I was thumbing through the Chrysler bankruptcy filing and came across a few numbers that are worth sharing. The great thing about Chrysler being in bankruptcy court is that they have to put a lot of details into the public domain. The situation at Chrysler is very much like that which I encounter at many of my consulting clients. With them I am typically bound by a confidentiality agreement, so I can't pour the numbers out in Evolving Excellence. Chrysler, however,is fair game thanks to the United States Bankruptcy Court Southern District of New York.
According to the bankruptcy affidavit, Chrysler has 38,500 employees plus another 2,300 contract folks for a total of 40,800. The affidavit also states that 27,600 of those employees are members of a union – the UAW for the most part. I am going to make an assumption here … just about every manufacturing company with which I have worked shoots for a Direct to Indirect Ratio of 4:1, but actually operates at closer to 3:1. Let's give Chrysler some greatly undeserved benefit of a whole lot of doubt and say that they are a 4:1 outfit, so 80% of those union workers are direct labor – 22,000 people.
So if Chrysler has 40,800 people and only 22,000 of them actually make cars, while the rest are involved in mostly non-value adding other things, that is a problem. But the really startling number in the filing is that Chrysler has 3,200 dealers which employee 140,000 people. 140,000 people working at dealerships and 22,000 people making cars??? It takes more than 6 people to sell and service a Chrysler for every 1 needed to build a Chrysler. How bad is a Chrysler if it takes that many people to convince people to buy one, then to keep it running?
Chrysler sold about 1.5 million cars in the US last year through these 3,200 dealers. The dealers are open 6 days a week, for the most part. That works out to better than 40 people at the average dealer to sell and take care of 1.5 cars sold per day. Plus another 3 or 4 people back at Chrysler to handle the paperwork.
By comparison, Toyota sold one and a half times as many cars in the USA as Chrysler last year through only 1,400 dealers.
As the lean community knows all too well – DIRECT LABOR IS NOT THE PROBLEM!
Far too many manufacturers fall into the Chrysler trap. Money spent on marketing, selling and administration is viewed as necessary, while lesser amounts of money spent on labor to actually build the product is seen as a major problem. Running off to China to gut the cost of direct labor, while leaving the enormous costs of selling and administration in place is a fool's errand.
Will Rogers said, "If advertisers spent the same amount of money on improving their products as they do on advertising, then they wouldn't have to advertise them". As far as Chrysler is concerned, if they spent just a fraction of the money on building better cars, they wouldn't have to spend much on selling and servicing them.
How about your company?