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11.10.08

Merger and divestiture talk won’t save GM, Ford and Chrysler 

It looks like the American Big Three are doing pretty much what I warned them against in my ‘Saving Detroit’ piece presented to the Medinge Group in August.
    and have had exploratory talks, while may sell its controlling stake in .
   They have cited dropping sales, caused in part by their reliance on trucks and SUVs in years past.
   I can only say, ‘I told you so,’ when I warned of this exposure a decade ago.
   The sad thing is that GM and Ford make excellent small cars—just that they don’t let Americans buy them. In the meantime, they get trounced by the and in their home market—even though they’ve paid for the of models that Americans would love.
   They needed to look at motoring commentators, examine the tastes in small and learn to listen to their .
   But this was all too hard given the arrogance of at least the Big Two, GM and Ford, which have managed to weather hard times in the past.
   Their operations have usually been mired in politicking and Ford, in particular, has often rejected the work of its Köln subsidiary for decades.
   Chrysler, meanwhile, fell victim to German under Daimler-Benz AG. As a US company, the lean Chrysler of the 1990s was a business darling because of its rapid R&D processes and its . It even understood its three very well.
   Add to that the Americans’ obsession with short-term results—the problems that warned about many years ago, and which are also to blame for its today, and there are serious systemic issues to work out before things can come right for the Big Three. If they ever do.
   Folks, it’s time to look more seriously at delivering the cars people want. Rehashing the 1999 Ford Focus isn’t a bright idea when the new (2005 and on) model’s available in México and most other countries on the planet. Savvy car buyers, feeling cheated out of the latest technology, are going to buy an import.
   The fact is, Detroit can make good cars. It just needs to make more of the good cars that people are going to buy.
   Chrysler becoming a GM —which is what a merger will result in—makes about as much sense as putting the British Motor Corporation and Leyland together.
   Economies of scale will be lost over decades and the typical American corporate behaviour in merged automakers is to cut model lines. Chrysler itself knows this: it’s how AMC disappeared. And AMC itself was an amalgam of Rambler, Nash, Willys and Hudson (have I missed anyone?).
   In the British case, the company collapsed in 2005, its remnants now the property of in Red China. Which means it’s a part of a communist state.
   And Ford without Mazda might mean a return to a company losing some of its competences in platform engineering. This scenario is less likely, but Ford has enough trouble acting like a global company. Removing a Japanese arm—inevitable given NHK, another Mazda shareholder, wishes to sell its shares in the automaker—could only encourage Ford’s already infamous reputation of geocentrism.
   Last month I said that the current E241 Ford Falcon will be the company’s last, with its Australian R&D centre likely to be responsible for becoming Ford’s post in the western Pacific—effectively replacing the function of Mazda.
   Responsibilities would include developing models specifically for the Asian market and, with less money to play with, the Falcon, smaller than the Mondeo in key dimensions anyway, will die.
   It will allow for greater with existing Ford platforms though, and if managed carefully, it might be the best thing to happen to the company—if it could get over internal .
   Ford’s rapid departures of its Australian CEOs (two in seven months) suggest that politicking is alive and well.
   The prognosis isn’t good for either GM, Ford or Chrysler.
   Gradual, were needed, and the examples were always there before us: Toyota and Honda.
   Toyota makes unremarkable cars and GM and Ford have delivered better products. But the Japanese are on the pulse more in the US. Mention and an American buyer is likely to think Japanese—never mind that the Honda Accord Hybrid could manage only 1 mpg better than its petrol counterpart.
   Comparing product with product, it makes no sense that GM and Ford are behind Toyota—but looking at the philosophies, it is no surprise.
   Henry Ford II’s decision to go public has come back to haunt the company, as it cannot implement a long-term solution without greedy investors demanding better and better returns achieved through greater and greater rationalization, to the point where the company would no longer exist.
   GM isn’t immune from this, either.
   It’s time to discuss things with not only the , but shareholders, and say: we’re in this together, and the usual methodology as taught by the business-as-usual American school isn’t going to cut it. Japan, Inc. 2; Detroit Whiz Kids 0.
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Entries from 2006 to the end of 2009 were done on the Blogger service. As of January 1, 2010, this blog has shifted to a Wordpress installation, with the latest posts here.
   With Blogger ceasing to support FTP publishing on May 1, I have decided to turn these older pages in to an archive, so you will no longer be able to enter comments. However, you can comment on entries posted after January 1, 2010.


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