Removing The Deck Chairs From The Titanic

That’s what is happening at General Motors. Having cast tens of thousands of families into financial jeopardy, eliminated tens of thousands of jobs, shuttered plants across the country, and reduced health and other benefits for current and prior employess, the weakened auto giant yesterday announced a cut in dividends for shareholders as well as reductions in pay for senior executives and board members. All of which keeps GM steadily on course for disaster. Yes, they’ve gone beyond rearranging the deck chairs. But, tossing chairs off the sinking ship won’t save this ship from sinking.

GM sells cars to customers. That means the company must attend to both the price of those cars and their value. For any market segment — young people, folks interested in saving the planet, muscle-boys who love power, and so forth — the prospective auto buyers and leasers weigh feature and function and image against price. Low prices are critically important and lowered costs provide the chance to sustain them. But, value matters too.

Consider Toyota, rapidly overtaking GM as the number 1 auto maker in the world. Toyota moved aggressively several years ago to ensure they were not reliant on a product line up heavy with gas guzzling SUVs. GM didn’t. Toyota invested in hybrids. GM didn’t. Toyota created and put heft behind cars designed for young adults. GM didn’t. Toyota also managed it’s costs. Better than GM. But, the key here is that Toyota looked at both sides of the consumer value proposition. GM stayed strictly inside the box on value — SUV, SUV, SUV, SUV — and moved slowly on costs. Now, GM is betting strictly on costs.

It still doesn’t ‘get it’ when it comes to the value side of it’s products. As previously noted, GM invested heavily in product design and manufacturing flexibility — that is, the capacity to move quicker to provide new products. It can now bring 15 new products to market quicker than ever before. And, what are the deck chair managers doing with this flexibility.  13 of the new products will be re-designs of full size SUVS. 

13 out of 15 are bets on the past.

It’s no surprise then that Toyota made billions in 2005 while GM lost billions. Or, that Toyota’s market capitalization — the value shareholders put on the future health and well being of a company — is $188 billion or 14 times higher than GM’s.

If you were a bright, enthusiastic car designer, which company would you want to work for? If you had the talent and energy to have a choice in life about jobs and loved automobiles, where would you want to work?

To be sustainable, any company’s performance must deliver value to targeted customers who generate returns to shareholders who provide opportunities to the people of the enterprise who deilver value to cusotmers…. and on and on and on. This cycle of reinforcing performance can be positive (like Toyota’s). Or negative. At GM, the board of directors and the executives think they can cost cut their way to prosperity. It won’t work. They might be able to toss some chairs off the ship. But, this ship — the ship they captain — is sinking.

Posted by Doug Smith on February 8, 2006 01:51 PM | Permalink

Trackback Pings

Listed below are links to weblogs that reference Removing The Deck Chairs From The Titanic:

» Rearranging Parking Spots At Ford from Douglas K Smith
A few weeks back, on the heels of announcing the loss of tens of thousands of jobs, Ford Motor Company sought to build enthusiasm for it’s future by announcing that only Ford-driving employees would be permitted to park near the… [Read More]

Tracked on February 19, 2006 02:44 PM

Leave a Reply

Your email address will not be published. Required fields are marked *