Business Insight Zone

Consider this snippet from the Wall Street Journal’s coverage of GM’s sales:

GM’s China Sales Surge

. . .

The U.S. auto maker’s operations in its home market have been much weaker. For example, GM’s November sales in China more than doubled from a year earlier to 177,339 vehicles, while in the U.S. they fell 1.7% to 150,676.

Forget the growth/decline rates for a second and just look at the raw figures. Then ponder this: GM (through its Chinese joint ventures) sold more cars in China than it did in its home market. Wow.

Don’t get me wrong, I love the tradition of Buick represented by the Roadmaster here — and in fact I’m in the small group of American drivers under 40 who’s owned a Buick. But the brand has been trending old for years and years, and it won’t do for GM to watch the Buick customer base die of old age.

Sure, they’re trying to change that.¹ And the brand has been going gangbusters in China.

But is that enough? Given GM’s troubles overall, shouldn’t Buick head straight to the chopping block?

Care to convince me otherwise?

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Photo by dave_7.

Best misunderstood headline of the day:

US Airways: Free drinks in coach

For a second after I first read it, I thought that US Airways would offer a free alcoholic drink to each passenger. It would be easy enough, right? Imagine the flight attendant saying,

“We know times are tough right now, so for those of legal age who’d like one, please accept a glass of beer or wine with our compliments.”

But that would require innovation, wouldn’t it?

I asked around, and it turns out that at least one airline — the regional Canadian carrier Porter — already does this. Do you know of others?

More to the point, would you like it if an airline offered this?

My sense is that it could be a small, cost-effective way to show some empathy for passengers, especially those who have been stuck with checked-bag fees and long, pointless security lines.

What say you?

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Photo by Hawkins, used under a Creative Commons license.

With this morning’s post still fresh in mind, I read these two items with interest:

1. David Leonhardt in the New York Times: $73 an Hour: Adding It Up

Leonhardt breaks that $73/hour figure — frequently tossed around as the average price the Big 3 pay for their workers — into its components, including (a) wages for current workers, (b) benefits for current workers, and (c) pensions and other benefits for retired workers.

Yes, UAW workers are “overpaid” a bit in comparison to non-union workers who staff U.S. plants for Toyota, Honda, Daimler, et al. But much of the differential in labor-related costs between the Detroit Big 3 and others stems from legacy costs — costs that the companies took on in much plusher times and that would be borne, in other countries, by government-funded pension and healthcare regimes.

I’m not saying which system is better. But I do think it’s worth keeping in mind that the Big 3 are operating under unavoidable conditions somewhat different than their non-U.S.-headquartered rivals.

2. Andrew Leonard of Salon: Senate GOP to UAW: Drop dead

Leonard covers this story with much more attention to political detail than I do, which is interesting in itself, but he also gets at a point I tried to make a while back in “Should” versus “should” in the Wall Street bailout. I think I made the point a little better — or at least much shorter — in the comments on this morning’s post:

[W]hat we’re really up against is two definitions of “should”:

1. What “should” happen to the car makers (or the UAW, or bad financiers, or whichever bad actors) so that they get their just desserts;

2. What SHOULD happen so that the economy doesn’t spiral further into recession.

The second question is hard enough to get a bead on even if it’s a strictly technical discussion limited to how much government intervention should occur, what shape it should take, how it would best be administered, etc. But thet you get the first question layered in on top of it, with all the emotional, philosophical, and political debate that it implies.

Here’s Leonard’s take:

The U.S. economy is in much worse shape than it’s been for at least a quarter-century, and appears to be unraveling at terrific speed. Thus, an even more timely case can be made for saving Detroit as was offered for Wall Street. Does it really seem like right now is the best time to see what happens if G.M. declares bankruptcy? As a worst-case scenario, might not it be better to help Detroit limp along for another year or two . . . ?

Though I’m holding my nose about it, I’ve come to believe that some sort of bailout for the Detroit automakers must happen, if only to soften the blow as the U.S.-headquarted automotive business goes throgh a fundamental restructuring that is not merely necessary but inevitable.

What form the bailout will take — much less what the Detroit auto business will look like afterwards — is beyond me. At a bare minimum, I would guess that the Pontiac, Hummer, and Buick brands will be discarded, and that overheads (plants, dealerships, payrolls, etc.) will be cut even deeper than any of the Big 3 have yet visualized.

These changes will be wrenching, especially for the town economies in the Midwest that rely so heavily on automotive and auto-part plants. But there’s no reason to make them more wrenching or more abrupt than they have to be.

Regardless of what we think Detroit’s just desserts are, the U.S. economy as a whole is on life support at the moment, and I don’t think we’ll benefit from increasing the strain on the patient before normal breathing and circulation are restored.

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ADDENDUM, a few minutes later: As part of any bailout package, I would not be averse to a bare-knuckles investigation of the finances of Cerberus, especially one that gave a reduced amount of aid to Chrysler and required Cerberus to pony up (dog up?) billions of its own money. For more on why a harsh investigation might be in order, see this Forbes item:

Chrysler’s Hidden Coffers

Thanks to reader Joseph Miller for pointing out this story.

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Photo of a Buick from Detroit’s happier days by pyntofmyld.

Our “interesting times” got a lot more interesting overnight, when the U.S. Senate killed the proposed bailout for Detroit’s automakers.

• Bloomberg: GM, Chrysler Survival Options Narrow After Vote Fails
• CNNMoney: Auto bailout collapses in Senate
• Reuters: Senate plays role of Grinch for autoworkers

Solutions might still be found: the Treasury might be able to dip into some of the other economic-rescue funds at its disposal, or GM and Chrysler — the companies immediately at risk of bankruptcy — might find enough cash to tide them over until a new Congress, a new Administration, or both make headway in a different direction on a bailout.

Or, heck, maybe the banking system will get up off the mat and start extending credit to the troubled automakers on historically normal lines.

BWA-HA-HA-HA-HA . . .

*wipes eyes*

Sorry, sometimes I get carried away.

This whole Detroit-goes-to-Washington fiasco has repeatedly reminded me of a few things:

1. More and more, it’s not “The Big 3,” but “Ford and the Two Really Bad Ones.” I’m biased because Scott Monty is my buddy and so I know more about what’s going on at Ford, but it’s hard to read things like this USA Today cover story and not conclude that Ford has done a much better job of tending to its knitting over the past couple of years. Still, a bankruptcy by GM, by disrupting the entire auto-parts sector, might end up bankrupting Ford despite its cash cushion.
2. Private-equity ownership does not guarantee that companies — a Cerberus-owned Chrysler, in this case — will do things “the KKR way” and get their act together.
3. Demagoguery reigns in Washington. There was enough posturing on all sides of this episode for a bodybuilding contest.

More to come later. These are just some of my pressing thoughts for now.

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Related posts:

• The Basic Basics: Don’t do something avoidably stupid.
• Company of the Day (11/03/2008): General Motors
• The “car of the future” isn’t even in the future.
• What does the future hold for the Detroit car makers?

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Photo by Torpe.

Earlier this year at South by Southwest, I had the good fortune to meet Scott Monty, a heavy hitter in social media who was then doing consulting work in his longtime home of Boston. Over the summer, Scott made a big career move when he took Ford Motor Company’s offer to direct its social-media efforts.

Ford’s been in the news plenty lately — and I’ve written about the company myself — so I wanted to know from Scott how a company like Ford hopes to strengthen its business using social media. He answered my question in generous detail, as you’ll see from the transcript.

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Q: You were well-ensconced in a consultancy tied to Boston’s vibrant social-media scene before you moved to your current job. What convinced you to pick up stakes and move halfway across the country to work for an old-school company like Ford?

It’s a good question and one that I get a lot, as you can imagine. When I was first approached by Ford, I turned them down flat, because I didn’t want to move to Detroit. After a while, we reconnected and I was a little more open to speaking with the communications team; after taking the time to fly to Michigan to meet with key team members in marketing and communications, I was sold on the passion, talent, and intelligence of everyone I met. When I heard that I would have the full support of the Vice President of Communications and the Group Vice President of Marketing, that clinched it.

In addition to the people of Ford, I stopped to think about the opportunity that was being presented to me: I was being given the chance to lead social media efforts for a top Fortune 500 company (#7 at the time), doing exactly what I had been doing for the past year an a half. When else would that happen? Further, I knew that the U.S. auto makers were behind the competition in terms of perception, and I thought that I’d like to be part of the effort to turn that around. To me, it’s a much more exciting and challenging opportunity than leading marketing & communications efforts for a brand that simply needs to maintain its status.

Q: What have been the biggest transitions for you to make in terms of your daily work?

The most significant change in my daily habits is that I don’t have as much time to dedicate to reading the blogs in my feedreader. There’s just so much information that we’re creating at Ford (and materials that I need to review in order to be effective at my job) that I don’t have time to spend time in my feedreader. On the other hand, since I’m now commuting in the car for 25-30 minutes each way, one of the things that I’ve been able to take up again is listening to podcasts.

In terms of time management, I’m constantly battling the two-headed beast: my inbox and the constant requests (and need) to attend meetings. At at company this size, it’s imperative that we share information, and in our current model, that comes in the forms of email and meetings — both of which take up an inordinate amount of time.

Q: A century-old car maker might not be the most obvious breeding ground for social-media innovation — what do you aspire to accomplish at Ford?

Ultimately, I’d like to see Ford recognized as a leader in digital communications and as the world’s leading social automotive brand. This isn’t going to be easy, by any stretch of the imagination. When you consider our global market and the various nuances between regional social networking habits and information consumption, along with our vast audiences (customers, employees, suppliers, dealers, investors, retirees, etc.) and various departments that have the need for social media (marketing, communications, HR, product development, customer service, IT, etc.), it’s a very complex assignment.

If we can start with a solid social media strategy and begin to execute both internally and externally, we’ll be in a position to humanize the company to the outside world. If the world at large could be made more aware of the stories we have to tell (and of the storytellers themselves), and if we give them the ability to share these stories with their own communities, we’ll begin to see perceptions changing, and, ultimately, to see a rise in sales.

Q: In what areas of social media do you see Ford making an impact?

One of the areas I started on very early was the idea of opening up our media events — in-vehicle programs and forums with our subject matter experts — to bloggers at large. Historically, these have been open to traditional journalists and, more recently, to automotive bloggers. But my contention is that nearly everyone needs to buy a car, so if we can form relationships with mainstream bloggers, we can reach more mainstream customers — the readers of these blogs who trust the authors because they’ve been following them for so long. With that theory in place, I’ve been pushing to reach out to bloggers interested in technology, environmental issues, luxury/design, and parenting, to name a few.

Aside from blogger relations, we’ve got an immediate opportunity to help change the perception through my own personal participation on Twitter, blogs, and forums. I do a lot of commenting on posts that may have some misinformation, and I share news and information from my unique position within the company. And I hope I do all of this in an authentic way, to give the company a little more of a human element.

Q: What are the biggest impediments — technical, cultural, financial, or otherwise — that Ford faces as it tries to become a social-media-savvy company?

Overall, I think this is going to be more of a cultural effort than a technical one. Sure, we’ll have to train people on rudimentary tools and the rules of the road, but the technology will continue to evolve. What needs to happen is that Ford employees need to be empowered, trained, and trusted on digital communications in general, and various levels of leadership need to demonstrate that this is a crucial part of Ford’s business plan moving forward.

I often compare the corporate culture of fear that runs rampant through legal departments everywhere — the fear that employees will say something they shouldn’t say — with the same panic and skepticism that they met e-mail with some 15-20 years ago. I think e-mail has turned out pretty successfully, don’t you?

Managing risk is always at the top of mind for legal teams at large companies, mostly because in today’s litigious society, there’s always a chance of public statements being used against a company. But if we approach the practice with common sense (they haven’t removed our phones or e-mail accounts) and clear communications guidelines, things should work out. If a company has policies in place and an employee abuses them, then there will be consequences, no matter what the format or venue of those transgressions.

Q: I’ve praised Ford for its recent efforts at improvement, but the company has also lost more than $20 billion since 2006. How do you sell the benefits of social media at a time when the company must be tempted to keep its focus on the short-term bottom line?

We also had our first profitable quarter on our way to a turnaround under Alan Mulally in Q1 of 2008. Were it not for the spike in oil prices and commodities, as well as the housing and financial market crisis, we’d be in a better place. But I digress.

There are two ways to think about social media and our focus on our bottom line: one is that it’s a low-cost channel that has the potential to garner disproportionate impact. So we were to shift some money from a more traditional media spend to social media efforts, [and] we can show immediate and measurable results. The second is, as we tell the press in general, we have a plan and we continue to take fast and decisive action to implement that plan. Digital communications is a key part of that plan and of the future of Ford.

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My thanks to Scott for sparing the time for this interview. Since Scott and I talked the other day, he wrote a long, impassioned post at his personal blog that shines even more light on his efforts at Ford:

How You Can Use Social Media to Help the U.S. Auto Industry

If you’re at all interested in the fate of the Detroit-based auto makers, by all means take the time to read what Scott has to say.

Meanwhile, I’ll hand the mic to you:

What do YOU think of Ford’s efforts in social media?

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Bullet points for brevity . . .

Following up on GM’s a stumper:

• CNN — Sources: Obama pressed Bush for auto industry bailout — “At their private Oval Office meeting on Monday, President-elect Barack Obama urged President Bush to support billions of dollars in aid for the struggling auto industry during the upcoming lame-duck session of Congress, according to three officials briefed on the meeting.”
• WSJ MarketBeat blog — GM’s Slimming Waistline — “Since the company’s market capitalization has roughly fallen in half in a week, the once proud Dow component is now below the $2 billion threshold used by many Wall Street trading operations to denote the difference between a small cap and mid cap. However, citing the company’s brand and continued huge volume in trading of the stock, brokerages say trading responsibilities for GM aren’t going anywhere.”
• From James Surowiecki’s new blog, “The Balance Sheet,” at The New Yorker — Do We Have to Save G.M. Because We Let Lehman Fail? — “Had the financial system stayed reasonably stable, rather than plunging into the chaos we’ve seen in the past six weeks, then one might have been able to make the case that General Motors, with its three-billion-dollar market cap, was not all that important, in either literal or psychological terms, and that the market could easily weather its failure. Today, I think that sounds incredibly implausible to anyone who’s paying attention to the credit and equity markets.”

Following up on Sheldon Adelson: “successful” is more important than “nice”:

• WSJ MarketBeat blog — Adelson’s Vanishing Billions — “The convertible [note issue] illustrates how rapidly and terribly Sands, the gambling sector and the broader U.S. economy are bottoming. Just over a month ago, Sands needed under $500 million and now it needs more than $2 billion more to pad its coffers against the downturn.”

(So perhaps now Adelson will have neither “successful” nor “nice”?)

Following up on The “car of the future” isn’t even in the future:

• New Hampshire Union Leader (via Making Light) — Kamen’s Revolt — “The same day that Ford and General Motors announced catastrophic third-quarter losses, Dean Kamen was showing off his new electric car. The prototype vehicle, a zippy two-seat hatchback designed with more than a passing resemblance to the Volkswagen Beetle, can go about 60 miles on a single charge of its lithium battery and with practically zero emissions.”

Following up on Bottled water: indulgent and evil?:

• Christopher S. Penn’s Awaken Your Superhero blog — Crystal clear, sparkling bottle of marketing — “So do the math. $1.60/gallon for home delivery of the same water you can get out of your Boston-area faucet WITH filtration for 14.3 cents. Only marketing can make a 10x markup like that work and still get consumers to buy product by the truckload.”

What are the most interesting business developments you’re seeing this week?

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Related Hoover’s company records:

• General Motors
• Las Vegas Sands
• Ford

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That’s the important question raised by this Foreign Affairs article written by Marc Levinson, an expert in container shipping and its economic impacts:

Freight Pain: The Rise and Fall of Globalization

The entire article is available only to Foreign Affairs subscribers, but here’s a key excerpt:

That [container-shipping-based] globalization process [which started in the 1960s] is now beginning to shift into reverse. Because international freight transport is becoming more expensive and less reliable, companies are reconsidering whether it makes sense to depend on products made half a world away. Global sourcing is losing much of its allure.

While one big driver of this change is the high price of oil, Levinson talks about other factors, including the logistics of loading and unloading ships in ports like Long Beach, as well as more stringent environmental requirements. Reviewing these factors, Levinson predicts various impacts for U.S. commerce, including:

• imported goods will probably get more expensive across the board;
• U.S. companies may do more of their manufacturing in North and Central America;
• top manufacturers like Dell and Toyota may have to adjust the timetables — and the costs — associated with their super-efficient just-in-time production methods.

More directly, I would note that the shifts Levinson talks about stand to impact big container-ship operators like Maersk, railroads like BNSF, and trucking outfits from YRC on down. And all of that is before we factor in the consequences of the current economic downturn.

Here are just two recent news headlines that emphasize the damage all of this is doing to container shipping business:

• Financial Times — NOL warns of severity of shipping downturn
• Lloyd’s List — Analysis: Box shipping battered from all sides

If Levinson’s analysis is on target, and especially if the trends he sees continue to be exacerbated by a long global recession, he may be right that the shipping-led product globalization we’ve seen across the past 40 years may be firmly in decline.

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You can find out much more about all of these transportation industries via our Hoover’s industry pages:

• Marine Shipping
• Trucking
• Railroads

(And, if you’re in the market for premium content, you can find out much more by contacting us about a Hoover’s subscription.)

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Photo by nix-pix, used under a CC-No Derivative Works license.

More than a year ago, when I reviewed the generally sorry state of Detroit’s automakers, I wrote that “The Big Three will hardly dry up and blow away anytime soon.” Probably that’s still literally true, since even a Chapter 11 filing — which plenty of industry watchers are talking about openly for GM these days — would not immediately shutter auto plants. These ancient beasts of General Motors and Chrysler, whose talks for a merger may gain speed after Election Day passes, don’t give up their last breath so easily.

But it’s a testament to the lingering appeal of unrealistic expectations that GM finds itself in this predicament at all. Chrysler’s plight we’ve seen before, back before Lee Iacocca improved its performance and restored its pride in itself.

But GM? Even after all these years of its mediocre-to-awful financial performance, many Americans still feel a wave of nationalistic pride when they think of the company that dominated the global auto industry for long. And yes, that is in the past tense, because although GM remains the #2 auto maker in the world, after Toyota, its influence seems to be waning by the day. The latest indignity: the Treasury’s signal that, no, what’s good for General Motors is not good for the country, and therefore GM will likely not receive Federal money to help its efforts to acquire Chrysler.

If the deal does go through, national industrial pride — or at least job protectionism — will take another blow when the combined GM-Chrysler closes plants and lays off thousands of workers. Those moves would inevitably follow the merger, because they follow every merger of the type: when two giants in an industry converge in HP-Compaq fashion, the underlying motive is to “rationalize” the costs of infrastructure, combining the customer bases of the two businesses while eliminating redundancies.

Maybe — maybe — a Mark Hurd-caliber chief executive could achieve the best of both worlds in blending GM and Chrysler by achieving both great scale and profitability. But such a feat is rare indeed, and there must pass much more water under the bridge, and much more hand-wringing about it, before General Motors ever regains its lost might.

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Related posts:

• What does the future hold for the Detroit car makers?
• General Motors — Company of the Day (9/26/2007)
• Ford gains on Toyota — the Toyota way.
• Company of the Day archive.

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Jim Grisanzio, a project manager at Sun, posted a nice follow-up to the item I wrote last week comparing Ford to Toyota.

Small Improvements Leading to Big Results

Since Jim works on open-source technology — and works in Japan — he has an interesting perspective on the Toyota method of kaizen. As we discussed the other day, Toyota prizes small changes that compound incrementally, rather than “Big Bang” changes that try to revolutionize things all at once.

But Jim cites two more big advantages to the kaizen method:

• It’s open-source: everybody can contribute, within a framework.
• It works within constraints, and indeed was born of necessity during very hard times for Japanese industry.

In today’s tough economic times, many companies are looking for magic fixes to their problems. My sense is that the combination of those three algorithms — incrementalism, open-source collaboration, working within constraints — is the prescription to cure many ills.

Do yourself a favor and check out Jim’s post and its comments, as well as the other articles linked below.

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Related reading:

• Jim Grisanzio: Toyota’s (Open)TPS
• Jim Grisanzio: A way of Thinking
• Dan Markovitz: Kaizen vs. Kaikaku
• James Surowiecki in The New Yorker: The Open Secret of Success
• Charles Fishman in Fast Company: No Satisfaction at Toyota
• Succeeding under constraints.

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