By Laurie Harbour-Felax, President,
How are the auto companies progressing halfway through the government-mandated 90 days to develop a plan for long term viability? Vehicle sales are still low. 2008 ended with a record low, and January is not looking any better. Each company has impressive vehicles and had a good showing at the recent North American International Auto Show in Detroit. However, consumers are still having difficulty getting credit, and without credit, sales will struggle. This will continue until the government and banks free up credit such that consumers will be able to spend, which should spur car sales again.
The most required investment for the Domestic 3 OEMs is in marketing their companies, brands and products. In past months the companies have taken a beating by the press and during the Congressional hearings. Congress and national media painted the Domestic 3 as old school, stodgy auto companies that are not competitive today. The companies have led poor marketing campaigns for themselves in the past and this situation makes it worse. Changing consumer perceptions is a big mountain to climb, and the companies must invest to get to the top.
Thanks to the government support, many new programs have restarted, but only those critical programs that fit the future product forecasts. These programs were put on hold in late 2008 due to funding but many are back on and are critical to the revival of the companies when the market returns after 2010. Controlling cost will be critical in new programs and is where the companies begin to separate in execution. Each company must design, engineer and manufacture new programs with dramatically less cost than previous ones. This means design efficiency and not reinventing the wheel. The best companies are designing common architectures for global penetration. And not just platforms but common architectures: subcompact, midsize, luxury and minivans all built in the same common approach and can run through any manufacturing system. They all have unique outer skins but the architecture used is common. Once common architecture is established, programs teams are saving money globally by sharing and commonizing parts across programs and models. This is saving billions of dollars and needs to be done at a higher pace and degree than currently within the domestic OEMs.
Ford didn't ask for funding support because they believe they can weather the storm with their current cash. They have done a great deal to reduce cost internally, but it's unclear whether it is long-term, sustainable cost reduction. They are just beginning to work on common architectures and global component sharing. They have tried previously, but each new engineering vice president had a new plan and upended the previous plan. Consistency is required. Without design and engineering efficiency they will not achieve required long-term flexibility and with a struggling product line they will be in need of support from the government soon rather than later.
Chrysler is difficult because there is constant questioning of their long-term viability and a push for a Chrysler and GM merger. This company is the most vulnerable. Many programs are still on hold, they have lost some real talent, and, most importantly, they are owned by private equity with a much different strategy than public companies. I predict a merger or sale to another entity in the not-too-distant future.
General Motors is best positioned for long-term viability, even though they looked the worst in the hearings and have the least amount of cash. With better public relations and sharing of their detailed long-term plans and recent results with new programs they introduced in Europe and the U.S., they can easily prove they are years ahead of domestic peers in execution of design efficiency, competitive engineering, and some of the best manufacturing plants in the country. GM's current processes and systems in place today are as competitive as their Japanese counterparts. The problem is that real savings won't be seen until programs are launched in the next couple of years. And just when savings would have begun to hit the bottom line, the market fell apart and people stopped purchasing, affecting top-line revenue. Reality is GM has done more than most to control below-the-line cost, now it's a revenue problem.
No doubt support from the government was needed and unfortunately was a long time coming. There is much work to do in the next 60 days to prove to government and more importantly consumers that they are prepared for the future. That said, a lot still rides on government and the financial system: the best plans in the world by the Domestic 3 will mean absolutely nothing if there is no credit to buy vehicles and if American consumers do not regain their confidence in the domestic companies.