Around 1949 or so Toyota had a very bitter strike which almost resulted
in bankrupting the company. At that time the senior family member who
was running the company resigned and a younger generation of the Toyoda
family moved up to lead the company. I believe they got some loans from
Japanese banks and perhaps some assistance from the government. At that
time Toyota was one of the country's largest companies and a major
employer. The bitter strike itself was an embarrassment and no one
wanted the company to fail. At this time I believe they only sold cars
in Japan and were not a major player in car production although they had
built cars for many years. This event triggered development of "The
Toyota Way" which later evolved into the "Toyota Production System."
Perhaps the guiding principle within Toyota's business system is
respect: which is demanded between all employees and with their customers.

For many years Toyota found productive jobs for employees to old to work
at the rapid pace of the production line but too young to receive a
pension. I do not know if they still do this today, but these employees
were often assigned to maintain the grounds around the plants or used as
messengers between facilities. While Toyota was just a Japanese company
they were very profitable as the government had restrictions against
importing large volumes of cars from outside companies. As the
automotive industry became a global industry Toyota expanded. However
their first attempts were not very successful. However they focused on
their "system" to develop better, more competitive vehicle and to reduce
their manufacturing costs. That focus, started about the mid-1970s or
so, is still going strong. Today Toyota is not only world-wide in their
production facilities, they are either the number one or number two in
world sales, and is probably the most profitable of all of the
automobile companies due to the efficiencies they have developed in in
all aspects of the business. They have developed ways to lower design
costs and time. Their vehicles are more easily customized for the
requirements of overseas markets. They are They can more readily match
their production flow with their sales flow so they don't produce lots
of excess cars when sales slow. And they usually don't have to discount
their vehicles to keep their cars moving off the dealer's lot. As a
result of "The Toyota Way" they have been profitable for many years. I
assume they have money in the bank and banking relationships within
Japan that are a big help if they should need some cash.

The story of General Motors is much different. At one time General
Motors generated enough cash that they could self-finance the tooling
costs of new models. Of course these costs were much less than today's
costs. Since about the early 1980s it is my understanding that GM has
had to borrow these costs each year, which in turn increases the cost of
doing business. Additionally, GMs plants are not as efficient as
Toyota's. However, this is not all due to their labor contract. The
vehicles that GM designs and the production methods used (all based on
management decisions) are not as efficient as Toyota's processes. GM has
more employees per car because of the way the cars are designed. Why?
Here we must depart from fact to speculation. I believe that GM's high
costs are mainly due to the reward system within management, especially
the product development and engineering staffs. The best way to attract
the attention of senior management is to find a unique solution to a
problem. The system has to work but the promotions go to people who do
something new and different. Several years ago Jack Smith, then the
Chairman and CEO made much of finding out that there were more than
thirty different radiator caps used on current GM models. He was
appalled. Why did this happen? I believe it happened because no engineer
was ever promoted for using last year's radiator cap or one from an
existing model with similar requirements. And radiator caps are only the
tip of the iceberg, In the early 90s, GM tried to establish a new brand
of vehicles: Geo. The vehicle wasn't that bad but the marketing plan
just didn't work. Toyota seems to use more "on the shelf" parts in their
new products than GM uses. This allows them to reduce their product
development time and costs.

Much as been made of the high union contractual costs. GM has loudly
claimed the UAW health care costs amounted to $1500 per vehicle. However
they don't often remind anyone that they also have had and additional
cost averaging close to $3000 per vehicle as sales rebates to get people
to buy their vehicles for about three or four years. Why? Well, it's all
about cash flow. GM has financially overextended itself for many years.
Because of the way finances are reported, it's hard to see. But my
feeling is that the GMs automotive business has been in trouble for many
years. But the troubles were hidden as the company divested itself of
many parts they considered either non-automotive or not profitable. The
usual pattern seems to be first to starve the the orphan to be by not
upgrading facilities or not developing competitive new products. Then
they would sell the division or plant or unit and the sale price would
end up in the profit column. There is a long list of such divestitures
dating back to the end of WWII. For at least the past 10 to 15 years, GM
seems to be wholly dependent on current cash flow generated by selling
cars to dealers. If they don't ship to dealers, the cash flow stops and
GM has a very limited time before they run out of operating cash. This
is the problem they have today. This is why they have been promoting
discounts almost continuously for the past several years. They don't
have anything left to sell to raise cash and if their dealers can't sell
car's because people can't get financing or can't afford a new car, the
dealers stop ordering cars and GM has no cash flowing in to run the
company. The situation has very little to do with the union costs.
Keeping your workforce healthy is almost a necessary step in maintaining
a well trained and highly skilled workforce. I'm relatively sure the
Jobs Bank originated as a management suggestion to settle a labor
contract dispute. Most of the union people I know considered the Jobs
Bank as a very slight improvement over loosing your job but not anything
that anyone really looked forward to. What it seems to do is remove the
Jobs Bank people from a plant's payroll so that management looks like
its running a more efficient company. I know there have been discussions
about taking it out of the contract but with a growing number of plants
closing, there seems to be little chance it will go away unless the UAW
Leadership agrees to give it up as a concession during the current talks.

The real question remains -- Is GM capable of surviving or would a
government loan only extend their life? I have never been one to believe
that downsizing is the best road to success. If I had my druthers, I
would suggest splitting the company into two or three companies. It
might be hard to do, but it would rid GM of a lot of its historic
problems and give each part a better chance of long term survival
without putting anywhere from five to ten million people out of work. I
heard on one news report that someone in Washington felt that the
government should force GM and Chrysler to merge. Bad, bad, idea. GM's
biggest problem is its management. And it's 2nd problem is its size.

The piece was written in answer to the question, "Why is Toyota making money and GM isn't?" It did not speak to how I feel about the auto industry's request for loans to help them through some very difficult times. There is no doubt that the leadership of the American automobile industry has not made many of the changes that they should have made over the years. However, I believe they may have gotten the message that a new set of priorities are required. I am sure there is much residual anger against the companies due to many past problems within the industry. At one time the industry had a rust problem which was fixed only when the industry leaders understood the problems effect on sales. The same with the oil leak problem which used to make oil puddles on every garage floor. However, my view is the main problem is the focus of the industry, and most segments of our country's industries, on making money. And the more money you can make, the greater the company's prestige and the higher the executives salaries. The companies need to broaden their view and realize the first purpose of business in not to make money -- but to stay in business.

Those who oppose the loans often seem to want to punish the executives for their past behavior. What they seem to forget is the impacts of the companies failure without the loans: thousands or even millions of workers all over the country will loose their jobs; hundreds of suppliers will probably be forced into bankruptcy; as the supplier network weakens, foreign-owned assembly plants could be faced with problems; the massive unemployment will endanger local merchants in areas across the country as people loose their jobs; and the executives will all retire and be in the best financial position of all those affected by the failures.

There is a good chance that failure of any of the big three will push a severe recession into a full blown depression. Our last depression lasted over ten years and was only ended by the increased production needs and spending of WWII. There is no doubt that these companies need to change their approach to doing business. The more quickly they can get back on their feet, the better it will be for everyone in the country. Thus, I not only favor making the loans, I also favor leaving the current leadership in place as they are best prepared to make the necessary changes. The use of a "car czar" who would set goals, measure progress, but not run the companies sounds like a potential benefit. There are other alternatives that may prove more helpful. But, the immediate need is to assure that the companies do not fail while those alternatives are being examined.

¶ 10:20 PM