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Tuesday, May 11, 2010

from Detroit

By chance both David Ruggles and Mike Smitka were in Detroit today for the annual Chicago Fed auto industry conference. Speakers included both the Auto Task Force's head, Steve Rattner (back in private life) and Tom Stallkamp (of Chrysler and then DaimlerChrysler, now at Ripplewood). We're not journalists so won't try to attribute comments to any individual speaker. (For that matter, we probably won't read each other's posts in advance.)
GM seems to be recovering (see widely reported comments by Rattner that "reading the signals given to Wall Street" in his eyes implies a "we're profitable" announcement in the very near future). Fixed costs at the Detroit 3 are down; ditto recurring costs. One speaker even forecast that the two-tier wage & benefit structure will given a labor cost advantage to them, relative to the Japanese, while the latest Harbour study suggests they've achieved parity in productivity. The big hitch may be capacity constraints, not at the OEMs themselves but at suppliers who have maxed out their much-reduced credit lines but who typically are paid only 60 days after the fact by their customers. It's not clear that credit conditions have normalized enough for them to borrow so that they can rehire workers.
Others talked of cultural change, though 3 different economists in the group (mea culpa) queried components of that story. Was it culture or sensible (though possibly short-sighted) adaptations to their environment? Can such change be accomplished only through crisis, in which case the new culture will soon be out of synch as well. But the Detroit Three are now much slimmer, and maybe that will lessen the weight of culture. A firm the size of Toyota simply has too many people for them to communicate directly amongst themselves, and so the organization keeps waiting for one more piece of data before moving on quality or any other issue. That may be a sensible engineering reflex, but Toyota is now too big to succeed merely because of better production engineering and cost controls. With its big and therefore politicized bureaucratic structure, no one wants to stick their neck out, either. So wait for more information on safety issues, on the US truck market, on excess capacity inside Japan. For culture to be useful it has to be shared, but then you're locked into place.
So the bet becomes whether the industry is stable enough for any particular culture to work long enough to keep firms out of trouble. That's tomorrow's topic.
All of this is hard to pin down, culture is slippery even among anthropologists. However, I don't think it's about whether bad old habits persist, but whether the need for understood habits and ways of doing things won't continue to torment the efforts of major industry players to be more responsive amidst an unstable environment.
There was no unanimity on this. Nevertheless, I think there was a mild consensus that GM at least is able to make decisions more rapidly and then to implement them, rather than making a decision but then running it past another committee or three over the following six months just to be safe. Chrysler, in contrast, is now in its fourth corporate incarnation since 1999 (Chrysler, Daimler-Chrysler, Cerberus-Chrysler, and now "Newco[pany] Chrysler"). GM may have been slow, but no decisions were being made at Chrysler. Change there is now frenetic, but it remains unclear who will provide the money needed to develop new vehicles. The US government won't; Fiat hasn't. Crunch time will come next year.
mike smitka


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