Why did Detroit Fail?

The NUMMI plant in Fremont, California

I’ve mentioned before how short-sighted I think the U.S. auto manufacturers have been over the years.  In addition to my critiques of the Big 3 with respect to fuel economy and environmental issues, I also thought that the carmakers dodged tough conversations with the unions about costs by underfunding the UAW pensions.  My focus on this blog was on how much time and money they’d spent fighting stricter environmental standards – a battle they were (certainly in retrospect) bound to lose, and how that cost them when gas prices killed their golden-egg SUV business. I didn’t get into raging cases of hubris.

This past weekend, This American Life convinced me that, if anything, I’d been soft on Detroit. But I digress.

(I should note that technically, Ford didn’t “fail” – it stayed away from bankruptcy and a government bailout, nor was it pushed into an arranged marriage, as was Chrysler. But it came awfully close.)

Let me start small.

I have a friend who, for whatever reason, loves her nine year old Jeep Grand Cherokee. When her lease was first up in 2004, she was ready to get another one. (For tax reasons, leasing is a better option for her than buying.) She’s not heavily into technology, and had, essentially, two requirements for her new Jeep.

• Leather seats
• Heated seats

The only way she could get that combination, back in 2005, was on a vehicle with a V8 engine, which she emphatically did not want.  Some product genius at Chrysler took her desired car out of the mix. Whoever it was cost their company a sale, and (I’m sure) more than one.

Fast forward to 2010. Chrysler is coming out of the ditch – they say they’ll break even this year, in fact – and my friend – still driving her 2001 Grand Cherokee – goes back to her local Jeep dealer to see what they have. and, indeed, they have a Grand Cherokee, with leather, heated seats, and a V6. What they don’t have is a financing organization making leases, so while she can get a higher-rated (and priced) Acura for $500 per month, a Jeep lease for a car that costs $8,000 less would cost – monthly – $150 more.

So that’s twice that Jeep has pushed away someone who wanted one of their cars. And I mean really wanted one of their cars.

Now, generalizing from the specific is a risky form of analysis. But I remember hearing Miles Copeland, brother of Police drummer Stewart Copeland and founder of IRS records, say that his method of choosing artists was simple. He figured, assuming he wasn’t extremely strange, that if he likes someone, chances are quite a few other people would, too.

So I will assume that, if Jeep has managed, with their various issues, to push my friend away from them – when she is dying to get another Jeep – that they have done this to other customers as well.

Zooming out to the bigger picture, in the This American Life story (you can listen by clicking on the photo above – warning – it takes some time to load – or go here to download) NPR reporter Frank Langfitt looks at a pioneering joint venture between GM and Toyota – NUMMI – talking to former GM workers and executives and UAW officials along the way.

NUMMI came about because Toyota needed to start producing cars in the United States, and GM wanted to figure out how to manufacture small cars and make a profit. The NUMMI venture was an opportunity for both companies. Only one took advantage of it. Care to guess which one?

It’s a fascinating history. For starters, the Fremont GM plant which became NUMMI (New United Motor Manufacturing Inc.) when the GM-Toyota joint venture commenced was one of the worst in the country. Horrible quality, indifferent (and frequently drunk and/or stoned) workers, poisoned relations between labor and management, and, therefore, lousy cars.

The joint venture allowed GM to see exactly how Toyota manufactured cars. Toyota’s methods were cheaper, resulted in far higher quality, and empowered workers on the line.  Part of the training involved sending the American workers to Japan for several weeks of training, during which time they were stunned by two features of the Toyota process:

• Workers could, if necessary, stop the line. In GM plants, the line NEVER stopped, which was a major factor in the defect-riddled cars littering the asphalt outside the Fremont plant prior to the joint venture.
• Workers were asked, regularly, how the manufacturing process could be improved.

Obviously, such a process requires a different mindset among management, and as the NUMMI managers were sent to Japan for training, too, they adapted to it as well as the workers.

How well? Almost instantly, NUMMI quality and productivity was the equal of Toyota’s Japanese plants. Manufacturing costs were down. It was, for GM, a golden opportunity to make their domestic manufacturing cost-effective and profitable, allow their workers some element of control (and ownership) of the manufacturing process, and position themselves to compete with their domestic and foreign competitors.

We all know how that turned out.

Why it didn’t work is a story of indifference, hubris, petty fiefdoms (both labor and management), flawed incentives, and managerial cluelessness. And while it’s hard to hear, it’s well worth hearing anyway.  It profiles an industry with few heroes and a multitude of villains, but the driving force behind the failure of GM (and the other car companies) to adapt their processes was a toxic lack of trust. Management didn’t trust the UAW or its workers, the UAW didn’t trust management, and so they limped along in the broken system they knew rather than risk the proven system they didn’t.

So: Why did Detroit fail? Maybe it’s hundreds of things, small and large. Whatever their cause, they caused individuals and groups throughout the domestic auto industry to resist, delay, or oppose actions that could have kept them afloat.

Call it attempted suicide.

Meanwhile, Toyota is closing NUMMI today, even though it has maintained its high quality standards over the years. Toyota says it wasn’t economically viable. Some suspect another possibility:  NUMMI was the only unionized Toyota plant anywhere.

Maybe we should all just ride bicycles.