May 3, 2005

The Closing of Lansing Car Assembly in Lansing, Michigan
There was an article in the Sunday, May 1, 2005 Lansing State Journal about the closing of the Lansing car assembly plant. It will close for the last time on Friday. It is a bit sad to me. Many of my friends’ moms and dads worked at that plant while I was growing up in Lansing. Ransom E. Olds started making his cars there in 1897. A lot of families made their living working at Lansing car assembly. A lot of good cars were also made there.

Why is this plant closing? Well, it is 104 years old. But that is not the only reason. Oldsmobile is no longer an active General Motors brand. They have killed it off-at least temporarily.

So, what happened? Part of the problem is that the Japanese auto manufacturers seem to be much better at designing and developing new products quickly. They seem to be able to respond quicker to a changing global marketplace. Sometimes, it might seem like they are just lucky. But that is not really the case. They really are quite a bit better at managing processes that lead to building high-quality, reasonably priced vehicles. The Japanese automobile manufacturers tend to think about processes and do not focus as much on product variety and attributes that don't fit easily within established design and manufacturing processes.

This idea of processes is critical. Toyota likes to talk about "Kawaita zokin wo shiboru.” And that means "wringing drops from a dry towel." They think about the process as much if not more than the end product.

Americans in general, in my opinion, focused too much on what they can see and feel. They focus on the tangible and not on the intangible. The car seems like it is the product. But actually the car by itself is only part of the product. The ease-of-use of the car, the price and cost of the car, the functional utility of the car, and what the vehicle makes us think about ourselves is probably more important than just the product.

I remember standing on the porch with the father of one of my friends that lived on Weger Place just down the street from my house. It was about 1973 and a small Honda driven by a young woman drove past my friend’s house. My friend's father said "I can't believe anyone drives those kinds of cars. I think they're only market to our girls who can't afford real vehicles. Let the Japs have the low-end of the market. We’ll sell the cars were you can make real money." Of course today, no one is buying a high-end Oldsmobile 98 or Delta 88. But, they are buying Lexus or Acura which are Toyota and Honda brands. It was not clear to my friend's dad that if you control the low end of the market, it is usually pretty easy to move up to a higher place in the market. The toughest competitors are those that start at the low end and move into a higher-priced competitors markets. The low cost competitor usually comes armed with the knowledge of how to compete at lower prices than the higher-priced competitor. Because they have had to be efficient, they are efficient.

Structure drives behavior. As anyone that is taken one of my classes knows, "structure drives behavior" is one of my favorite sayings. It is often a test question on the midterm or final exam. It means that the rules of the game determine the ultimate outcome of the game. You cannot win if you are playing by lousy or outdated rules. You have to build structures that allow you to compete effectively. Great behavior by itself does not determine the structure. The companies or countries or churches or schools that have the best structure are the ones that end up being the most successful.

It is my belief that you could see the end of Oldsmobile in the closing of Lansing car assembly coming along time ago. Because of several structural things that have been happening in the marketplace for a long period of time, and poor strategic decisions made by GM, downsizing of the company and closing of several of its plants were bound to happen.

While it seems sad to me that Lansing Car Assembly is closing, it is part of a natural process called "creative destruction." Creative destruction means that over time institutions and companies are replaced by a more efficient and effective institutions and company. It is kind of a natural lifecycle of countries, institutions, and company. At some point in time, the older entity is replaced by the younger one.


Posted by Dr. Dale Rogers at 10:15 am May 4, 2005

Comment by Rudi Leuschner

May 25, 2005

Every morning in Africa, a gazelle wakes up.
It knows it must run faster than the fastest lion or it will be killed.
Every morning a lion wakes up.
It knows that it must outrun the slowest gazelle or it will starve to death.
It doesn’t matter whether you are a lion or a gazelle.
When the sun comes up, you better start running.
(An African proverb – in Thomas Friedman, The World is Flat)

Lansing was one of the Gazelles that woke up one day and found out that it was slower that the fastest lion. And to me this seems like something typical for GM. They really didn’t make very many good decisions in the last years. The problem with Fiat is just one example. Their bond rating also got downgraded, which makes them officially “junk”, as it was announced in the Wall Street Journal. Their products also have not shown that they are on the cutting edge: no retro styling, no hybrids, boring design, ancient technology…and the list goes on and on…

Another example is GM Europe, who had huge problems with their manufacturing at their European brand Opel. They wanted to lay-off a lot of workers and move most of the production into cheaper Eastern Europe. We saw one of the biggest and fiercest labor fights Germany had seen in a long time. It is safe to say that GM lost that showdown. Of course examples like that don’t help GM become a more competitive carmaker because if you tie heavy weights to the legs of the gazelle, the lion is going to have way better chances. Even the union leaders agree that in order to limit strikes, they have to “learn” how to collaborate better with management. Compared to other countries, particularly in Europe, Germany didn’t have that many problems with strikes. It could be because German workers already got so much and companies were already much more competitive due to the miracle economy. But another explanation could also be that German management is more effective at “managing” their unions, who by the way have more power than unions in any other country I have seen, because they are represented in the board of directors due to “Mitbestimmung” (codetermination).

It seems like most of today’s management doesn’t seem to understand that for a union, a strike is not a good thing. Having said that, from a neutral position, it seems that the way both parties come to the negotiation table, they don’t really want a compromise that is good for both parties; all they are really after is to get their objectives through and not make too many concessions. The workers feel like they are getting less and less, but are expected to do more and more. Management feels like their hands are tied because the company is held back through union contracts. The truth is that if a company fails, everyone has lost. They got killed by the lion.

Picking up on what Dr. Rogers means with “structure drives behavior”, the Japanese carmakers are in a very good situation right now. They think very much in the long term. They want to make their given technology as reliable and long-lasting as possible, while still having a very competitive price. For comparison, the German carmakers are always on the cutting edge. They are pushing innovation after innovation, even at the expense of reliability. BMW took a very big risk with their controversial styling and technology; I-drive and Chris Bangle come to mind here. Mercedes Benz has pushed the limits on electronic assistance and horsepower; I would have thought that the 612 HP on an AMG S65 should be reserved for a sports car and not a luxury sedan. And finally GM is still stuck in their past technologies, not taking many risks, while offering a product that is good enough for most people. They have a quite strong brand loyalty going for them. At least their quality seems to have become better as they take the second place in JD Powers initial quality rating behind Toyota.

The future is very hard to predict at this point in time. Fossil fuels are diminishing and thus getting more expensive. As for right now, every carmaker is trying to offer cars that sip fuel instead of chucking it. There are new technologies on the way, such as electro-gas hybrids, clean Diesel, and of course hydrogen. As time progresses, carmakers have to speed up and become more and more flexible in order to keep up with the fast pace. I am a little concerned that some won’t be able to be that fast or they run in the wrong direction. The changes that we might see in the next 20 years, could be more dramatic than the changes in the past 100 years. Nobody can afford to take a break any more because any break could be the final break.

Rudi Leuschner

Dr. Dale Rogers biography