Open Letter to Congress, Detroit, and the UAW

We watched, with considerable frustration, the automotive hearings in Congress on November 19, 2008.

It appeared to us that no one in the room had a plan to reform and transform the industry. As Mitt Romney has said, it has to be more than just money.

We would like to propose that transformation plan. Here are it's highlights:

1. Congress, in particular, and government in general, are squarely part of the problem. Government certification regulations have grown to the point where they are extremely burdensome on the automakers. Supporting the "entitlement mentality" of the labor unions, government has allowed the UAW to strike its way into enormous pension and health care costs and far above-market wages in the former "Big Three."
2. At the same time government has provided huge tax abatements and financing for foreign competitors to build low cost factories on our own soil and hire entirely non-union work forces with far less onerous benefits and wage packages.
3. While other countries tax and embargo U.S. vehicles coming into their countries, we have chosen to provide no competitive protection from invasion of our markets.

Step A - Government must set the rules to help make the industry more competitive
Congress must craft legislation that allows our auto makers to jettison their legacy costs, reduce wages and benefits to match what Honda and Toyota pay, and either disband or at least disarm the UAW. (At a minimum you must ban strikes and nullify current union contracts.)

Now, on to automotive management.

Your companies, despite your years of programs like Total Quality Management, Lean Manufacturing, and the like, remain completely "chimneyed" and paralyzed at the very moment of absolutely DIRE need to change.

As one automotive manager put it to me recently: "They (top management) are like a country club. Anything that might make another member look bad or miss a bonus will never be allowed to happen. Even at the cost of profitability or corporate survival" THAT is what your BEST people think, guys!

Step B - Transform your companies into transparent, HONEST, agile, lean, responsive competitors using mass customization and green

Bill Ford, Jr. and Alan Mulally have it right, make yourself profitable at the low price / high fuel economy end of the market and you'll survive. Survival, however, is insufficient. You must EARN back market share from foreign competitors. Yes, as shown above, Congress can (and must) help. But the auto industry must transform itself using variety and mass customization as competitive weapons. Use the Toyota Production System (TPS), today an advantage to the foreign auto makers, AGAINST them. TPS requires uniformity and batches. If you can use market-driven variety to "Smash the Batch", there is market share there for the taking. What does this require?

1. You need complete transparency, from the top floor to the plant floor to the dealer network.
2. To do this you must have real time information flowing FROM everywhere TO everywhere. Unify your networks and let everyone see everything, warts and all. THEN you can transform.
   
3. You must become Masters of Complexity (Delloitte says that Complexity Masters are 73% more profitable than their peers while "simplifiers" are only 19% more profitable). This can only be accomplished with real time information flowing from everywhere to everywhere in the company enabling the transparency you so desperately need.
4. Build only what your customers order - you can't afford for 7% to 10% of your Gross Revenue to be tied up in inventory. Cut it to 2% - 3% and you have billions of dollars in CASH freed up for other uses.
   
5. Push all appearance-type assembly (wheels, tires, grills, mirrors, electronic packages, etc) out of the factory and into the dealerships. This step alone will cut inventory cost, reduce manufacturing labor, increase customer-led revenues, and push earnings up for you, your supply chains, and your dealers.
6. You MUST size and shape your organizations to be profitable in economy, high MPG vehicles, hybrids, alternate fuel vehicles, and electrics.
   
7. Directly connect executive earnings to honest, business performance metrics that are aligned to a business plan that EARNS BACK MARKET SHARE.

Step C - Union Transformation: UAW, get REAL or you and the Detroit 3 will die!

Have a look at the asset holdings of the UAW. This a union that owns hotels, real estate in many states, casinos, resorts, etc. The union lives on union dues which inflate the wages of your members and the dues are tax write offs for your members. Here is another transformation that is badly needed.

1. Sell all your spurious assets and purchase the shares of GM and Ford and make a deal for a percentage of Chrysler.
2. Cut the wages and benefits required under your contracts.
3. Tie part of union worker income to company profits.
4. Help the legislative transformation rather than lobbying against it.
5. Expand your training programs and encourage eduction among your work force.

So there you have it. A Congress-led, UAW-enabled, Detroit-executed transformation of the laws and regulations, the management structure of the automakers, and the United Auto Workers. Following this type of plan will reform not just the companies but the market place and, in the end, will generate revenue and earnings for these companies and tax revenue for our country.