Tuesday, December 06, 2005

Why Bill Ford (And Detroit in General) Has It Exactly Wrong on the Big Two's Problems

Detroit can't compete with Japan, Inc. because the Japanese government protects and subsidizes its automakers, which gives them an insurmountable advantage over their U.S. and European competitors, right?

That line has long been the Holy Grail in Detroit and among Detroit's Washington, D.C. allies for why General Motors and Ford have been losing market share for two decades. And for two decades the Holy Grail has been wrong. Even so, Bill Ford repeated the meme last month during a speech to the National Press Club.

James Womack explained how Ford got it wrong in The Washington Post this past Sunday. Womack is co-author of "The Machine That Changed the World." More recently, he has been President and Founder of The Lean Institute, a Brookline, Massachusetts non-profit that studies and explains lean manufacturing concepts and applications.

Womack argues that it's not Japan, Inc. that Detroit can't compete against effectively but Toyota and Honda (and to a lesser extent by other Japanese automakers):

"What makes this claim so extraordinary is that Japanese companies, led by Toyota Motor Corp., are thrashing Ford by building vehicles in North American factories with North American-made parts and North American workers, who receive American-style wages and health benefits. And increasingly, these Japanese brand vehicles are engineered in America by Americans."

So if Toyota can do it in America, why can't GM and Ford, asks Womack. His answer is simple: Detroit has never adjusted to the fact lost its monopoly on the American market years ago and thus could no longer guarantee things like the defined-benefit pensions and generous healthcare coverage. It's like an Olympic marathoner competing while carrying a belt of lead around his waist.

Womack's op-ed is especially important in view of the coming demands from politicians and domestic auto executives for measures such as government subsidies for sales of hybrid vehicles, trade restrictions on imports and federal tax credts and support for research and development of new technologies.

UPDATE: "Me, Too!" Says GM's Wagoner

The campaign for a federal bailout gets another boost today, this one on the op-ed pages of The Wall Street Journal from GM Chairman and CEO Rick Wagoner. Wagoner denies that he is advocating a bailout of the domestic automakers from the lengthy list of woes enumerated by the GM chief.

But Wagoner offered nothing beyond the familiar Detroit cliche that "all we want is a level playing field" as a solution. In other words, don't expect a deviation from Detroit's traditional united front on government policies toward import competitors.

In the meantime, Wagoner reiterates the familiar figures about spiralling pension and healthcare costs that are the legacy of Detroit's golden era of monopoly on the U.S. market:

"So what are the fundamental challenges facing American manufacturing? One is the spiraling cost of health care in the United States. Last year, GM spent $5.2 billion on health care for its U.S. employees, retirees and dependents - a staggering $1,525 for every car and truck we produced. And the figure is going up again this year.
"Foreign auto makers have just a fraction of these costs, because they have few, if any, U.S. retirees, and in their home countries their governments fund a much greater portion of employee and retiree health-care costs.
"Some argue that we have no one but ourselves to blame for our disproportionately high health-care 'legacy costs.' That kind of observation reminds me of the saying that no good deed going unpunished.

"That argument, while appealing to some, ignores the fact that American auto makers and other traditional manufacturing companies created a social contract with government and labor that raised America's standard of living and provided much of the economic growth of the 20th century.
"American manufacturers were once held up as good corporate citizens for providing these benefits. Today, we are maligned for our poor judgment in 'giving away' such benefits 40 years ago."

Go here for the full Wagoner.