Autoline on Autoblog with John McElroy
Three Ways to Save the Big Three
Now that the Big Three are finally brooming out all their old legacy costs, they're going to be in the best fighting shape they've been in for nearly 40 years. But how do we make sure they don't slip back into their bad habits like they have after every other crisis?
A lot of people have a lot of opinions about what's got to be done, but to me it all gets down to how the executives run these companies. Get them to do the right things and everything else will fall into place.
There's that old adage in business that goes, "Tell me how you're going to measure me, and I'll show you how I'm going to perform." And while it's all fine and good to establish specific benchmarks that trigger bonuses, it's got to go deeper than that.
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John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
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Here are three suggestions for the Detroit Three and their suppliers to follow so they come out the other end of this crisis with a sustainably profitable auto industry:
First off, no more company executives on the Board of Directors. And especially no "twofers" where the CEO and Chairman are one and the same. The Board is supposed to hold the officers of the company accountable for their performance. But the Board needs to maintain an arm's length distance if it is to be impartial. And having company officers in the same club is just a little too chummy.
Besides, if the Board needs information or advice, it can always summon any executive any time it wants. Even more importantly, the Board needs to recruit its own members. You can't let the officers of the company hand-pick who their own bosses are going to be.
Instead, the #1 focus now has to be on surprising and delighting customers. If they do that, stand back and watch the stock price zoom up. Investors will always put their money into companies with a hot line-up of products.
Quarterly reports are needed to drive financial discipline, but "guidance" forces management to focus too much on the needs of the analysts rather than on the needs of their customers.
These three suggestions alone will not turn the Big Three around. There are many other things that have to change, like treating suppliers and retailers as true partners. But no amount of restructuring is going to save these companies until management changes its focus from generating shareholder value to nailing customer satisfaction.
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Now that the Big Three are finally brooming out all their old legacy costs, they're going to be in the best fighting shape they've been in for nearly 40 years. But how do we make sure they don't slip back into their bad habits like they have after every other crisis?A lot of people have a lot of opinions about what's got to be done, but to me it all gets down to how the executives run these companies. Get them to do the right things and everything else will fall into place.
There's that old adage in business that goes, "Tell me how you're going to measure me, and I'll show you how I'm going to perform." And while it's all fine and good to establish specific benchmarks that trigger bonuses, it's got to go deeper than that.
____________________________________________________________________________________
John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
____________________________________________________________________________________
Here are three suggestions for the Detroit Three and their suppliers to follow so they come out the other end of this crisis with a sustainably profitable auto industry:
No more company executives on the Board of Directors.
First off, no more company executives on the Board of Directors. And especially no "twofers" where the CEO and Chairman are one and the same. The Board is supposed to hold the officers of the company accountable for their performance. But the Board needs to maintain an arm's length distance if it is to be impartial. And having company officers in the same club is just a little too chummy.
Besides, if the Board needs information or advice, it can always summon any executive any time it wants. Even more importantly, the Board needs to recruit its own members. You can't let the officers of the company hand-pick who their own bosses are going to be.
We can no longer allow these companies to be run primarily for the benefit of shareholders.
Second, we can no longer allow these companies to be run primarily for the benefit of shareholders. For too long the American automakers have done everything in their power to increase shareholder return. In the process they destroyed over $100 billion in shareholder value. How? By trying to slash costs to maximize profitability. That led to foolish practices like skimping on vehicle interiors, and under investing in small cars. It also allowed the UAW to lock in high wages and benefits because the cost of taking a strike hurt short-term earnings.Instead, the #1 focus now has to be on surprising and delighting customers. If they do that, stand back and watch the stock price zoom up. Investors will always put their money into companies with a hot line-up of products.
No more "guidance" for Wall Street.
Third, no more "guidance" for Wall Street. In their fixation on shareholders, American automakers issued short-term predictions of what they expected their earnings-per-share to be, and then did everything in their power to hit those numbers. But it's impossible to meet long-term goals and objectives when they are regularly disrupted by budget cuts needed to meet the promises made to Wall Street every three months.Quarterly reports are needed to drive financial discipline, but "guidance" forces management to focus too much on the needs of the analysts rather than on the needs of their customers.
These three suggestions alone will not turn the Big Three around. There are many other things that have to change, like treating suppliers and retailers as true partners. But no amount of restructuring is going to save these companies until management changes its focus from generating shareholder value to nailing customer satisfaction.
Autoline Detroit
Airs every Sunday at 10:30AM on Detroit Public Television.
Autoline Detroit Podcast
Click here to subscribe in iTunes
Follow Autoline on Twitter for ongoing updates every day!
Reader Comments (Page 1 of 1)
Reimer 6:42PM (6/05/2009)
Well said.
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Yaroukh 6:45PM (6/05/2009)
How can we expect average John Doe to know about what is goiing on with Big3 when even an autoguy haven't noticed that one of them is already pretty far ahead with the turn-around process?
(I am referring to the last paragraph.)
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Redeemed 6:47PM (6/05/2009)
"But how do we make sure they don't slip back into their bad habits like they have after every other crisis?"
Obama forced the removal of top management yet left the UAW in place. Since 1/2 the problem remains, the answer is that they won't change and they will ultimately fail.
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Tagg 8:24PM (6/05/2009)
Not only was the UAW left in place but they were given a piece of the pie! It may be a old, rotten pie but they're still getting a piece.
zamafir 6:47PM (6/05/2009)
very well said!
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Tony 7:27PM (6/05/2009)
Impossible. You can't get rid of greed. Human nature.
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Todd 7:14PM (6/05/2009)
How about: Build cars people want?
"We can no longer allow these companies to be run primarily for the benefit of shareholders."
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elprogramer 7:48PM (6/05/2009)
Well, considering that General Motors sells more cars in America than anyone else, and Ford's climbing back to #2...
jh1021 8:21PM (6/05/2009)
"we can no longer allow these companies to be run primarily for the benefit of shareholders"
Sounds great (insert sarcasm here), but it's also ridiculously illegal. As long as the company is public, it's subject to corporate fiduciary laws. In other words, every single public company MUST be run for the benefit of the shareholders. If it's not, the board members go to jail.
Good try, though.
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russwaddell 11:50PM (6/05/2009)
Asking the Big Three to run with the goal of "surprising and delighting customers" is like asking them to focus on fairy dust and marshmallow clouds. I agree that long term thinking beats a short term outlook, but give me a break.
Doogs 11:19AM (6/06/2009)
You're correct, but at the same time the hyperfocus on driving share prices and meeting quarterly numbers is a HUGE part of the reason the country is where it is right now. And it's not just automakers. It's AIG and Washington Mutual and Home Depot and Starbucks.
The focus on short-term gain versus long-term value is the problem. Technically, both benefit the shareholders, but the thing is short-term gain cannot be sustained forever, and when it gets artificially inflated it tends to pop with disastrous results. It's not smart growth. It hollows out a company in so many ways.
Redefining "shareholder value" as, say, providing consistent growth over the long term, or not wiping out your 401k or your kids' college funds in the span of a few months, is where we need to go. And the best way to run a company for that kind of growth is to surprise and delight the end-user (in this case the carbuyer) with compelling products and experiences. The two are in no way incompatible.
CH 6:16PM (6/06/2009)
McElroy confused objective with strategy. What he should have said is that the Big Three should seek to increase shareholder value (the primary objective) by using "surprising and delighting customers" as the primary strategy.
kballs 12:49AM (6/10/2009)
There are no SEC laws that say you have to cut costs and make products sh*tty in order to give short term benefits to investors. Ignoring short term profits in favor of long term gains and stable growth with good, well-selling products (paying attention to the customer first) is a much bigger benefit to investors and breaks no laws.
Chet 10:37PM (6/05/2009)
Do two struggling automakers under the white-hot spotlight of public scrutiny really have the power to defy the rules that are wired into our economy at a very basic level?
Sorry, John, but these suggestions are not realistic, desirable though they may be.
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Avinash machado 3:59AM (6/06/2009)
Maybe if the unions got busted, the chances of success would be higher.
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Scott K. 10:55AM (6/06/2009)
I agree that those would help, though I think they are just the beginning of the changes needed. And I think every corporation should follow the same three rules to ensure better long-term decision-making. Not that it will ever happen. People in control want to retain control. This would be giving it away. So what if it's better in the long run?
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jayswaddell 1:42PM (6/06/2009)
Amen John and Doogs. Replacing short-term promises to Wall Street with long-term planning and steady profits is a prescription for so many corporate ills beyond the auto industry. Our Big 3 have one advantage over foreign competitors: a legacy of style and passion that can produce products that resonate with consumers like no foreign auto maker has been able to match. Think Honda management with sexy, stylish cars like only the Big 3 have produced and you have a recipe for winning market share.
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