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:
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.
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.
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.
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