You Know Chrysler is Toast Because
blogmaverick.com
blogmaverick.com
"I work in the Nagoya, the Town Toyota Built, though not for Toyota. (Well, to the extent that anyone in Nagoya can be said not to work for Toyota.)
The great thing about Japanese corporate discipline: when GM has a tough year, GM blames the year. No way we could have predicted spiraling gas prices, a down economy, and increased foreign competition. When Toyota has a tough year, Toyota blames Toyota. You can bet that somewhere in the bowels of that megacorp is a team of economists reevaluating their currency hedging strategy, while another team is working 16 hour days coming up with a car that captures the imagination of the American consumer but is priced to move as compared to the Prius.
Keep doing this whole "Learn from failure and overcome it" thing for a few decades and you end up the biggest car company in the world and make the competition look like sniveling amateurs."
It is a large expenditure to show feelings. Japan is really big on that (as are most cultures, truth be known, but the forms are different).
If it were a Japanese CEO, I predict they would have taken a page out of the politicians' book: go to a busy train station, during the morning rush hour. Stand on a footstool. And shout the following for an hour:
"I am the president of Toyota! I promise you we will not waste your money! Thank you for giving us the chance to keep these jobs in Japan! With your help we will proceed together to a beautiful future! I am the president of Toyota!..."
There is a Japanese politician from the ruling party who is detailed to go to a large train or subway station, typically in Tokyo, and shout something like this. Every. Single. Workday. More than one when the government is hurting, for whatever reason. The point is not to draw a crowd -- most people are busy on their way to work and pass straight by. The point is not to draw a camera -- they could have thrown a press conference in a nice heated room with 15 handpicked reporters and been far less embarrassed about things. The point is to demonstrate that nothing I could possibly be doing this morning is more important than demonstrating my commitment to you. Even the Prime Minister is occasionally expected to put in an appearance.
Of course, the Toyota CEO won't have to do that groveling because he runs a business which makes money. But if he didn't, oh boy, there would be an appropriate level of bowing and scraping.
I like the assertion of importance implied by the shouting; it seems that the US car corps have enough separation between the performance of a company and the impact on the exec that it doesn't carry the same weight.
The "down economy" or "lower consumer spending" are too well-established as escape-goats.
"For those in Detroit who have never operated a lemonade stand, or any other business, the way profits are generated is by making products at a price people want to buy them for, and then producing them, with all costs allocated, for less than you are selling them for. It’s not apparent that this is a principle that Detroit understands."
And the American car companies have figured out what cars people want and at what price range. They were selling SUVs before the rest, for example. The problem is that the other car companies can quickly copy them, and the price range is set by the market, which is flooded with Japanese cars of the same sort. The Japanese can undercut them because of their lower employee salaries.
It's not as if the American car companies can't make a decent car. They just can't make one that doesn't cost $2k more than the Japanese because of their cost basis. No amount of innovation can overcome that.
I'm not disagreeing with your main point. But I think you're either selling innovation a bit short or you're being too rhetorical.
You can't out innovate someone who can just copy you and sell a product just as good for less.
And even if so, that wasn't Cuban's argument. He said that Americans need innovate with respect to building cars people want. My point was that they can't do that when every car has to either cost $2k more than a competitor, or have $2k less worth of features. The fact that they choose the latter is why American cars are viewed as being of shoddy quality.
And even if what you're saying is true, they shouldn't be going to the government for free handouts. Their current state (including higher costs from deals _they_ negotiated) is no one's fault but their own. And then to call the American public investors is embarassing.
Lowering the cost to build a car is the only way they can compete, and that means lowering wages.
Also, calling Americans investors might make them feel some ownership, which might push them toward a Chrysler next time they go to buy a car. People who own stock in companies have been shown to patronize them over competitors by a wide margin. Of course we don't literally own stock in Chrysler, but if they can make us feel that connection, it might factor into a buying decision. It's possibly good marketing. (It's possibly not too though, I'm not sure).
Or take the Apache helicopter, which are still hand built. At current capacity, only about 60 can be built a year. And we're on a war footing. 51% of your tax dollars get shuffled to the DoD. We're fighting and losing two wars.
Chrysler is a private company that couldn't get a loan from the firm that owns an 80% stake in the company. They know better than anyone that its not "labor cost" that's holding back Chrysler, but fundamental inability to run their business in a profitable fashion.
http://mjperry.blogspot.com/2008/11/jobs-bank-cost-big-three...
So people will be coaxed in to buying empirically inferior and more expensive cars? Buying American for the sake of buying American is retarded. The engineering debate can't really be proven one way or the other, but the ratings from places like Car & Driver, Consumer Reports, etc can (even if American cars have improved in recent years).
Unfortunately in Detroit's case it's just you can't innovate.
And besides, that's nonsense, that's what the patent system is for, precisely to prevent someone just copying you after you've invested in R&D.
Which American car did the Datsun B210 copy? Which car did Porsche's 911 or Mercedes' S-class? Or for that matter, Toyota's Prius?
I see plenty of examples of foreign competition innovating successfully, often at "non-competitive" prices. Detroit's last significant innovation was what? The 60-month car lease? The UAW job bank?
It's just not an innovation problem. It's a cost basis problem.
I will grant you that the ur-Mustang was a stroke of genius, reasonbly innovative in the sense of creating visceral demand for a fun and cheap car. Right after the pony cars came the muscle cars, which may have represented the pinnacle of Detroit as measured by getting the country to actually lust after your products, to care about what engine and trim package was in the latest chromed sled to roll down Main Street. Even today, I'm proud to own a 65 hardtop and 66 convertible Mustang, both of which are 5+ years older than I am, and I feel happy to see the smiles of passersby of all ages when they see a piece of proud American history roll by. And that's exactly the problem, the pride is in the history, not the present.
The Mustang and Pontiac GTO debuted over FORTY FOUR YEARS AGO! That's a pretty long drought, and despite their appeal, the C-5 'vette, Fox Mustang, and Hummer (the H1, not that plasticky rebadged Tahoe they call an H3) haven't really hit the same chord, have they? Of those 3, I suspect the vette and H1 didn't make significant annual profits, and almost surely not what Porsche makes on the 911 alone every year, nevermind the significant profits they bank on the Cayenne. (And all 3 of those together, over their entire production run, certainly didn't make what Porsche made this year on VW options alone!)
By way of background, my 3 registered and insured cars are all American; I don't have a huge axe to grind here to justify my own purchases, but as I see it, Japan and Europe are eating Detroit's lunch, and based on my experience with my '96 Jeep, Satan will probably be wearing a winter coat before I buy another new American car. (I do all my own maintenance and help friends maintain their cars, so I see first-hand how my cars and how the Japanese and German competition are engineered.)
FTR, I agree with you that the UAW deal stinks for Detroit. I'm just ALSO unconvinced that if the government paid Detroit $2000 for every car they sold that Detroit would be remotely competitive. So while they have a cost basis problem, that's not their only problem, not by a long shot.
In 2005 GM sold about 4.5m cars in the US. At $2k per car, that's $9 billion in extra revenue. That flips them from a $4b loss to a $5b profit.
QED.
However, it doesn't address the long-run problem of how to take back market share from foreign competitors, which is the type of sustainable advantage that I presume Detroit needs in order to thrive.
(I'll also observe that your QED was to a simple P&L equation, not to the thrust of my comment.)
The reason Toyota has all but caught up isn't that they're particularly innovative, it's that the Camry can have $2,000 worth of better build quality than the Taurus or Malibu. Same with Corolla vs. Focus.
Japan gets to choose to either build the same cars and sell them cheaper, or build better cars and sell them for the same price. It's hard to win market share in that scenario.
I'm not saying labor cost isn't a disadvantage. I'm saying you're treating it like the necessary and sufficient condition for success across the board, which it really shouldn't be. You're suggesting that if you have a labor cost disadvantage, it is intellectually obvious that it's impossible to stay ahead of your competition with advances in other areas (like RnD or supply chain efficiency)?
So we can either wait for them to become retarded (which they may if all of the American car companies vanish) or we can lower our cost-basis and compete on a level playing field.
I would say that the bigger advantage that Japan car industry has is that they actually been always innovative, agile and reactive to markets. Hell, the whole "agile method" has some origination from Toyota. US industry has invented and started some markets like the SUV, but except for you guys, almost no-one else in their sane mind in the world buys them.
In minivans maybe, but otherwise, not so much. There are no reasonably priced Japanese "large cars" (Impala, Town Car). There's nothing like the suburban or expedition. Toyota is finally trying for the "large pickup" with the Tundra, but it's a ways from an F-150 and there's still the f-250, f-350, etc.
The domestics problem is CAFE. They have to make cars that they don't make well (small cars) in order to sell the vehicles that they do make well. They don't get to count their imports either.
Because they're not burdened by silly deals by unions?
Or maybe even as much value as a broadcast.com earnings projection.