Blind To The Whole

So GM announces that 2,600 dealers are going to fall by the wayside, and Chrysler is giving the heave-ho to almost 800.  That will take them from about this:

To about this:

By my math, GM needs to dump 4,000 dealers to get to the Honda/Toyota benchmark - not 2,600.

Then give this article a read: Fixing Detroit's Broken Business Model

The author writes of GM purchasing: "Almost overnight Lopez changed all that. He tore up existing contracts and demanded that suppliers agree to immediate price cuts of up to 20%. Many suppliers protested, but ultimately submitted to his demands. Lopez's early success delivered a windfall for GM. Emboldened, they began crafting a new aggressive standard for purchasing operations – a standard copied not only by Ford and Chrysler, but also by many other large players in the supply chain. Over the next sixteen years, Detroit and its increasingly powerful purchasing departments demanded, and got, ever greater discounts and cost-downs from their suppliers. Purchasing agents began getting bonuses for successfully negotiating lower prices. Suppliers, over time, became conditioned to believe that the "lowest price always wins."

He goes on to describe how the relentless domination of GM over their suppliers with a single-minded cost focus completely destroyed any incentive the suppliers had to innovate or improve.  Continuous improvement on the part of a supplier was immediately converted to cost reduction for GM.

So a supply chain picture emerges of suppliers beaten like whipped pups over cost upstream, a bloated fixed cost pig of a dealer base downstream, and the GM accounting department ( and training ground for just about all senior management) sitting squarely in the middle. It is patently obvious that GM didn't care about the total cost, so long as it wasn't their cost.

As the dominant force in the supply chain, Toyota, with their legendary supplier partnership focus and much smaller dealer base optimized the whole of the supply chain.  GM, on the other hand, saw the lean lessons from Toyota as applicable to themselves only, and never saw the whole.

From the eyes - and wallet - of the customer, the corporate borderlines between supplier and manufacturer, and manufacturer and dealer, and dealer to customer, are distinctions without differences.  The price the customer pays is largely a function of the total cost, regardless of which entity in the chain incurred the cost.

A worse train wreck than the cost issue is quality.  In reading over the National Automobile Dealer Association report for 2007, I was surprised to learn that the average dealer loses money on a new car sale, but makes a great deal of money selling parts and service.  Maybe you already knew that.  I am sure that this is true for GM dealers much more than for Honda and Toyota dealers simply because the smaller dealer base in the Japanese supply chains sells so many more cars per dealer - so much less fixed cost per car sold.

By deploying such an obese dealer network, GM has put the dealers in the service business - with the unintended consequence of making defects the dealer's best friend.  Couple that with a 'low cost is all that matters' mentality hammered into the suppliers and it should come as little surprise that GM has been perceived as a worse value than Toyota and Honda for as long as the Japanese have been operating in the US.

Buy a GM car and you will be paying more for dealer advertising than you will for the labor cost at GM, but dealer advertising was not GM's cost and, hence, not their problem, so their own employees have been the singular focus of their cost problem.

The dealer base and dealer cost is 3 times greater at GM than Toyota - and all of those GM brands are certainly the biggest driver.  A different dealer for each brand, in spite of the fact that the products under each of those brands has become more and more the same over time.  The Toyota System originators advocated asking why 5 times to get to the heart of things, so ask why all the brands 4 more times and you will get so far out into marketing theory la-la land you might never find your way back to reality.

So the bigger why is why only axe 1 brand - Pontiac - and why only axe 2,600 dealers when it will take 4,000 dealers less to operate at the Toyota/Honda benchmark?

And what does this say about Ford?  They have the worst dealer structure of all and they cannot blame it on the proliferation of brands.  At Boeing, Alan Mulalley built a reputation for driving lean, as the factory focused leanies understand it, but he also turned Boeing into a world class "outsourcing - cheap supplier - China price" outfit.  And Boeing got themselves into a world of trouble with the DOD for their shady sales and marketing strategies.  So the evidence that Ford really understand the entire value stream as it looks and feels to the final customer is not there yet.

Finally, GM's loss - tragedy, in fact - is your company's gain if you can take this and look at the entire value chain in which you operate, and honestly assess how it plays out in the eyes of your final customers.  Do you manage for the optimization of the whole, or are you like GM, grabbing your own and letting the rest of the players in the chain, and the final customers, fend for themselves?