Part of the culture that drove the Aberdeen BAE Systems plant (United Defense while I was there) to become extraordinarily lean was the continual posing of the question, ‘Why Aberdeen?’ The idea was that everyone in the plant should assume that every day, someone in the customer’s business was going to pose that question to the person who was buying from the Aberdeen plant. That buyer had to have a very good business answer if the plant was going to survive. – an answer like, "because they never miss a delivery," or "because the plant quality is perfect," or "because their cost is lower than anyone else’s", or preferably all three of those answers.
Every company should be asking themselves that question every day. The people at Ford should be asking themselves, "Why Ford?" – why on earth should I buy a Ford when I go out to get my next car; or the people at McDonald’s who should have a very good reason why, from my point of view – not theirs – why I should go to McDonald’s instead of somewhere else. Few companies have a valid, objective answer to that question, which is why so many are in trouble. They delude themselves with vague statements like, "because we provide superior value." Really? By what criteria that I, as a customer, should care about?
This tough, introspective approach to business applies equally to each employee and each community. I bring this up because GM is close to pulling the plug on their plant in Portugal. Automotive plants throughout western Europe are already gone or are living on borrowed time. In sympathy for their ‘brothers’ in Portugal, GM workers in Germany have walked out (like that is going to help). The Portuguese government has inserted themselves into the discussions between GM and the union in a last ditch effort to try to save the plant.
The cost per car at the Portugal plant is about $600 and change higher than at other GM plants. The quality and delivery record is average. The western European market, in general, and the Portuguese market in particular, for cars is flat. So why Portugal? For that matter, why Germany?, Why the UK? Simply because the people want and need the jobs is no reason – people in eastern Europe and in low cost countries throughout Asia and South America want and need jobs too. On top of that, those are growing markets for GM.
The U.S. is a different story for a whole lot of reasons, but the fact that it still represents the biggest chunk of the global market, and that GM is an American company have a lot of influence on things.
The long term threat to European manufacturing, especially automotive, is not cheap labor in other countries. Even GM and Ford are starting to figure out that Toyota’s strategy of making cars closer to the customer makes more sense than the endless pursuit of cheap labor. No, the threat is the emergence and growth of markets in other countries, without any redeeming reason to make things in western Europe to ship to those markets.
Over 80% of the cars made in the world are made by American, Japanese and Korean companies. Not one of the 20 best selling cars in 2005 was made by a European company. Why would one of those companies want to make one of those models in Portugal instead of in their own country, or closer to their market? There is absolutely no good reason whatsoever.
I have been intrigued by a statement made by Carly Murdy, the recently retired Director of Education Programs for the UAW in her review of Rebirth of American Industry. She wrote that it was not enough for management and production people to pursue lean manufacturing – that lean success is a community endeavor. Local and national government, as well as the education systems at all levels must be a part of creating a viable lean environment. Carly is a very wise woman and her retirement was the UAW’s loss.
The only possible answer to the questions Why Portugal?, Why Germany?, Why the UK? is lean manufacturing. The answer has to be, ‘because the cars made in Portugal are the best quality, shortest cycle time, best cost cars in the world’. No other answer will work. Western Europe cannot change the globe and solve their logistics shortfall relative to where the emerging markets are; and western Europe certainly cannot race to the bottom and compete on the basis of low labor costs. That leaves manufacturing excellence as the only real answer.
If I were Anibal Antonio Cavaco Silva, the head man in Portugal, I would want to be a leader who heeds Carly Murdy’s wisdom. First, I’d snag João Fernandes – a great Portuguese lean guy – from the sleepy little village of Aveiro and tell him the vacation’s over and put him to work as my right hand man / lean adviser. I’d get together with the owners of all five auto assembly plants in Portugal – not just GM – and make them an offer they can’t refuse. I’d tell them the workers can’t take any less money – they only make about $1,500 a month in a Portuguese auto assembly plant; but they can live with a more reasonable overtime law. The current mandatory triple time rules can ease back to time and a half. The government can wipe out all of the taxes the auto companies pay for a year or two (Since 95% of the cars made in Portugal are exported, it isn’t like the other plants will be around long either, so the taxes are on their way out anyway), and the car companies can pony up the rest of the cost competition gap by agreeing to stay in Portugal for at least two more years. When he used to work for a living the President was an economics teacher – he’ll figure out how to make the numbers work.
Then I would get the best lean thinkers I can find from wherever on the globe I can find them and launch lean government and education system overhauls, train workers until they know lean principles and manufacturing statistics inside and out, and I would relentlessly push plant management to become leaner, including tax incentives based on inventory reduction and employee training and retention. In short, I would launch a national effort to turn Portugal into the the leanest manufacturing country on earth.
And then I would have my answer. When someone asks, ‘Why Portugal?’, I’d answer, ‘Why would you want to manufacture anywhere else?’
Barry "aka the Hillbilly" says
Good Topic. By the way I sent you a link for an article by a guy at bain.com. I read the article, it was in Auto design a few months ago. It sounds kind of like what you just said above although it is a slightly different topic. There were some things in it that made sense. But hey Bain is an East Coast Consulting outfit, so that makes me quezzy. Anyway if you have a chance, take a look at the article. The guy supposedly has a new book out called “The Ultimate Question”. It may be full of drivvle, but thought I would take a chance and send you the link to see what you thought of what he had to say.
Josef Horber says
as much as I agree with all other points, I don’t think, that tax incentives are the right thing to do, because:
1 – they solve the symptom (lack of profit), but don’t solve the root cause of the problem – lack of attractive car models, bad quality image and high costs due to the lack of lean production / management. The tax incentives would be used for a temporary financial improvement, but the danger is, that they would take away the pressure for radical changes. As sad, as it is, the kind of stress and pain that’s around in GM are the best motivators to finally embark on a lean journey.
2 – they would be unfair to the “big” EU-countries, like France and Germany, who are paying year for year billions of Euros into a common pocket to be transferred to countries like Portugal in order to help their economy. So the Portugese tax incentives would be partly financed by German taxpayers. How would You feel about a Mexican plant being subsidised with Your tax payed in the U.S.?
3 – they would be unfair to the “really poor” EU-countries. If a Portugese worker earns 1,000 EUR / month, there are millions of Polish, Czech, Hungarian etc. workers willing to work for 400, and they are members of the same EU. Their governemnts can’t just afford too many tax incentives, to compete with Portugal, or even Germany or France. Why are they less entitled to tax incentives creating jobs for them, compared to their Portugese collegues?
4 – they would be unfair to the community of taxpayers (regardless from which country). They did not cause the GM problems. Why should they pay for fixing them? I don’t want to see my money being pumped into an inefficient organization.
5 – they would be unfair to small companies, who are just not in the lucky situation of getting enough attention, which stimulates politicians to jump in and help them. If a small company is not making profit, it would go bancrupt. While the market demand stays the same, it would re-create the lost jobs, just in another company.
You can manufacture cars without public subsidies, just take a look at Porsche. When they built their brandnew plant in Leipzig, Germany, they have deliberately abandoned their right to subsidies. Other car companies are also making expensive cars for rich customers but don’t see a problem in begging for public financial support. Virtually all decisions to build or expand plants are preceded by a shameless bargaining about subsidies and the companies make use of their argument of creating jobs for blackmailing governments and putting them into a ruinous competition against each other.
If GM just would implement half of Your other points in order to become more efficient, they would not need to ask for public money.
Bill Waddell says
I agree with all you said Josef. My suggestion for tax breaks was only for “a year or two” and the intention was that all three parties to the deal – GM, the Portuguse workers, and the government make a contribution to the loss until the overall cost of the plant goes down.
It would be unfair to suggest that GM continue to bear all of a $600 per car cost overrun until Portugal starightens out its act.
If it still takes tax breaks to be competitive in two years, GM should close the plant and moe out.
Chris Card says
What are the 5 car plants in Portugal?
Bill Waddell says
I don’t know if there are any more, but Opel, VW, GM, Ford and Mitsubishi all have plants in Portugal. GM and Opel are on the way out. They all went there in the first place because Portugal has the lowest wages in Western Europe.