02.20.09
Companies Suffer When They Devalue Their Staffers
Well-trained, motivated staff is the key that gives most businesses any value they have. A recovery plan for business that concentrates on getting rid of "productives" will produce at best a temporary reprieve.
I have been a fan of Ford Motor Company and its products since my parents bought a Country Squire station wagon when I was seven years old. And while Ford is not as bad off as GM or Chrysler, it still suffers from the effects of mismanagement.
Over the past several years, while Americans were binge-buying big trucks and SUVs, Ford was doing really well. But we have seen over the years since the late 1970s that there is a periodic oil price spike, which knocks the sales of big vehicles through the floor. The automakers then lay of thousands, close a couple of plants. They announce smaller, more fuel-efficient vehicles. By the time those vehicles hit the market, the crunch is over and Americans want to buy big vehicles again.
Both Ford and GM have multiple sales divisions with overlapping lines of vehicles. The cheapest way to deal with that is to build a single platform and then use mostly cosmetic differences to distinguish the products. Ford’s moribund Mercury brand tends to sell repackaged versions of the Ford brand's vehicles.
Now, one of the reasons the Detroit automakers focus on big cars is because they lose money on every small car they sell. We are told that this is because of union health and retirement benefits. This may well be partially true. But what we are not told is that the automakers are not suggesting that everyone in the company from the top on down take a drastic cut in their total compensation. They are suggesting that their hourly-wage productives take the deep cut, while the salaried management gets away relatively unscathed. I would like to suggest that if the managers took permanent 50% cuts, the unions would find a way to swallow similarly deep cuts.
Part of the problem with the automakers is that the industry is so concentrated. If there were still 100 separate "major" automakers in this country, there would always have remained some that were not controlled by the United Auto Workers, and the absence of union control would have acted as a brake on union demands, just as it would have acted as a brake on management salaries. In other words, a big reason that our automakers are in trouble is because they are not small, locally-owned businesses (SLOBs) any more.
We can see this principle in other areas. Microsoft, which still has nearly 90% share of PCs sold, is having some problems of its own. Its problems, however, are purely the result of its own arrogance, brought on by its rapid ascent to the top of the heap and then the extinguishing of nearly all competitors within that heap. It is hard to believe that stores like Best Buy would still be selling computers with Vista preinstalled if most people were willing to take the best product (where best equals most able to meet their needs) even when it is not Windows / Microsoft Office. Yet, as Netbooks and the rise of Macintosh & iPod / iTouch / iTunes / iPhone have shown, increasingly, end-users are willing to change, something which is a long-term threat to Microsoft's ability to charge higher prices for its products.
How can Detroit recover, then? Well, I think that part of the answer is an all-in reduction in pay. However, it cannot be like the Chrysler reduction that Lee Iacocca took. Remember, he made $1 per year until Chrysler came out of its slump, then got a bonus. That won't work this time. If the automakers want to stay in business, they need to make their employees their partners, reducing or even eliminating the industrial age separation between managers and productives. This is not a complete answer. A part of their problem is in the choice of models they produce, and that cannot be fixed by singing kumbaya around the campfire. And, yes, a big part of the problem is the financial distress that makes lenders reluctant to finance car-buyers. Again, labor and management cannot fix that problem.
