From Economist.com

Experience Curve

September 15th, 2009 Comments off

economist_logoIn chapter 10, we look at many cost behaviors and one thing that influences costs is experience gained by companies.  Typically, the more experience a company has producing a particular product, the lower their costs.  The Economist has a short piece this week adapted from one of their publications that hits the highlights of the experience curve.  A related piece explores the growth matrix which you may have run across in another course or two.

The experience curve. Sep 14th 2009. From Economist.com

Growth share matrix. Sep 11th 2009. From Economist.com

Cars Are Commodities

June 4th, 2009 Comments off

Cars have become commodities now that consumers have loads of pricing information at their fingertips that even ten years ago they didn’t have.  Sites like TrueCar have come online recently to make the pricing of cars even more transparent and further swing the power toward consumers.  A Chevy Aveo at one dealer is no different than a Chevy Aveo at the one 5 miles away, yet many dealers continue to cling to business models that are loaded with fixed costs and obscure pricing methods/systems that are from a bygone era.

The Economist has a good analysis of the situation on their website comparing car dealers of today with travel agencies a decade ago.

Kicking the tyres. May 22nd 2009. From Economist.com

To top it off, there are reports today of dealerships that are lobbying in Washington (and politicians lobbying on their behalf) to stay open even thought General Motors or Chrysler have terminated their franchises.  Perhaps a better idea for the “new” Chrysler and GM would have been to terminate all dealer agreements and market automobiles using a new system that doesn’t have so many built-in costs…maybe we’ll get there someday (or maybe I’m way off base) but with the government now involved I expect it to be a slow process.

General Motors and the Long Road to Bankruptcy

June 4th, 2009 Comments off

The auto industry gets a lot of attention in this course…most of it negative and most of deserved.  The Economist made the General Motors bankruptcy its cover story this week in most of the world and published several pieces about the long decline of GM that led to this point.  Although the current economic situation is easy to blame, at best better times would likely have only delayed the collapse of the once dominant car maker.  The story of the GM collapse can be related to many parts of our course from working with the value chain (unions, customers), to quality concerns, to fixed/variable costs management, to closing under-performing segments earlier, etc.

The filings lodged at 8am with a court in Manhattan were testimony to the size and complexity of the 101-year-old company and to the scale of the problems that had finally overwhelmed it. Until 2008, when it was overtaken by Toyota, GM was the world’s biggest carmaker, producing well over 9m cars and trucks a year in 34 different countries. It has 463 subsidiaries and employs 234,500 people, 91,000 of them in America, where it also provides health-care and pension benefits for 493,000 retired workers. In America alone, it spends $50 billion a year buying parts and services from a network of 11,500 vendors and pays $476m in salaries each month.

The decline and fall of General Motors. Detroitosaurus wrecks. Jun 4th 2009. From The Economist print edition

The bankruptcy of General Motors. A giant falls. Jun 4th 2009. From The Economist print edition

Back To The Future at GM

June 1st, 2009 Comments off

The Economist posted what turns out to be a rather accurate piece that first appeared in print way back in 1989. In the context of what has happened in the 20 years since it was written it is very interesting to see many of the predictions (the biggest being the government rescue and bankruptcy) come true.

On a clear day you can still see General Motors. Dec 2nd 1989. From The Economist print edition

Cost-Cutting & Innovation in Developing Nations

May 28th, 2009 Comments off

As I have mentioned in class, The Economist does an excellent job at exploring the business world — with “world” being the key word.  Unlike many other publications that focus on larger companies/nations, The Economist often contains reports filed from outposts where other journalists dare not tread.  An article from the print edition being published today has been posted to their website and it highlights not only cost-cutting but some of the things we’ve talked about as far as the globalization of business and the fact that competition these days is not limted to XYZ Company down the street or in the next town — it very often can come from the opposite side of the world.

COBBLED together from carts, old cars and anything else to hand, the improvised vehicles used by Indian farmers are often known as jugaad. The term also has a much broader meaning—referring to an innovative, low-cost way of doing something—as goods and services are provided in India at a fraction of the cost of those in developed countries. Ingenuity is a necessity when resources are limited and customers have little money. In a global recession it also provides a way for companies in India and China to expand into foreign markets where consumers are seeking better value for money.

A snip at the price. May 28th 2009. From The Economist print edition

If you are interested in other articles from this week’s issue, there is a page that contains links to all the articles:

You may subscribe to the RSS feed of the Economist Print Edition using a tool like Google Reader or you can become an Economist Fan on Facebook to receive a weekly link to updated information.

Globalization and Mergers

May 19th, 2009 Comments off

As I mentioned last week in class in relation to the SMA Module and the question about Kodak/Olympus in the study assignment problems, more companies are operating in a global environment than ever before.  Even companies that don’t know they are operating in a global environment probably are just by the nature of their supply chain operating at least partially overseas.  The biggest example of globalization, perhaps, is when large multi-national companies form alliances or merge such as Anheuser-Busch and InBev last year or the current Fiat-Chrysler-Opel union that is trying to form now.

Today the Economist posted a lengthy piece on their website (I’m not sure if it will appear in print as well)  about this latter merger and it is worth reading for the insight it gives into the issues faced by Fiat trying to pull this off and the input/impact of the German and American governments on the process.

THE bold attempt by Sergio Marchionne, chief executive of the Fiat Group, to use the crisis that has overwhelmed Detroit to forge a three-way merger between Fiat Auto, Chrysler and General Motors’ European arm, Opel, has been greeted both with admiration (for his chutzpah) and scepticism (about his ability to pull it off). The sceptics say cross-border mergers in the car industry have a poor record and that Mr Marchionne is biting off much more than he can chew.

Marriages made in hell. May 19th 2009. From Economist.com

For a look at the downside risk of such a merger, one needs to look only at the situation a couple years ago that also involved Chrysler and one-time merger partner Daimler-Benz.

It was billed as a “merger of equals”, but in the end the participants could not make a go of it and their marriage failed. The break-up announced this week of DaimlerChrysler, a transatlantic carmaker created by the union of Daimler-Benz and Chrysler in 1998, involves the sale of 80.1% of Chrysler to Cerberus Capital Management, a private-equity group, for $7.4 billion–though once everything is accounted for, Cerberus is actually being paid to take the troubled American carmaker off the hands of the German company, which will be renamed Daimler.

Divorced. Economist; 5/19/2007, Vol. 383 Issue 8529, p67-68, 2p