Toyota as Number One

...remember Japan as Number One?...

I'm just back from a meeting of the Japan Foundation American Advisory Board, where part of the discussion was on the ups and downs of the field, such as high enrollments into the mid-1990s from those approaching the region in an instrumental way. Do you remember a prominent book of that era, Ezra Vogel's Japan as Number One. [mea culpa: he was the advisor for my undergraduate senior paper]

The End of Luxury Margins

...luxury at low cost is a potential disaster for the industry...

Diana Kurylko at Automotive News has a front-page story in the January 21st issue [online here arguing that "$30,000 is the new luxury-car hot spot". The evolution of CAD systems (linked now to engineering databases) and the revolution in materials science means that it is feasible to provide the NVH (noise vibration handling) of a luxury vehicle at little or no incremental development cost and a modest manufacturing cost. Leather remains necessary – a $1,000 cost premium for two front buckets and a rear seat?) – and additional speakers and other spiffs add cost. But safety mandates mean that stability control, keyless entry and so on are either present or can be added at low cost as the underlying IT backbone is in every vehicle.

Henry Ford, A Documentary

Public Broadcasting Service Premiere of 

American Experience Presents Henry Ford 

Tuesday, January 29th, 2013 9:00 – 11:00 PM on PBS

 – A Review by David Ruggles –

additional comments by Mike Smitka

Henry Ford changed the world with his assembly line method of auto assembly, patterned after processes he observed in the meat packing industry. One might think there is nothing new to be learned about the man, his life, and his legacy. And perhaps there isn’t. But I have never found such a wealth of information and insight in one place as in this wonderful documentary directed by Sarah Coit and to be presented by PBS in conjunction with the 150th anniversary of Ford’s birth.
A study in contrasts and contradictions, Henry Ford was a genius who did a lot of good for mankind, while at the same time his behavior presented a case study for the psychiatry profession. Henry Ford began his career at a time in our history when a few plutocrats had combined net worth equal to a major portion of the entire GDP of the country. Before the turn of the century, John David Rockefeller’s net worth alone exceeded 10% of the GDP of the United States. In today’s dollars, that would be the equivalent of about $1.5 Trillion. Together with Andrew Carnegie, J. P Morgan, John Jacob Astor, Andrew Mellon, and others, monopolies controlled the U. S. economy and government policy was bought and sold at will, at least until Teddy Roosevelt signed the Sherman Anti-Trust Act in 1890 and the graduated income tax was passed in 1913.
When Henry Ford historically doubled the wage of his workers from about $2.50 per day to $5.00 per day, it was a giant step forward for the country’s middle class. He also pioneered both 8 hour work day and the 5 day work week. Ford didn’t make these moves for altruistic reasons alone. His assembly line production method burned out employees. In the face of overwhelming employee turnover he was interested in employee recruitment and retention. He also attached conditions to the wage which were onerous for many employees. Ford’s “Sociological Department” monitored employees through a network of thugs and spies. Heavy drinking, gambling, and other adverse behavior was strongly “discouraged.”

Velocity Overdrive, the Road to Reinvention

A Book Review

by David Ruggles and comments in italic by Mike Smitka

Dale Pollak’s third book, “Velocity Overdrive,” is another winner and is must reading for dealers and any student of the auto business. That includes auto manufacturer executives.

Dale’s ability to put into words the changes the industry has been experiencing has helped hundreds, if not thousands, of auto dealers, both new and used. He has rightfully pointed out that the delivery of information via the Internet has brought “efficient market” economic principles to the pre-owned business in particular, compressing available “spread.” New data driven management methods that are based on rapid inventory turn at lower, but real world gross profit for the specific market, actually produce considerably higher total gross profit through higher velocity, a concept difficult for some to grasp. In some areas of retail the benefits of sacrificing margine to increase inventory turns is commonsense. Automotive retailing is catching on: Daily, market realities are making believers out of skeptics.

My favorite chapters include 8, “Dealership Department Silos,” and 14, “The Extra Mile in Reconditioning.” In these chapters Pollak dares to challenge long and stubbornly held beliefs that the pre-owned department exists to be pillaged by the fixed operations departments. After all, it was thought, sales people and managers sell from their cost, not based on any kind of rational retail market value. And gross profit booked by charging retail prices for internal reconditioning, or “retail recon,” is retained regardless of what happens to the used vehicle, they thought. There are dealers who have followed this “retail recon” policy for another reason. They would rather pay management compensation based on fixed operations rates than sales manager rates. The Internet has changed all of that. Dealers still in denial on the issue especially need to read this book!!