The Reckoning*

Reuters reports (Hat tip: Steven Pedigo):

Toyota beat GM in quarterly sales for the first time ever, outselling its U.S. rival by around 90,000 units in the first quarter, making it the world's largest auto maker.

I've said it for a long time now: Toyota is the exemplary company of the creative age.  Martin Kenney and I first picked up on this nearly 20 years ago in The Breakthrough Illusion our study of high-tech competitiveness and Beyond Mass Production where we examined the power of Japanese production systems and their transplant into the United States industrial heartland that at the time was all but given up for as dead by US manufacturers. Toyota did this not by some great top-down scheme but by empowering its factory floor workers to use their knowledge, intelligence and creativity at the point of production to continuously improve and add efficiency to its processes.  In a classic study, John Krafcik, then a graduate student at MIT (look where he is now) reflected on his own personal experience at the original NUMMI plant, a joint venture between Toyota and GM at the old GM Fremont plant in California. The Fremont plant was one of GM's worst, with pitiful quality, low levels of productivity, high rates of absenteeism, filled with dysfunction.  Krafcik's conclusion: Toyota not only turned around the plant with its continuous improvement production system, it learned how to work with and manage US workers. GM, according to Krafcik, learned nada.  It's amazing how fast and how far the world's once leading company has fallen.

Now the day of reckoning is finally here, the tipping point has been breached.  Wait until you see what's coming. Toyota is not only the leader in manufacturing efficiency and quality, but now it is combining high end design and styling with new hybrid power plants for performance as well as fuel economy.

The problem has long had once source: management. Oh, they have had their excuses. High wages, recalcitrant unions, pensions and healthcare. Nonsense. Toyota, Honda and other Japanese companies showed how workers were not real problem. They used American workers - sometimes the very same workers in the very same factories - to make quality cars American want to buy. The real problem was management. Given the right management and production systems, American workers did just fine. 

Everything that was once hidden becomes visible in the crisis. The crisis is now here. It's abundantly clear where the real problem has been all along - out-of-touch, in-bred, old-boy management. It's time to clean house.  How can this be done?  Simple, move the headquarters lock, stock and barrel. Relocate somewhere with a diverse array of talent, where competition is fierce, where the best and brightest want to be.  Separate reports are saying that Magna may purchase Chrysler. What a fantastic irony if Chrysler becomes a Canadian company and relocates to Toronto. How long until GM or Ford pick up and move to Chicago or somewhere else?  The clock is ticking.

BTW: This relocation of the Big Three from Detroit, while painful, could be just the kind of crisis that would spur revitalization of that troubled city and region. Boston ultimately recovered from the textile exodus. Pittsburgh may be starting to recover from the trauma in steel and other industries.  Check out this article on University of Michigan professor, Robert Fishman's research on the potential for a "fifth migration" as  "baby boomers, immigrants, middle-class African Americans and young hipsters begin to colonize inner cities". Detroit, from what I can see, is certainly one of the truly hippest, trend-setting cities around with a significant creative community in art, music, design and related fields. Plus there is real leverage in connecting  to Ann Arbor, which ranks off the charts on our creativity measures, as well as Windsor. It is part of the giant mega-region with Chicago at its center.  El Paso - a community with which we work closely - is creating a bi-national downtown and economic development framework with Juarez. Imagine a bi-national downtown linking Detroit and Windsor along the waterfront, and a real strategy to leverage the University of Michigan which is perhaps the world's greatest full-purpose university, along with the region's other research and university assets from Michigan State and Wayne State to the Cranbrook Art Institute. 

*I titled this post in memory of David Halberstam author of a classic study of the auto industry, The Reckoning, among many other terrific books, who died earlier this week.

Comments

[john trenouth]

Isn't this the way living systems work? Things are born, they flourish, mature, age and die making room for future generations to do the same.

So once the old guard of the auto industry finally and completely dies, Detroit is then free and open for new and marginal ideas and people--ideas and people that find places like NY and SF less hospitable as these areas mature and settle into thier own exclusionary clubs and orthodoxies.

Just wondering out loud I suppose.

[Michael Wells]

Thomas Friedman is on the same page, flat world vs. spiky or not. Two Sundays ago he wrote in the NY Times "Japan has some of the world's highest gasoline taxes and stringent energy efficiency standards for vehicles -- and it has the world's most profitable and innovative car company, Toyota. That's no accident." The ironic thing about the Big 3 is that they played political games to cut mileage standards and backed cheap gas, and in the process committed suicide. If they had put the same energy into technical innovation, empowering workers and high quality, GM would be selling cars in Japan and Europe. Instead, today they're still at it fighting the California emission standards that are their last best chance to stay competitive. They just lost in the Supreme Court and are fighting it within the EPA, determined to self-destruct rather than change.

The same problems beset a lot of American heavy industry -- steel, shipbuilding, etc. These weren’t killed by “cheap foreign competition”, but by poor management. Instead of putting money into research and new facilities, they milked the old model dry and in the process severely damaged whole regions of the country (hence the term Rust Belt). If you look at Boeing or Intel, you can see that there’s nothing wrong with American manufacturing. The Friedman article (April 15th) is about becoming Green, but he's also saying the only way that we’ll do that is through creative change in all aspects of life and business.