Jack Yan
JY&A Consulting
With Detroit’s dire financial state now publicly revealed, Jack Yan follows up his earlier paper with a discussion on how the Big Three can be saved
Jack Yan1
Jack Yan is founder and CEO of Jack Yan & Associates and president
of JY&A Consulting.
Executive summary
GM, Ford and Chrysler need to make use of the global market-place to source
vehicles—many of which they developed for foreign markets—to give
US consumers what they want immediately, while they do a proper rebrand and
reinvent themselves as global organizations, not political ones founded on internal
oneupmanship
It seems the $14 billion loan that the US automakers wanted from the government
has failed to get past the US Senate.2
The doomsday scenario is that one of the Big Three could collapse, which sounds
like the usual panicked exaggeration American media and businesses are so good
at doing.
A big consideration is employment—the UAW, however, was cited
by some politicians as a reason things didn’t go well in the Senate3—but
the other big consideration is American prestige, the idea that the Big Three
represents American industry. They certainly represent American commercialism.
And, in many respects, the arrogance and failure of American industry.
Essentially, the way the Big Three have gone about business for
the last 40 years was unsustainable and irresponsible.
In terms of the car line, Chrysler has the weakest one—then
again, looking back through history, it always had. The company isn’t that
tenable, despite having once been America’s leanest, quickest automaker
in the mid-1990s. People won’t want their cars, simply because they don’t
have much cachet, with a few exceptions such as the minivans and Jeeps.
GM is running out of cash. But GM is probably quite well organized
considering its size. It has done a lot to consolidate global platforms and
form centres of excellence. Critics say it has too many brands. A
paper I wrote earlier in the year4
disagreed, but that was before we all heard how little cash GM had left.5
If it won’t sell, then I do agree some brands could go—or at least
be withdrawn from the US market. (It’s hard to envisage Saab disappearing
from Sweden, for example, where it is strongest; just as Daewoo has remained
in Korea or Holden in Australia and New Zealand.)
GM came some way in reinventing itself: Bob Lutz became a visible
car guy, a product champion for its various outposts, recognizing that it was
possible to globalize the company. He can only go so far, and more work needs
to be done. It has actually begun doing the work that needs to be done for long-term
survival and probably deserves some aid. What it really needs to show the American
people is just how quickly its promises can be fulfilled.
Ford wants a credit line. That’s not too bad, but Ford needs
to show the American people that it isn’t a company hell-bent on divisional
back-stabbing. Go to any forum where Ford’s European and Australian models
are mentioned and Americans will be there, curious why they can’t get some
of the best models around. Answer: Ford North America always destroys the chances
of foreign-developed models, even if American money was used to create them.
The American reaction, because its industry is so focused on quarterly
results, is to cut factories or staff. History has shown us, in Britain, that
reducing economies makes one less competitive. That was what caused British
Leyland to ultimately collapse in 2005. And as for the excuse that the Japanese
do not have unionized plants in the US? Many European car makers have unionized
labour, yet they aren’t in the sort of trouble that the Americans are.
I didn’t oppose a bailout or loans, on the condition that
there was serious reorganization of the automakers. This probably takes a far
grander effort than the CEOs were willing to admit. We are talking massive cultural
changes and rebrandings—and not the weak sort of rebranding that Madison
Avenue sometimes convinces its clients to do. We are talking Medinge Group-style
rebrands.
And what of the product lines themselves?
Most Europeans will argue that the Ford Ka and Fiesta are superior
to the Toyota Vitz; that the Focus—not the pensionable one sold in the
US—is superior to the Corolla; that the Mondeo beats the Camry hands-down.
Similar arguments would apply to GM’s Opel products when compared to the
Japanese.
They’ve never made it across the Atlantic because of Detroit’s
politicking: the marketing departments have had a history of scuttling their
promotions. (Ford Australia has a very good rear-wheel-drive platform underpinning
its Falcon, albeit smaller than the Mondeo in most key dimensions; Americans
only need to look at arch-rival Holden, GM’s Australian outpost, which
was responsible for the full-size Pontiac G8—good-value, bang-for-the-buck
motoring.)
Granted, the strength of the euro against the US dollar has been
a concern for the cars made in Europe, but the simple truth is that all these
cars could have been tooled up for US production years ago—reaching economies
of scale.
This is not a new lesson at all. The Japanese have engineered
worldwide platforms for their models. There may be sheetmetal differences, but
the basic vehicles are the same globally.
Honda may sell an Accord in the US that looks different from the
one in Europe and Japan, but the Japanese one is sold in the US as an Acura,
and the American one is sold in Japan as the Inspire.
There’s no Ford Taurus outside North America except when
it is badged a Volvo; and no one would touch the American Focus, based in the
1999 model, when the compact car market has moved on so far and most of the
world, excepting parts of South America, have had the second-generation Focus
for years.
American automakers have ignored their consumers, again, but it
was so very obvious if any of them had bothered to read websites and blogs set
up to evangelize their companies.
And they ignored their own experiences, when the Japanese trounced
them at their own game in the 1970s. Only their European divisions really learned
anything in creating world-class rivals to Toyota, and Honda.
The Koreans are biting hard because they, too, are fielding product
lines in the niches that American consumers actually want.
So let’s start with some hard solutions, ignoring some basic
facts about the time it takes to tool up.
Ford needs to field a regular car line. It’s done OK on the
niches and the trucks. So that means US sales for Ka and Fiesta, just as Alan
Mulally has said. But it needs to happen ASAP.
Would the Polish-built Ka be too expensive? I doubt it, but the
old-platform and recently rebodied Ka subcompact from Brazil could be a stop-gap.
The Ford Ecosport could definitely work Stateside: a subcompact
SUV that’s also frugal. Import now.
Focus needs to be updated now: if the Mexicans can have the newer
C307, why can’t more affluent Americans? Ford’s excuse was that C307
would be overpriced for the US—yet the Mazda 3 gets imported there, and
it is on the same platform. It’s more of Ford’s “not invented
here” syndrome: sell crap to the Americans because the good stuff wasn’t
developed in Dearborn. Result: people buy a Corolla.
Fusion has had success Stateside, but it and the Mondeo need to
be brought together as a single car line—which they will be.
I personally believe Taurus and Falcon occupy the same segment
(even though Taurus is D-sized and Falcon is E in Ford-speak) and need to be
brought on to one platform. The Americans are talking about front-wheel-drive.
I think this is a mistake, for both the US and Australia.
When the economy rebounds, a rear-wheel-drive sedan at the top
of the range that could form the basis of a Lincoln is going to be important;
not to mention a Mustang platform.
GM, too, needs a regular car line but the trouble is all its brands.
I had advocated keeping them, if GM isn’t going to go into
Chapter 11 to get around paying dealers off.6
And before one argues that Toyota only has three brands, bear in mind that in
Japan, it has many dealer networks, which stock what appear to be overlapping
lines. It’s almost like having divisions. What they have done right is
to make sure that the model lines have common bases and that when cars overlap
in terms of size and power, that they have distinct characters. Hang on—that’s
exactly what American automakers have been doing.
There’s little in common between the Daewoo Gentra and the
Opel Corsa. The Gentra is the inferior car. Yet that’s the basis for the
Chevrolet Aveo.
Aveo is doing well in the US, and GM has said its successor will
share a base with the next Corsa. However, what’s stopping the Corsa going
to the US, maybe as an entry-level Saturn? GM needs to use the resources at
its disposal.
Saturn buyers want quality, anyway, so a full line of subcompacts
would work in that range—Corsas from Spain and Merivas from Brazil fit
neatly into the range overnight. Let other GM dealers convert to Saturn if need
be. Or brand these as Chevys.
Just because no one has sold a Meriva-class vehicle Stateside
before is the very reason GM should do it. The Zafira would also work Stateside.
Move up the Chevrolet Cruze launch and bring in rebadged Daewoo
Lacettis until domestic Cruze production begins. At least this car shares a
platform with the Opel Astra.
Ship in Chevrolet Vectras from Brazil—these are actually
Opel Astras, already selling at Saturn.
Bring in the Opel Insignia as a Buick, just as in China, and field
a car that has the potential to beat the smaller Lexuses. It doesn’t matter
if it’s priced higher than a Malibu.
If need be, let Saturn have the Insignia as well, with a different
grille. This is no time to be fussy about the two cars looking too similar:
it’s about selling more of the cars that people want.
In fact, being cleverer about the interchangeability of panels—as
the Australians have done for years—means the Commodore doesn’t need
to be just a Pontiac G8. Why not a Chevrolet Impala, with a diesel? It’s
certainly big enough and roomier than the Malibu—which the current Impala
isn’t. And GM has a diesel on the cards for this model. The Holden Statesman
should always have been a US Chevy Caprice—the name it sells under in the
Middle East. (I always thought a Commodore with a Statesman grille could have
been a Buick LeSabre, but that’s another story.)
Pontiac could well be trimmed to a few specialty performance lines
with one of the mainstream brands pushed to dealers to fill the other niches.
Saturn-Pontiac won’t overlap much.
At least get the sales moving so the US plants can retool for
models buyers want.
In all this, I have ignored the minivans and SUVs, but even there,
there can be some consolidation.
Ford and GM have not been able to match Chrysler’s minivan.
It’s already sold under three brands already—Chrysler, Dodge and Volkswagen—so
what’s stopping it being sold under a few more for its competitors?
I don’t like this idea but we are talking about survival.
But again the companies are missing out on economies. Mazda’s
MPV could have been a good Mercury Villager, but no one saw that possibility.
GM should really talk to Chrysler about the minivan and convert existing lines
to passenger cars.
If the trucks are still doing all right, then they can be left
for now.
Chrysler has some appalling cars like the Avenger and Sebring.
Most have not captured the imaginations of US buyers other than the 300. Its
former Japanese ally, Mitsubishi, isn’t exactly in a good state itself.
But the Mitsubishi Colt could still be a good Dodge Colt under an OEM deal.
Other OEM deals with a company like Peugeot, looking for returning to the US
market and the owner of what was left of Chrysler Europe, could provide American
buyers with some excellent compacts and mid-sized cars immediately. A Peugeot
207 with a Dodge Omni badge? Don’t laugh. I like this car more than the
Toyota Vitz.
As to domestic production, it will take some time to change things,
but a vehicle on the Citroën C5–Peugeot 408 platform might just work
in the future.
It’ll never be a big firm, but a licensing deal might be
the best thing Chrysler can get in the immediate term.
If Peugeot isn’t a good partner, then Volkswagen has a heck
of a good operation in Brazil that once sold cars in the US. Since Chrysler
already makes the Touran for Volkswagen, this is merely the arrangement going
the other way. (There’s also Fiat, but it wasn’t that long ago they
worked with GM.)
While the old Volkswagen Voyage, Amazon and Gol—sold as the
Fox in the US—weren’t fabulous cars, they’re better than having
nothing.
Volkswagen has moved on since those days with a very pleasing,
if plain, Gol, that could wear a Dodge badge and slot below the Caliber. The
current Volkswagen Fox and the faux off-road CrossFox could work, too.
Neither are refined but it would put Chrysler into a segment that it does not
fight in—and yet people want cars of that size.
Dodge already sells Hyundais in some countries.
Not all of the above will be palatable to car fans out there.
I know that. But I am thinking of the US market and what people might want right
now. The whole idea of globalization, the agenda advanced by these very corporations
now in trouble, can be used to benefit the American consumer when it comes to
the automobile market. In GM’s and Ford’s case, the profits from these
cars are going into their own pockets anyway. They’re not paying another
company to make them: their own factories make them.
Chrysler will have to swallow more of its pride and buy someone
else’s product, but it’s not exactly a new road for the smallest of
the Three.
While these cars go on sale, the Big Three need to keep their
eyes open, watch how cars their own companies develop in other countries fare
in the US, and begin seeing their firms as proper global organizations that
have so much unused intellectual capital. Insular thinking and arrogance got
Detroit into this mess and the very opposite—e.g. admitting that the Germans
have been developing better cars than the Americans, even under a US-owned banner—will
get it out.
Notes
1. LL B, BCA (Hons.), MCA. CEO, Jack Yan
& Associates (http://jya.net); Founding Publisher,
Lucire (http://lucire.com); Director,
the Medinge Group (http://medinge.org). Copyright
©2008 by JY&A Consulting, a division of Jack Yan & Associates.
All rights reserved. No part of this work may be reproduced in any form without
the written permission from the copyright holder.
2. P. Tait: ‘US auto bailout crashes’,
Reuters, <http://www.reuters.com/article/usDollarRpt/idUSSP23660320081212>.
Sweden, meanwhile, has managed to offer a Kr 20 billion plan to provide loan
guarantees. ‘Sweden offers $3�4 billion auto bailout’, CNN Money,
<http://money.cnn.com/2008/12/11/autos/Sweden_auto.ap/?postversion=2008121108>.
3. D. Shepardson and G. Trowbridge: ‘Rescue
collapses as Senate rejects aid for auto industry’, The Detroit News,
<http://www.detnews.com/apps/pbcs.dll/article?AID=/20081212/AUTO01/812120370/1148>.
4. J. Yan: ‘Saving Detroit, by not making
the same old mistakes’, The Journal of the Medinge Group, vol.
2, no. 1, 2008, <http://medinge.org/journal/20080830/saving-detroit-by-not-making-the-same-old-mistakes/>.
5. Another excellent article by Paul Ingrassia
outlines some of GM’s position. P. Ingrassia: ‘The case for Chapter
11’, Condé Nast Portfolio, December 2008, pp, 65-6.
6. See also ibid.