The BBC has been pushing the lean impact of the auto wars over the past few days. Two days ago they had a story on The Triumph of Lean Production comparing lean at Toyota, GM and Ford. Our friend Mark Graban at the Lean Blog did an excellent job of commenting on that article, with a couple snippets below.
There's a huge cultural difference between Toyota and Ford. Even with Ford's attempts at reclaiming the "Ford Production System," all of the lean design and lean documentation doesn't matter if you're not going to "manage lean" which includes letting workers pull the cord to fix quality problems.
Let's not point out management practices as the differences between the "Detroit 3" and Toyota... let's blame healthcare and currency policy. Right. The differences between Toyota and the Detroit gang are so obvious. Having the better management system -- that's the key to Toyota's success.
Mark reiterates a point that many of us in the lean community have made for years: Yes, "legacy costs" are a significant competitive hurdle for the "Detroit 3." However they also agreed to the union contracts that created those costs, and that therefore represents a failure of leadership. Those failures have come home to roost, and need to be dealt with.
Today the BBC had an article on Globalising the Car Industry that describes how the design and manufacture of autos is becoming truly global.
The US represents less than one-quarter of the world industry, and its market share will decline further. The US car market has already reached saturation point. Stephen D'Arcy of PricewaterhouseCoopers believes all the growth in the global auto industry in the next decade will come from emerging market countries such as India, China and eastern Europe. And that means the fastest-growing segment in the car industry will be the small car, the only size that will be affordable to the burgeoning middle classes in these countries.
So with that in mind, which companies are best poised to capitalize?
Major companies developing low-cost cars include Renault, Fiat, Peugeot, Daewoo (GM), Hyundai and Daihatsu (Toyota), as well as Chinese firms Geely and Chery and Indian companies Tata and Maruti.
We've written about a couple of those smaller companies before, especially Tata and Chery. Those companies are making quantum leaps in terms of quality, productivity, and design. They aren't competitive on a global scale or in the U.S. yet, but remember what we said about those flimsy Toyotas in the 1970's...!
Being truly global presents some interesting challenge.
The big car groups are moving to a global production system, in which their factories anywhere in the world are identical, based on global design and manufacturing best practice. That ability puts pressure on smaller companies who cannot match their productivity. At the same time, it allows the global car companies to localise their product mix to suit each region.
So standardized systems and methods are critical, similar to how Toyota deploys the Toyota Production System to all of its plants. However as Toyota is learning, long distances for both knowledge and material supply chains can become problematic. Maintaining methods, and especially philosophical, integrity is difficult when large numbers of new employees don't have the opportunity to become fully steeped in an existing culture at an existing plant.
A global market with a large number of competitors means that no one company has a majority share.
In Europe, the market leader, VW, has only a 14% market share. Japanese and Korean manufacturers such as Hyundai and Toyota are ramping up production, representing a real threat to the smaller mass-market producers such as Fiat, Renault and Peugeot-Citroen. In China, VW's share of the market declined from 60% to 10% in the last decade, the same size as GM (both companies operate joint ventures). Western companies are under challenge, not only from Asian rivals but also from a proliferation of home-grown companies with global aspirations.
This creates interesting financial models.
GM's President for Asia-Pacific, Nick Reilly, says that the increasing competition is making it tough for GM to make money in China.
But wait a minute! Why should that concern GM? I thought GM's operating philosophy was to "be number one in sales" regardless of whether they made a profit! Maybe they should find another unprofitable Malaysian automaker to buy to... uhh... improve the situation. No, I don't get that either, but then again I'm not a GM executive. The article goes on to describe how GM may actually be in a good position... like a lot of the media they have fallen for the story that GM started their "turnaround" several months ahead of Ford, without delving into whether the turnaround is truly effective.
The real challenge is going to come from the upstarts... Tata, Chery (well, perhaps in time), and maybe even Maruti... plus a host of some we haven't heard about yet. The BBC article alludes that productivity is related to size. In a globalized lean manufacturing world, I don't believe that's necessarily true. GM, and even Toyota, could face some major challenges in the next decade.