As we embark on 2014, the futuristic vision of having autonomous self-driving vehicles is coming closer and closer to reality. Google, Mercedes-Benz, General Motors, Nissan, Toyota, Audi and other automakers have all announced initiatives to deliver self-driving cars in the next 10 years. The concept of a driverless car seems crazy to many people. But advocates of driverless cars argue that the biggest defect of today’s automobiles are that they require a human to operate them. There are many benefits to driverless cars that you may not have considered:
2009 has been arguably the worst year the US automotive sector has witnessed in 80 years. There are several key challenges for auto dealers in recessionary periods. First, dealers must compete for a smaller number of overall sales. Furthermore, dealers are challenged to win business from Internet-savvy consumers who are much better educated on the true vehicle costs, financing options and aftermarket accessories than ever before.
- Market Leader in Japan – Believe it or not GM was the market leader in Japan throughout most of the 1920s and 1930s. GM established operations in 1915 – over 20 years before Toyota was even founded in 1937. From the period of 1929 to 1937, GM held a commanding market share of 42% in Japan.
- Seized by Hitler and Hirohito – With the outbreak of World War II, GM’s Opel plants in Germany and GM’s plants in Japan were nationalized by the respective governments. GM eventually restored its position in Germany. In fact, Opel remains a popular brand in Europe today. However, GM never returned to Japan, but the reason as to why may surprise you. Most people assume that the Japanese government instituted to nationalist trade policies and tariffs to block foreign auto imports. However, it was actually General Douglas MacArthur who established protectionist trade policies in Japan during the American occupation following WWII. GM established a presence in China early too – back in 1929. But when the nationalists lost the Civil War in 1949, GM fled the mainland along with Chiang Kai-shek and others.
- The Leading Defense Contractor – At the onset of American involvement in WWII, GM suspended its car manufacturing operations to become a primary contractor to the US Department of Defense. Over 200 factories were converted in 1942 to military production facilities. During WWII, GM produced over 30,000 tanks; 200,000 airplane engines; 800,000 trucks and almost 2,000,000 machine guns. At the end of the war, GM was America’s largest defense contractor with the equivalent of $150B (in today’s dollars) of contracts.
- Only Car to Drive on the Moon – GM was also a large contractor to NASA. Along with Boeing, GM’s Delco Defense Electronics Division designed the Lunar Roving Vehicle used in the Apollo 15 mission to drive on the Moon’s surface.
- Springboard for Politicians and Business Men – Throughout its 100-year history, GM was the starting point for numerous entrepreneurs, politicians and thought leaders. Although, in many cases the relationships were somewhat antagonistic. Ralph Nader first gained fame after publishing a book about the potential safety hazards of a Chevy Corvair in the 1960s. Filmmaker Michael Moore launched his career with a documentary criticizing GM’s plant closings and layoffs in his home town of Flint, MI. Formerly presidential candidate Ross Perot served on the board of GM for two years after the 1984 acquisition of EDS. Going further back, GM was home to famous businessmen such as Arthur Sloan (MIT), who served as president from 1923 to 1946 and Walter Chrysler, who served as Buick’s president in 1916 before leaving to start his own company.
- Scandals and Lawsuits – During its lifetime GM has been the target of blame for nearly for every industrial dilemma in corporate America. In many respects, GM still is being blamed for the many of the country’s environmental, energy and employment issues. There are numerous accounts of GM coercing dealers to buy unwanted inventory and neglecting the safety of passengers in vehicle designs. The scandal I found most interesting was a claim in the 1960s that GM had conspired with oil companies to destroy the US public transportation system. Although, there was never any proof of wrongdoing, politicians accused GM of purchasing all of the nation’s electric street car networks; systematically dismantling the operations and then promoting the purchases of passenger cars as the alternative.
- Revolutionary Business Practices – But the outcome of these scandals and lawsuits was usually positive for the industry in the long term. In fact, GM can be credited with inventing many of the fundamental concepts and structures used in industry today. GM was the first to establish a captive financing arm. GMAC proved to be a key accelerant to growth in consumer vehicle purchases and the establishment of new dealer franchises. In fact, GM was the first to institutionalize the dealer concept by financing numerous entrepreneurial startups. From the 1940s-1960s, GM was a pioneer in the areas of collective bargaining agreements with labor unions such as the UAW as well in the area of health care, pension and vacation benefits for hourly workers.
- GM almost acquired Ford – The topic of a merger between two of the Big 3 has been frequently rumored in recent years. But in the fall of 1909, GM actually made an offer to purchase Ford for $8M in combined stock and cash. Ultimately Ford rejected the offer seeking a higher percentage of cash. In the early days of GM, growth came primarily through acquisition. GM acquired Oldsmobile in 1908 followed by Cadillac, Oakland (later renamed Pontiac) and Rapid Motor (later renamed GMC) in 1909. About ten years later GM acquired Chevrolet.
- Planes, Trains and Automobiles – Is not just a movie with Steve Martin and John Candy. It was reflective of GM’s strategy throughout much of the first 50 years of its existence. In the late 1920s and early 1930s, GM acquired a number of aircraft engine manufacturers. GM also gained a controlling interest in North American Aviation which later became Eastern Airlines. GM sold the aircraft assets a few years later to Boeing. GM was also a powerhouse in the railroad diesel engine sector. In fact, its market leadership in the 1960s was so significant that GM became the target of an anti-trust suit. GM ultimately sold its Electro-Motive group to private equity firms in the 1990s.
- Marriages, Divorces and Offspring – Throughout its 100 year history GM has acquired and divested a number of Fortune 500 companies. In addition to Eastern Airlines, Electro-Motive and the assets sold to Boeing, GM also owned home appliance maker Frigidaire until 1979. GM owned computer services leader EDS and Hughes Aircraft (including DirecTV) throughout most of the 1980s and 1990s. Most people think of GM as running scared from the Japanese and Korean OEMs, but in the 1990s GM actually had minority ownership stakes in Fuji Heavy Industries (Subaru), Isuzu and Suzuki. At one point in the 1970s, GM even considered acquiring General Electric, but saw no synergies.
The biggest problem that GM has suffered from since the 1980s is negative public perception – both at a corporate and a product level. Despite numerous management changes and strategy shifts, GM has failed to convince the American public that is an innovative company which can build high quality vehicles. From my perspective, one of the biggest reasons that GM has been unable to overcome its public perception dilemma is the on-going negative attention it receives in the media. For as long as I can remember (at least over the past 20 years), GM has served as a punching bag for the media. Not a month goes by without some negative story making the front page about GM. Even at the height of GM’s market capitalization in the 1990s, the media found ways to criticize its management for its focus on SUVs, Minivans and Trucks. The media portrayed these vehicles gas-guzzling monstrosities that posed a safety hazard to other drivers due to their size, weight and ability to rollover during collisions. The past two years, have been a virtual field day for the media as GM suffered under extraordinary macroeconomic conditions. Throughout most of 2007 and 2008 GM was heavily criticized as contributing to the environment and energy crisis in the US as oil prices spiked to $150 per barrel. The second half of 2008 and early 2009 have seen GM devolve into the most impacted by the global liquidity crisis.
Toyota, now the world’s largest automaker, is what most experts point to as the industry’s poster child for success. Toyota has defeated GM on its home turf with better designs, higher quality and more fuel efficiency. However, Toyota has been experiencing financial performance almost as dismal as GM during the past six months. A recent article in Automotive News states that:
“In six short months, Toyota Motor Corp. collapsed from the world’s biggest, most profitable car company to the industry’s top quarterly money loser. The roughly $28 billion swing – from record operating profit to loss – was whiplash fast…”
Image Source: AP
Toyota’s greatest challenge has been currency fluctuations. The yen has appreciated 14% against the dollar recently. Toyota imports 45% of the vehicles sold in the US from foreign manufacturing plants, primarily in Japan. Consequently, even minor changes in the currency rates can have significant impacts on profits. Another challenge Toyota has experienced is with its product portfolio. Toyota has de-emphasized focus on its traditional strength of small sedans as it has attempted to grow market share in the luxury and SUV sector. With the record oil prices of 2008 and the economic crisis of 2009, both the luxury and SUV sector are struggling. Toyota has the capacity to build 9.3M vehicles this year, but will only have demand for 6.4M. A 3M (33%) production capacity excess for the company that has traditionally defined lean manufacturing is unprecedented. Yet despite Toyota’s challenges, there has been little media attention on the Japanese automaker. I read the Wall Street Journal every day. I do not recall even a single story about Toyota’s problems being published on either the front page or the secondary Marketplace or Money & Investing sections.
The fact is that the American media painted a bulls-eye on GM in the 1980s and has been shooting arrows at GM constantly since then. And in 2009 they finally won. The irony is that GM remains one of the most loyal sponsors of the television and print advertising spots that the media industry depends upon for its funding.
The Big 3 bailout efforts seem to be making progress this week, despite the highly publicized criticism of the automakers by every major politician and journalist. From President Elect Obama’s interview on Meet the Press to Thomas Friedman’s blog on the NY Times to Andrew Horowitz discussion on MSN Money, everyone is having fun taking shots at the automakers. Of course, General Motors, being the largest of the three automakers, receives the majority of the criticism. Reading many of these articles I think many people have the impression that GM management has been sitting around doing nothing over the past three decades. While there can be no dispute that GM’s strategy has not been successful, it should be noted that GM’s management has enacted a number of highly innovative approaches to combat its situation. In my last post, I started to list 10 Innovative Business Strategies the Automaker has implemented since 1975. In this post, I will continue the list with the remaining 5 (#6-10):
Many of GM’s critics attack the automaker for a lack of focus on quality assurance, product innovation and financial discipline. Reviewing GM’s financial results from the past 30 years would make it difficult for anyone to argue that the company’s strategy has been successful. However, I do not agree with the statement that GM has not implemented innovative business strategies to attempt to counteract the competitive pressures it faces. A review of the OEM’s operations from 1975 through today unveils a number of groundbreaking approaches GM introduced to its product line, manufacturing strategy and corporate structure. So I have to take issue with the characterization popular in the media of GM as a lumbering giant hopelessly in search of a strategy. I think many people underestimate the challenges GM has confronted in the past 30 years, which are some of the most difficult issues facing the US economy and society. I cannot think of another company that has been more impacted by changes in energy policy, environmental concerns, international trade and globalization. Nor can I think of a single organization which has confronted more challenging issues with labor relations, corporate governance and health care. In many of these categories GM has pioneered new techniques for approaching these problems that will be replicated by others for years to come.
This week is arguably one of the most historic in the history of the US automotive industry as the Big 3 will submit their recommendations for Federal aid to Congress. Of course, this week is just one of many in 2008 that have brought the automotive sector to the brink of catastrophe with record oil prices; evaporating credit markets and unprecedented sales declines. However, there have been some positive events such as GM’s 100th anniversary which it celebrated on September 15th.