Detroit’s Dive: Our Loss … or Opportunity?

Automotive honchos and some of the greatest minds in manufacturing met at the annual CAR conference at the Grand Traverse Resort in August. Their purpose? To wring their collective hands at the current state of the auto industry-and present their ideas on the best way out of the mess. The TCBN sent NMC manufacturing specialist and industry coach Darrell Rogers to the event to listen in, rub elbows and report back. He weighs in with what northern Michigan manufacturers need to know.

It's no secret that we're in the midst of a sea change in automotive manufacturing-for original equipment manufacturers (OEMs) and their suppliers. As plants shutter and automotive supply jobs vanish, Northern Michigan, like the rest of the state, has been hit hard.

But have we hit bottom? Or is there hope on the horizon? If the mood at the 2009 CAR Management Briefing Seminar-"Today's Turmoil: A Foundation for Success"-is any indication, we've got reason to be optimistic. While the weak may fall by the wayside, the strong are likely to get even stronger. There are just two caveats: We've first got to re-invent the automobile. Then re-invent the automobile industry.

Re-inventing the automobile

Like the mantra "location, location, location" rules real estate, "diversity, diversity, diversity" is the new anthem of the auto industry. Presenters from Toyota to GM to Ford, as well as some of their top suppliers and consultants, made it clear that there will be multiple fuel sources for our cars, and multiple cars built for our specific uses. Suppliers more and more will be a source of ideas and innovation, as well as design and engineering. There will be more offerings, but lower volume. More choices, but less inventory. More supporting infrastructure for fuel sources, but smaller quantities purchased of sub-assemblies and components. There is and there will be a market for manufactured automotive components, and that market will grow again-but only after bottoming out-and bringing with it higher expectations for flexibility, responsiveness, and a shared responsibility for innovation and creativity. Being "in automotive" will demand broader levels of service and more value-added capabilities than the industry has seen before.

Re-inventing the automobile industry

Perhaps Akio Toyoda, the new president of Toyota Corporation, said it best when addressed the industry crowd assembled at this year's CAR: "We must never confuse people moving away from our offerings with what has really happened. We have moved away from our customers." He was speaking only for Toyota, but its likely the lesson wasn't lost on the many executives and engineers in the audience who have too often blamed the fickle customer for leaving the OEMs with huge, unsold and unwanted inventories of vehicles that were "hot" just 18 months ago. The message was clear: How the industry sees the customer and how it responds to customer demand must change dramatically. The old world of projecting demand for current product and incentivizing the public to buy even when the projections were inevitably wrong was a system of waste on a grand scale. Need proof? Go count Hummers at the dealerships. Even Doritos™ aren't produced using that type of system.

Clearly, though, this was a room divided on the topic of understanding the customer. The echoes of traditional thinking could be heard even in CAR Chairman David Cole's comment that "Customers … just don't appreciate the value they're getting in today's complex vehicles."

Unfortunately, northern Michigan manufacturers have discovered that they don't have the luxury of building products and then convincing customers of the value of those products. Most of the voices at the CAR event were loud and clear: Diversity of product that is matched to the new expectations of customers is the only path to success for the industry.

The Strong Will Get Stronger

As expected following chaotic upheavals in industry, only those that keep their heads and re-think their organizations based on the new realities will survive and thrive. And as we go headlong into this vortex of change, says industry consultant John Hoffecker of AlixPartners LLP, the organizations with the best balance sheets will have the best chance of emerging on top when the new equilibrium is established.

Although this may seem obvious to anyone who understands a little bit of financial accounting, Mr. Hoffecker showed very clearly that the difference between "large" (read: volume) as a description of a supplier, and "good" (read: healthy balance sheet) has grown exponentially since the current shake-out of suppliers began. Those manufacturers that have deeply committed to the concepts Toyota has proven to work-and we have them in northern Michigan-boast the sustainability and thus, the ability to use this time of crisis to come out healthier and stronger; their balance sheets reflect the decisions they already have made to move to a new model of manufacturing.

Semantics Talk

In speaking with representatives of OEMs and automotive industry suppliers, one can discern an evident difference between organizations who are simply holding on and those who are earnestly re-thinking how they do business.

On the surface everyone talked the same language of re-invention, but the substance of the discussions varied greatly. Those companies armed with a clear vision and strategies-to apply the lessons of the turmoil, come out closer to their customers and respond more quickly to change-displayed passion and intensity. Those elements were missing in the presentations of the companies that are simply trying to weather the storm.

A painful case in point: One prominent presenter spoke with resignation that these "bad times" were simply an opportunity to value friends and family while the industry sorted itself out; another spoke about his clear plan to use this time to re-invigorate his company's vision of building cars and providing value to society. The big lesson for northern Michigan? Most of the manufactures left in our corner of the state already know and are living it: there's a new model of manufacturing that focuses on customer value. Those that learn it and use it will live to see another era in automotive; those that don't simply won't. BN