Trading In The Sloan Model At Ford

I think I am on the verge of learning the hard way a lesson that I have learned many times over, but keep forgetting.  My gut reaction when chaos broke out in automotive last Fall was that Bill Ford seemed to be looking beyond the immediate crisis, taking his time to develop a clearer vision of long range solutions to Ford’s problems.  I wrote that Ford seemed to be making an effort to reclaim its heritage, and praised Bill Ford for taking his time and garnering a lot of suggestions, while GM was placating Wall Street with a press release every week.  It seemed to me that Bill Ford was in the process of getting it.  When the Way Forward plan rolled out, however, I abandoned my instincts, leaped onto the lean bandwagon and bashed Ford, Mark Fields, their silly little cultural wristbands and clever marketing schemes.  I should have stuck with my first instinct.  I think Bill Ford really does get it.

In Rebirth of American Industry, I wrote:

"Drilling down to the very heart of the problem gets to the wrong-headed, classical economic notion that business is basically a gargantuan struggle between capital and labor.  It seems as though Pierre DuPont and Alfred Sloan missed the fundamental point that, without profits, there is nothing to struggle over.  They were so preoccupied with assuring that capital (i.e. the DuPont family) got to eat the whole pie and labor got none, that it never occurred to them to make sure they were baking a worthwhile pie in the first place.  It was the anti-thesis of Henry Ford’s ‘Profit is the inevitable conclusion of work well done.’  Sloan and DuPont leaped right to the profit end of things, apparently assuming that work would be well enough done on its own.

It should not be the primary function of management to sweep the floors every night and be sure to send every loose nickel they find to Wall Street, but that is what the Sloan system has management doing.  In the end, capital has not been served by a system designed to turn a manufacturing company into a grand ATM for investors to withdraw unlimited cash at will.  Millions of investors in General Motors and the other once great manufacturers have been cleaned out.  Thanks to Sloan and DuPont, their money would have been better invested in companies with funny names like ‘Google’ and ‘Yahoo’ than in Sloan’s company.

The investors in these companies did not lose their money because they came out on the short end of a Marxian struggle with labor.  The workers lost even more under the Sloan system.  There are well over 1,000,000 fewer automotive manufacturing jobs in the U.S. today than there were before the Sloan companies faced Japanese competition.

Suppliers and any number of small businesses that sprung up in the factory towns have gone under.  Everyone who had a stake in the Sloan managed companies lost out.  Incredibly, the managers of these companies still believe, for the most part, that ROI, ROS and Donaldson Brown-style accounting are the right way to run a business." 

The logical implication of labor based, absorption accounting rolling up to investors’ ROI is war between workers and Wall Street.  The entire system is built on the assumption that putting the screws to the workers is the very best thing management can do for the investors, and any reward to workers comes right from the investors’ pockets.  Of course the unions are a major deterrent to a company ever achieving world class, Toyota-like performance, but what is the alternative?  Have the workers meekly take whatever beating management wants to dish out to keep Wall Street happy every quarter?  It is not the UAW that is sinking GM and Delphi.  It is the financial community and management gophers who cannot comprehend the nature of manufacturing.  If I were a GM auto worker, I imagine my attitude would be that, if management is gong to destroy the company, I’m going to grab as much as I can from it before it goes under.

The news from Detroit this week includes a 95% vote from the Delphi workers to authorize a strike if Delphi voids their contract through the bankruptcy court.  The conventional thinking is that a Delphi strike will have GM shut down within days, and in bankruptcy court themselves.   Delphi is nothing more than a GM branch, spun off in a stock market shell game to make the numbers better without really creating anything of value.  There is nothing the least bit unfair in having the Delphi charade come back to bite GM and its stockholders.  With lawyers and number crunchers at the helms, the battle lines between the GM-Dephi-UAW troika are drawn in Detroit, as Sloan and DuPont’s system was designed to bring about.

But the news from Ford is different. 

"There, in the heart of the Henry Ford’s historic Rouge complex, labor and management are redefining the rules of the game — not at the negotiating table, but on the factory floor.

The plant’s 500 workers have been reorganized into teams, each responsible for a particular part of production. Some blue-collar workers have taken on added responsibilities as team leaders, and all are being challenged to help find ways to make the plant more efficient. A few are even taking over duties previously assigned to salaried employees."

It is a long road from building team based production in one 500 person Ford plant to manufacturing at Toyota’s level, but the fact that Ford is making this sort of effort, getting right into the very heart of Detroit’s problem, is very encouraging.  Equally encouraging is that the teams have been created on a handshake between management and the UAW, rather than through formal bargaining.  Ford is trying to change, and the UAW is willing to trust them and change with them, with neither side seeking guarantees for what might be the outcome of venturing into uncharted ground.

The next, bigger, tougher effort at Ford has to be to root out the deeply embedded Sloan system that drove them to disaster in the first place, or they will end up right back in trouble before long.  The Way Forward is probably longer and rockier than even Bill Ford expects, but team based production with blurred lines between management and the production people is a very encouraging step down that long road.

One final note of news from automotive, Visteon is to Ford what Delphi is to GM – just a branch office spun off to create the illusion of value.  Last week, Visteon won the Alfred P. Sloan Award for Business Excellence in Workplace Flexibility.  Bill Ford should call them up and tell ’em its an embarrassment and to send it back.