Delphi recently brought in Robert "Steve" Miller to head up the company.  Miller is widely touted as something of a turnaround expert.  From my perspective, it would seem logical that turning around a manufacturing company would require a manufacturing expert.  Manufacturing, however, is not Miller’s forte.  He is a combination finance guy and lawyer.

   Miller’s "turnaround" track record includes filing for bankruptcy protection after he took charge of Federal-Mogul and Bethlehem Steel.  He "turned around" Waste Management by orchestrating a deal to have them acquired by a smaller competitor.  After the bankruptcy, he also put together a deal to have Bethlehem bought by someone else.  The strong point to his resume is his leadership of the government bailout of Chrysler, for which the American taxpayers were rewarded by having the company taken over by a German outfit.  (oops – my mistake, it was a ‘merger’, with all of the important management jobs, the money and control going to the Daimler side of the merger.)  Now he is at Delphi making noise about the impact of their legacy costs on their inability to compete.  He has been before Congress already looking for a government bailout for the auto industry’s under funded pension problem.

   There is no doubt that Delphi and others have a big problem with legacy costs, but that is far from their only problem, nor is it their real long term problem.  Delphi is a manufacturing company that does not manufacture very well.  In the end, they are a woefully performing producer desperately in need of a manufacturing solution.  (Becoming a whole lot leaner, for instance, would be an excellent idea.)  Bringing in accountants and lawyers to solve manufacturing problems is something akin to having the best plumber you know give you a root canal job.  For Delphi, given Miller’s track record, I suspect that his turnaround will be about as painful for Delphi’s stakeholders as that root canal.

   Henry Ford said that "Profit is the inevitable conclusion of work well done".  The fundamental concern is manufacturing – the work.  If the work is performed at an excellent level, profit will not be so much of a problem.  Detroit is not the only place where this simple tenet is missed.  It seems to be the case with all of the big, old manufacturers that they see all of their failures as numbers problems, that require numbers experts to solve.

   Delphi needs help and I certainly hope Miller is able to give it to them, but if he relies on his trusty tool box full of legal maneuvers, government bailouts, plant closings, mergers and other deals – in short, if he thinks that Delphi can be turned around with paperwork and in his familiar haunts of the backrooms of Wall Street and Washington, rather than in the factories – it does not bode well.

 

   Our friends at NAM (National Association of Manufacturers) are waging a war of words with the liberal press, most often the Washington Post, concerning the Estate Tax.  NAM is eloquently defending a succesful business owners’ right to pass the fruits of his or her life’s work on to the next generation without the government taking such a huge bite that the factory has to be sold, at least in part, to pay the tax bill.  The liberals, predictably, view the matter as another class warfare issue and see repeal of the Estate Tax as another way for the rich to avoid paying taxes to the detriment of the poor.  Both sides may be missing the essential point.

   For many years I have traveled and worked in Mexico in the Maquiladora industry and have been struck by the generally dismal management of Mexican owned manufacturers.  Of course some are excellent, but far too many are mired in mediocrity.  I came to appreciate the wisdom of two moves that our Founders made that did much to create the ‘American Dream’.  They virtually gave away all of the land in the U.S., and they created the Estate Tax.  Mexico has done neither.  By giving away the land to millions of Americans, the government put vast amounts of capital in many hands.  They spread the wealth, which makes access to capital much easier for everyone.  In Mexico, land reform has consistently failed and wealth remains in the hands of the government and the top tier of society.  A young person with energy and an idea in Mexico has almost no chance of financing his dream.

   The  Estate Tax in the U.S. is not a money raising proposition so much as it is the great opportunity leveler.  It assures that the deck gets substantially reshuffled so that every generation has a more equal chance to succeed, regardless of a person’s parents’ success or lack of it.  In Mexico, with virtually no Estate Tax, that top 20 or so that controls all of the wealth passes it down intact from generation to generation.  Too many Mexican businesses are owned and run by second, third, fourth or more generation folks who do not have the mental acumen or work ethic to run a taco stand, let alone a manufacturing entity.  At the same time, energetic Mexican entrepreneurs either work in the factory, or hop the fence into the U.S. for the chance to fulfill their dream.  My bet is that most Superfactory readers, had they been born into Mexico’s unprivileged mass, would have been over the fence and applying their energy in the U.S. long ago.

   With the Estate Tax in the U.S., if Junior wants to be as rich as his father, he is going to have to earn it.  Without the Estate Tax, Junior gets a grossly unfair leg up on the rest of us.  As a father of four I want to pass on the ability for my children to live the good life as much as anyone, so I certainly understand the NAM point of view.  I wish I could give my kids an advantage over your kids and the rest of the world.  Thanks to the Estate Tax, however, the best thing I can do for my kids is to be sure that they get the best education possible and instill in them a strong work ethic.  In the end, the value of the Estate Tax is that it forces us to be good parents and not simply good business people.  Mexico, and many other countries, would be far better off by enacting a stiff Estate Tax themselves.

   I cannot remember the last time I agreed with the Washington Post on anything and disagreed with NAM.  On this one, however, for reasons the liberals will never fathom, I agree with them and hope the Estate Tax stays.   

  Those of you who have read any of my stuff will know that I usually try to work something of the historical background of different facets of manufacturing in whenever I can.  Over the weekend, while working on some background for a piece on employee participation in the continuous improvement effort, I came across some pretty convincing evidence that a slave by the name of Jo Anderson was actually the mechanical brains behind the famous McCormick reaper; and that Cyrus McCormick was more entrepreneur than inventor.  In the course of it, I had an opportunity to swap emails with a fellow by the name of Don McClure, a marketing consultant from Memphis, who is something of an expert on slave inventions.

  I also saw the latest episode of Spielberg’s "Into The West" and was reminded of the technical innovations made by the Chinese immigrant laborers that enabled the transcontinental ralroad to blast through the mountains when the American engineers were stymied.

  My curiosity aroused, I dug further and came across a guy by the name of Victor Aocho, who qualifies as the greatest inventing ‘geek’ of all.  This Mexican immigrant not only invented adjustable wrenches and reversible motors, but is the inventor of the ultimate symbol of the geek – the pocket protector.

  History is full of fabulous inventions, companies built and fortunes made on the strength of ideas that have come from the least likely corners of American society.  It occurred to me that it is true that our American diversity is truly our greatest strength.  A factory is the greatest of all melting pots.  In a typical plant, hundreds of people come together every day from different cultures, religions and economic backgrounds; with education levels and experiences covering the entire gamut; of both genders and all ages.

  What an incredible advantage we have to be able to muster a gang that has the ability to look at a problem or an opportunity from every conceivable angle.  Many of the countries with which we compete are terribly limited by state schools, state religions and limited immigration.  Everyone working in their plant has the same life experience set.  They all look at the world from the same point of view.

Corralling this American diversity into some semblance of coherenecy is often akin to herding cats.  We can hardly agree with each other on the menu for the company picnic.  But it seems well worth the squabbling that typically accompanies having everyone involved.  We have unique access in the United States to a fantastic idea machine.  I suspect we can take much better advantage of it.

   Several years ago in his automotive history, Richard Wright wrote, "In the economic structure which Detroit built, the laws of supply and demand have been modified.  Largely because of GM’s financial system, devised in the ’20s by Sloan and his chief economic lieutenants Donaldson Brown and Albert Bradley, when sales dropped prices did not drop – the use of labor did.  The financial risks inherent in the automotive sales cycle were shifted from stockholder to worker."

   He was right on the mark.  The Big Three have always been quick to layoff when times were tough, but very unwilling to cut prices.  Lately, of course, that theory has not worked well for labor or stockholders.

   GM has reported that their Employee Discount pricing program over the last month has generated sales up 41% over the same period last year.  Today, Ford came out with their own price cuts, and Chrysler is expected to do the same tomorrow.

   Taichi Ohno described Toyota’s "factory first" philosophy as the use of pricing to assure a steady flow through the factories.  Contrary to Sloan’s thinking, profits can come from continuous improvement in costs – not just from pricing margins.  Lean companies rely on employee participation and contribution to the continuous improvement effort.  Using pricing to assure job security is a cornerstone of lean thinking.  Detroit’s philosophy of cutting people to preserve pricing margins practically kills any chance of getting people to contribute.

   Henry Ford proved that reducing prices to drive up volume and market share, then looking to the factory to create profit works very, very well.  Toyota re-proves that proposition every day.  Sloan thought the only source of profit was the price mark up.  Sloan was wrong.

   Maybe the results of the last month will signal a shift in Detroit’s thinking.  Now all GM has to do is keep prices down enough to get their plants rolling again, start treating the employees as assets, and we may be looking at the dawn of a new age.

   In any event, let’s give GM credit for breaking out of their 80 year old business model and trying something different from the Sloan creed they have followed steadily since 1924.