By Kevin Meyer

A hallmark characteristic of GM, Ford, and Chrysler was and for the most part still is their propensity to try to bash suppliers into submission on pricing.  Forget partnering with suppliers, the primary tactic was to threaten in order to obtain the lowest short-term price. This inevitably led to a reduction in quality and overall supplier performance. In contrast there was Toyota which had a reputation of working with suppliers to obtain mutual benefit.

"Had" is perhaps the operative word.  For it seems even Toyota is succumbing to competitive pressure and is changing… and not for the good.  From SupplierBusiness:

Toyota to suppliers – reduce prices or face being replaced.  Toyota’s stark message to its supply base is a sign that relations between suppliers and OEMs are becoming increasingly strained.  In a sign of the increasingly adversarial relationships currently being seen between OEMs and suppliers, Toyota is reportedly now telling parts suppliers in Japan to drastically reduce prices or face being replaced by overseas rivals.

The conditions reportedly came at an August meeting in Nagoya between Toyota and members of its 219 strong ‘Kyoho-kai’ of domestic suppliers, a group that includes Denso and Aisin Seiki.

Times they are a'changing.  Unfortunately.  Toyota's rapid growth led to a leadership that is not fully steeped in the Toyota culture.  This is what created the missteps during the recent quality crisis – a focus on shifting blame and fighting evidence which harmed their reputation.  Many of us had thought they had learned a lesson and had gone back to their roots to focus once more on creating value for the customer and quality.  Perhaps not.

Toyota has close ties with its Japanese suppliers and has traditionally been loath to threaten them with such action. The company shares cost savings with suppliers, guarantees business and holds stakes in the biggest members of its parts-makers group. The rapid expansion of its supply base overseas is seen as being partly responsible for the quality issues that have affected the company’s reputation in recent years.

Toyota has also suggested that Japan-based suppliers should procure more of their parts from overseas as one way to reduce their prices, according to reports from the discussions. The company has asked some parts-makers to cut prices by as much as half, according to one report.

Bashing suppliers on pricing and encourage outsourcing and chasing low cost labor.  Watch out, Toyota.  Remember your core values and principles.

By Kevin Meyer

Forget for a moment all the financial convolutions the GM bailout foisted upon the taxpayers, and the accounting machinations they're going through to show a profit.  Forget that they are in effect using U.S. taxpayer dollars to invest in China – although perhaps that's a more direct route than interest on the growing U.S. debt in effect being an investment in China.

Companies succeed when they focus on creating value for the customer… which only then creates value for the shareholders and stakeholders, and only then creates value for management.  The old GM forgot that – if they ever knew it in the first place, and tried to skip those initial couple of steps.  If you forget it all begins with the customer, you crumble.

The new taxpayer-enabled GM claimed they were different.  Some pretty nice designs were created, some pretty pathetic ones discontinued.  But somehow the internal philosophy of the company apparently hasn't changed.

General Motors Co is seeking to dismiss a lawsuit over a suspension problem on more than 400,000 Chevrolet Impalas from the 2007 and 2008 model years, saying it should not be responsible for repairs because the flaw predated its bankruptcy.

The lawsuit, filed on June 29 by Donna Trusky of Blakely, Pennsylvania, contended that her Impala suffered from faulty rear spindle rods, causing her rear tires to wear out after just 6,000 miles.

"New GM's warranty obligations for vehicles sold by Old GM are limited to the express terms and conditions in the Old GM written warranties on a going-forward basis," wrote Benjamin Jeffers, a lawyer for GM. "New GM did not assume responsibility for Old GM's design choices, conduct, or alleged breaches of liability under the warranty."

Technically GM is probably correct.  But if you are a customer and see GM trying to weasel out of any commitment to quality and responsibility, how would you feel?  Is that creating value – in terms of confidence among other things?  Of course not.

Nice job GM.  Old GM.

By Kevin Meyer

Plus ça change, plus c'est la même chose. 

It doesn't take much to tell this tale… consider the first news item:

GM said it sold 178,896 cars and trucks in the U.S. last month [January 2011], up from 146,825 vehicles in the year-ago period, a rise of 21.8%.

Now consider the second.

Month-end [January 2011] dealer inventory in the United States stood at about 510,000 units… about 124,000 higher than January 2010.

Which obviously leads to the third.

GM increased spending on marketing promotions by $498, or 16 percent, to an estimated $3,663 per sold vehicle, according to researcher Autodata Corp.

And ultimately…

As the only component of consumer credit that is surging, non-revolving loans, indicates that virtually all car purchases are made based on the old formula of "no money down." And with the government backstopping both the car maker and the lender banks, we would be very interested in discovering just how bad the delinquency rate in non-revolving car debt is over the past year, especially as it relates to GM.

Sound familiar?  Chasing top line sales by "selling" cars to the dealers, then being forced to provide incentives to those dealers to move the excess inventory, and then waking up one day wondering where the profits went.

The more things change, the more they stay the same.

By Kevin Meyer

We've discussed Volkswagen before – both the possibility that their focus on long term excellence will vault them into the top tier of auto manufacturers but with the danger that their strategy may become focused on volume instead of value.

Well, unfortunately the focus on volume may be winning.

Volkswagen AG has one of the brashest goals in the auto industry—to dethrone Toyota Motor Corp. as the world's largest auto maker.

To become the world's largest car maker by 2018, Mr. Winterkorn and his management team have set themselves a lofty goal of selling 800,000 VWs a year in the U.S. by then, and another 200,000 cars from its luxury moniker Audi. VW executives have said they aim to become profitable in the U.S. by 2012 or 2013, selling 400,000 VW-brand cars annually by then, after racking up losses in the U.S. of close to $1 billion in some recent years.

It's an audacious—and some analysts say, impossible—target.

So where have we heard that before… the siren call of volume and being the "biggest?"

Ah yes, GM. 

The auto company has been guided to the lip of a cliff in part by following the flawed line of thought that it needs to be No. 1 in market share — as if there were some eternal prize for the car company that sells the most cars or being the girl with the most cake. And the business media generally play along, reporting sales rankings as if they were the end-all and be-all.

Valuing such a showy if meaningless sign of strength might seem important if you're working in the traditionally macho world of the newsroom, and it also resonates in the equally testosterone-filled boardroom, particularly for boardrooms in Detroit.

But being No. 1 doesn't matter one whit.

Yep, that worked out pretty well.  That post was written in 2007, and the company proceeded to dive off the cliff, rescued by some politicians that believe capitalism doesn't also require failure or punishment for sheer idiocy.

But where else have we heard about the crazy focus on the top line?  Yep, none other than Toyota.  The company that used to define excellence and customer value somehow forgot… and learned a very painful lesson.  After decades of methodical growth based on demand generated via increased customer value, their focus shifted toward sheer size.

This is beyond a mere lapse in judgment – a human mistakethat anyone could have made.  This is nothing short of wholesale abandonment of their founding principles.  This ain't Kiichiro Toyoda's car company any more.  "Since questions were first raised about possible safety defects, we have been pushing Toyota to take measures to protect consumers," LaHood said.  The company we have so long admired would not have had to be pushed by the government into doing right by its customers.

Nothing short of shameful.

Core values of quality and customer service were lost on the top executives, problems were ignored or even swept under the rug, trends weren't identified.  The company will probably recover… eventually.  But the company has paid a huge price – both financial and in terms of reputation.

So Volkswagen… you want to be the biggest, eh?  Good luck with that.