A Different Kind of Car Company Crisis

Remember car maker Saturn’s slogan? A Different Kind of Car Company. The sad Saturn story is key to understanding the real but often overlooked problem with the North American auto sector. It’s not just about cash. It’s about the culture.

In the 1970s, products made in Japan were the object of derision, including their cars. The early imports from Toyota and Datsun were pretty lame. But they had one thing going for them: they were small. Had it not been for the oil crisis, Japanese automakers may never have established a beachhead in the US.

Detroit famously underestimated their asian competitors, whose quality improvements are now legendary. The “Energy Crisis” soon blew over and Detroit’s foray into the small car market lost steam. Despite the emerging threat from Japan, Detroit was resistant to change. But why?

For a host of reasons that are the subject of myriad scholarly papers and erudite business books, large, well established organizations have great difficulty changing, even when faced with their own demise. Endless “innovate or die” sermons fail to inspire the needed change.

Saturn was a ground breaking attempt by GM to avoid the “die” part of the sermon. Recognizing that rapid and radical change within GM was unlikely, they created an entirely new company, a different kind of car company, Saturn.

And the innovations came fast and furious. Plastic car bodies that never rust and resist dents. “Haggle-Free” pricing overcame show-room phobia. This new “user friendly” car buying experience was particularly attractive to women, whom Saturn wisely recognized was an untapped market.

Inside Saturn, managers tried to “flatten” the organizational structure, eliminating stifling hierarchies, promoting cross-functional teams and a “family” atmosphere. Saturn was a visionary experiment aimed at building a company of people who cared as much about making better cars as their Japanese counterparts.

Sadly, it didn’t work, and the failure of Saturn provides a metaphor for the failure of GM. Saturn could not match the Japanese on quality and therefor could not demand premium pricing. Smaller economies of scale for Saturn meant higher per unit costs, further hurting the bottom line. To make it, they had to sell for more, not less. But why could they not squeeze out the quality?

Japanese corporate giants have a long standing compact with their employees: give us your life and we will employ you for the whole of that life. Sacrifice everything for and you will never have to worry again. You do not work for Toyota, you are Toyota. From top to bottom, from mechanic to manager, personal goals and aspirations are interwoven with those of the firm.

In the North American corporate behemoth, by contrast, worker is pitted against management in an epic struggle for control. Company-wide egalitarianism and fair play are regarded as a delusional fantasy. Vast and excessive hierarchies fuel dysfunction in a Dilbertesque world where the incompetent lead the unmotivated. It’s a corporate culture that breeds failure.

Such is the plight of GM. It wants to change, it wants to innovate, it wants to compete, but it can’t, at least not to the degree it needed to to survive. It can’t change because it’s culture is hard-wired to resist it.

The current economic crisis cannot be blamed for the demise of GM. A company with GM’s resources and assets should have been able to weather this storm.

The solution? First of all, the focus on corporate culture needs to step out of the halls of academia and into the mainstream. Understanding organizational behavior can no longer be relegated to the status of a passing management fad. It’s real. And it’s serious.

GM should teach us that we need to rethink how human, intellectual and financial capital interact in the context of the large corporation. Smaller, entrepreneurial companies already get it. Ultra Mega Corps try to mimic the “entrepreneurial culture” of the start-up, but it’s often just gloss and showmanship. It plays well in the annual report.

Practically speaking, the reinvention of GM will need to do away with the concept of the labor union. Workers and management can no longer afford to be on opposite sides of the table. Workers will need to be company builders, not just car builders, and they will need to be rewarded like company builders, through a stake in the equity and decision making.

The CEO and top brass will need to embrace and practice a flattened management structure committed to knowledge sharing and innovation. The CEO and key managers will need to have come from within the company and enjoy the trust of all sides. A new mission and vision will need to be created, and not just some BS fluff that no one cares about. It has to be real and serious.

For GM 2.0 to succeed, it will need to be as innovative in reshaping it’s culture as it is reshaping its cars. I predict that it will. It’s do or die, again.

Story Update

Two days after I posted the above reflections, Saturn was sold:

GM to sell Saturn to Penske
Penske Automotive Group, owned by racecar legend Roger Penske, will buy GM’s castoff brand.

http://money.cnn.com/2009/06/05/news/companies/saturn_penske/?postversion=2009060511

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15 Responses to A Different Kind of Car Company Crisis

  1. Cool Blue says:

    It didn’t help that Saturn cars were ugly as you know what.

    Unfortunately over the last few years their cars got a lot nicer looking, but too little too late I guess.

    • dbrett says:

      Good point Blue, but Toyota and Honda did not grab market share because of the look of the product. People said “this is a well made car” and which held its resale value due to superior reliability.

      A Camry is still the blandest looking car I’ve ever seen. Saturn had to beat them on value and they didn’t because they could not overcome the culture nightmare.

  2. Thucydides says:

    “For GM 2.0 to succeed, it will need to be as innovative in reshaping it’s culture as it is reshaping its cars. I predict that it will. It’s do or die, again.”

    I predict it will not. There is no incentive to change now, indeed since Government Motors serves the dual purpose of being a political payoff for Obama’s supporters and a vehicle for “Green” social engineering we will see the hands out again and again, and endless payoffs at your and my expense.

    Second prediction; the Chevy Volt will become the vehicle of mandated choice for government agency fleets to “prove” that an overweight and underpowered gee whiz science project is actually a viable product.

    Everyone will then proclaim the company and product is a success, just don’t look behind the curtain….

    • dbrett says:

      GM will emerge in some form, but I agree it will not be “GM” as it now exists. The demand for automobiles is vast and will ensure that “GM,” like Schwarzenegger, will “be back.”

  3. Durward says:

    There was nothing wrong with the American auto industry pre emission control regulations that forced them to build crap to meet the regs.
    Government interference first cost them a huge amount to redesign their plants to build the small cars few wanted, then governments used the loan money the car companies required after losing money building cars that did not sell and only created the image of cheaply built American cars as a tool to force more hiring as a condition.
    Just like the housing crisis it all leads back to government interference in the free market.

  4. dbrett says:

    Good point Durward but I cannot agree with you. The emission regulations were imposed on all the competitors at once, and therefore provides no excuse for GM.

    GM needed to outdo the competition on quality and they failed to do that. Not for lack of trying. Like Brando’s famous line, they “coulda bin a contenda,” but something went wrong.

    But ya gotta love the Escalade for pure hedonism. If you got one, keep it. Collector car of the future.

    In the 70’s I drove a Chrysler New Yorker given to me by my uncle. Goldie we called it. As the song says, it was “big as a Whale and fit around 20.” I sold it for peanuts but now I wish I kept it.

    Nostalgia. Another reason GM will “be back.”

  5. mac davis says:

    Dave:

    I linked from the Cap Project site to yours. I appreciate a voice of reason compared to the generally biased Regent take on economics. I know this is off topic, but I wanted to encourage you to continue engaging with the capitalism project as will I in the future.

  6. dbrett says:

    News Flash:

    GM to sell Saturn to Penske
    Penske Automotive Group, owned by racecar legend Roger Penske, will buy GM’s castoff brand.

    http://money.cnn.com/2009/06/05/news/companies/saturn_penske/?postversion=2009060511

  7. Drewtiss says:

    Even my ford performance parts dealer is sad for the near demolition/extinction of the Saturn vehicles. I wish they could come up with something.

  8. dodge parts says:

    I do hope that the economic crisis end would be nearing. A lot of people are extremely affected. This is a really sad reality. People are getting poorer and are suffering.

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