A significant shoutout is in order regarding today’s announcement on the appointment of Mary Barra as the new CEO of General Motors. This appointment represents a milestone of the first senior female executive ever to lead a global automobile manufacturer, and the significance is not unnoticed.
The appointment is part of a far-reaching re-organization of GM management and includes the announcement that current CEO Dan Akerson will exit the company next month due to personal reasons. Akerson advanced his succession plan by several months after his wife was recently diagnosed with an advanced stage of cancer.
Ms. Barra has spent her entire working career at GM. The daughter of a tool and die maker at the Pontiac division, she starting in 1980 as a co-op student and risen through the ranks in roles in manufacturing, engineering and other leadership positions. Her most senior roles include Vice President of Human Resources and most recently Vice President for Global Product Development. As head of global development, additional responsibilities were added as global director of procurement. According to GM’s announcement along with other business media reporting, Ms. Barra is credited with the bulk of the current turnaround in company’s line up of new vehicles.
News reports indicate that Ms. Barra has demonstrated a bias for action and for getting things done. Under her product development leadership, GM introduced the new Chevrolet Cruze and Chevrolet Impala models, both of which have had market success. In its reporting, the Wall Street Journal characterized Ms. Barra has “having a reputation for speaking her mind, a trait that hasn’t always been appreciated in GM’s executive suite.”
Supply Chain Matters views that as a positive connotation, one that has the potential to move GM into an even bolder direction. Her grounding in manufacturing operations and procurement would indicate an awareness to global supply chain needs, including how the supply chain contributes to strategic business outcomes.
Much more will be written and spoken regarding this landmark announcement, along with GM’s other new leadership appointments. For the time being, due recognition is warranted to GM’s Board and to Dan Akerson for this bold and landmark appointment.
An important milestone for the U.S. automotive industry will occur this month. The United States Treasury announced that it plans to sell its remaining 31.1 million shares of General Motors stock sometime before the end of the year. The move hopefully represents the final chapter in the 2008-2009 government bailout of General Motors and indeed, the U.S automotive supply chain.
According to business media reporting, the U.S. government initially invested $50 billion in GM, and thus far has recouped $38.4 billion of that investment. The planned final sale could bring in an additional $1.2 billion, based on the current value of GM stock, making the final net cost to taxpayers of $10.4 billion. In addition, asset sales have helped the U.S. government to recoup over $12 billion of the $16 billion invested in GM’s automotive finance arm. More importantly, the U.S. automotive industry and its associated supply chains have rebounded from the certain brink of disaster.
In its reporting, the conservative-leaning Wall Street Journal indicates that because of the rescue bailout, companies and communities were saved from possible collapse. The WSJ writes: “The U.S. auto industry has recovered nearly all of jobs lost since the beginning of the financial crisis, is broadly profitable and is expanding again.” A partnership between government and business provided more novel means to expedite restructuring needs and provided .labor with a stake in the end results. The WSJ echoed analysts and indeed Supply Chain Matters declared beliefs that many auto suppliers that relied on the Big Three U.S. automotive OEM’s would have collapsed if the rescue did not occur. It quotes Bureau of Labor Statistics data that indicates the same numbers of people now work in automotive and parts manufacturing as existed in October 2008. Tier One automotive suppliers have also garnered the opportunity to seize on the move toward more technology-laden auto models and are now growing their revenues and profits based on investments in more innovative and fuel efficient features for new models of automobiles. The expression “a rising tide lifts all boats” is alive and well among U.S. focused automotive supply chains. Not only have U.S. brands garnered the benefits but non-U.S. nameplates as well. Today, European, Japanese, Korean and even China based manufacturers are investing in U.S. based automotive manufacturing.
In contrast, the Eurozone countries have endured two long years of economic recession with the European auto industry dealing with similar effects of recession, namely declining sales, gross idle and excess capacity in both manufacturing and dealer networks. Labor unions and indeed individual governments seek to protect jobs and local economies, but decisions seem to linger. Much can be learned from what occurred in the U.S.
The Thanksgiving holiday celebrated this week in the U.S. and other regions is time to reflect and give thanks for blessings in our lives.
Those that contribute to or are indirectly associated with the U.S. automotive industry for their economic livelihood should give thanks that a partnership among government and business actually accomplished its goal to save an industry and its supply chain ecosystem. From our lens, it was a proper and meaningful investment. It could have well had a far different and negative outcome.
The following posting is this author’s weekly guest commentary on the Supply Chain Expert Community web site.
Today’s Wall Street Journal features an article, Detroit’s Unsold Cars Pile Up (paid subscription or free metered preview) regarding the building inventory of unsold cars among the U.S. big-three OEM manufacturers, namely General Motors, Ford and Chrysler. The premise of the article is that despite brisk levels of auto sales across the U.S., domestic manufacturers have built up some alarming levels of finished goods inventories, akin to the economic downturn three year ago.
I call special attention to both supply chain management and sales and operations planning (S&OP) teams to perhaps share awareness of the lessons brought forward since, in my view, it is a classic example of how corporate business strategy and desired business outcome can conflict with the realities of the processes and tools provided to operations and supply chain management. It is perhaps another industry example of how the conflicting goals among finance, sales and marketing as well as supply chain can result in an undesirable situation. Also, at least in my view, it presents a snapshot of certain S&OP processes not factoring the realities of the market with the required capabilities desired within the overall supply chain.
This industry situation developed when Japan based automotive brands, such as Honda, Nissan and Toyota, who were recovering from huge sales setbacks as a result of the 2011 Japan tsunami supply disruption, began to aggressively market their models in the U.S. market at the beginning of this year. The goal was clear- regain lost U.S. market share through aggressive marketing and discounting of vehicles. Some industry players would refer to this as “old behaviors”. Regardless, U.S. consumers responded by scooping-up Japanese branded models, and sales volume growth among Japanese nameplates has soared to near double digit levels almost every month.
U.S. OEM’s, especially GM and Chrysler, renewed by the bankruptcy and legacy infrastructure bailouts of 2008, have established corporate goals of increased profitability. GM’s goal is to boost sales, market share and profitability without the need for promotional discounting. That strategy would be fine, provided the S&OP and supply chain management process had a means to dynamically adjust the supply chain based on actual vs. predicted demand, with the means to both identify and dynamically adjust inventories by model, by region, or by geographic region. Chrysler and Ford were somewhat more pragmatic and elected to continue aggressive promotions on certain specific models of vehicles.
According to the WSJ article, GM both miscalculated actual demand for certain models of its products while not dynamically adjusting inventory and capacity output. Normal industry finished goods levels average between 60 and 70 days. GM entered December with over 788,000 unsold vehicles, which included 138 days inventory of various model pick-up trucks, 96 days inventory of the newly introduced Chevrolet Cruze model, and a five month supply of Chevrolet Malibu and Camaro’s. Other examples cited were Chrysler, having nearly a six month inventory of its new Dodge Dart model and over 3 months of Dodge Ram pickup truck inventory. Ford has more than four months’ worth of Fiesta subcompacts. Contrasted are Toyota’s current 60 days of actual inventory, and Honda is now operating its North America plants at 90 percent capacity to satisfy consumer demand.
While the U.S. market has been the bright spot, global automotive demand has been on the decline, especially across Europe where the ongoing severe economic crisis has cut deeply into auto sales volume. The overall market in China is contracting, with the exception of GM, where its model line-up is currently highly favored by Chinese consumers. Not only must automotive supply chains deal with the sales incentive dynamics of the U.S. market, they must also deal with the realities of a currently hemorrhaging market across Europe, dynamically changing markets in China, Asia and other developing markets. The industry realities are radically different market demand pictures, highly competitive market competition, all fueled by singular global product platform and supply strategies. If there were ever a definition of a highly dynamic industry supply chain with conflicting forces, it would be today’s global automotive industry.
Supply chains can indeed impact business outcomes and help deliver bottom-line results provided they have the tools and processes that are necessary. In the case of the U.S. automotive market, and certain U.S. automotive OEM’s, these supply chains need senior management support, involvement and commitment in the understanding that a highly dynamic supply chain requires highly responsive supply chain resource and decision-making capabilities. That would include the ability to sense individual product, market, and geographic demand, with the ability of the supply chain to dynamically and flexibly change resource plans.
This latest automotive industry development perhaps provides evidence that while come OEM’s get it, other do not quite get-it.
I encourage feedback and comments from Community members currently residing or interacting with this industry.
In a recent study, The U.S. Auto Supply Chain at a Crossroads, sponsored by the Labor Market Information Offices of the states of Indiana, Michigan and Ohio, researchers from Case Western Reserve University outline two possible futures for America’s automotive industry supply chains. One is optimistically characterized by collaborative relationships between firms at all tiers of the supply chain. The other path speculates that fickle relationships and fear of investment will prevent progress at each tier of the supply chain. This study was conducted between July 2010 and June 2011 and came about from funding generated from the recent American Recovery and Reinvestment Act or so-termed stimulus bill.
What is most interesting about this study is its focus on the smaller “tier two” and “tier three” suppliers that comprise U.S. automotive supply chains, firms that suffered from the effects of industry upheaval and dramatic demand declines bought about from the last global recession. According to this study, these firms account for 30 percent of current employment in the supply chain, and have been previously rather difficult to target and study.
The study points to some good news, namely that there is evidence that supplier relationships are indeed becoming more collaborative. Yet, other evidence points to the continued presence of short-term cost-cutting with larger OEM’s and suppliers passing the burden of cost cutting down to lower-tier suppliers. An interesting finding of a noted interview of a representative of a tier one supplier states the following: “At (this company), everything is short-term Today is everything. That mentality drives the behavior: Get it now, and don’t worry about the out years… Focus on today; worry about tomorrow tomorrow.” The report goes on to cite findings related to firms that adopt “high road” practices, namely higher wage, worker training, process investing in product and production process capabilities faring much better in the wake of recession than those that did not. Noted was that two-thirds of firms surveyed chose to postpone investment in equipment and process improvements. The reasons cited were twofold:
“Customer purchasing strategies in many cases did not allow suppliers the financial or organizational resources they would need to implement such practices, and
Public policies (that) do not do enough to pave “the high road” and block the “low road”.”
Supply Chain Matters happened to read of this Case Western Study while also reading a recent article, Dan Akerson is Not a Car Guy, appearing in the August 29 edition of Bloomberg BusinessWeek. For readers unfamiliar with Daniel Akerson, he is the recent chairman and CEO of General Motors whose background originates primarily from the telecom industry and private equity. He follows several other CEO’s who have led GM since the beginning of the bankruptcy crisis. The BusinessWeek article makes note that Akerson has moved GM out of survival mode and is purposefully challenging the previous management culture of GM. The article cites a particular example. Teams presented a plan to build 45,000 of the new hybrid Chevrolet Volt in 2012, after supplier contracts were already in place to support that volume. According to the article, Akerson challenged his management team to put together a plan to support a more profitable build plan of 120,000 Volts in 2012, a significant threefold increase. GM’s engineering team was concerned not only for the radical change of ramp-up, but also the effect on quality if GM pressured suppliers to nearly triple output volumes of newer high tech parts. After four months of fact finding, Akerson had to back off his plan because suppliers would not take on the risk of building enough lithium-ion batteries unless GM guaranteed to pay their capital investment, should sales fall short of the build number. In the end, GM settled on a build number of 60,000.
That article along with the Case Western study caused us to ponder about yet another industry supply chain at the crossroads. On the one hand, smaller suppliers continue to seek broader collaboration and support from their upper tier customers, avoiding the trickle –down “you get the burden of cost’’ or “our way or the highway” procurement behavior. On the other hand, change agents with non-industry biases such as GM’s Akerson attack the culture, but lack sensitivity and attention to the overall cascading impacts to the overall supply chain. The jury is still out regarding Chrysler’s new infusion of Fiat’s management influence which seems grounded in operational management.
It would seem that the U.S. automotive industry needs to foster senior management that is willing to challenge the old norms of trickle-down impact among OEM’s and tier-one players, while having an operational and supply chain grounding to the cascading effects of build plan changes across the entire value-chain.
In 2009, this author, along with others, opined that the U.S. automotive industry’s greatest risk was a collapse from the bottom vs. the top. Two years later, the U.S. government through its stimulus funding programs, brought both GM and Chrysler out of bankruptcy. However, this latest study from Case Western provides qualitative and quantitative reminders that the industry still remains at a crossroad.
We are again interested in hearing from U.S. auto industry readers. Has supplier collaboration practices on the whole really changed? Do you believe that the U.S. auto industry is more sensitive to supplier collaboration and investment?
There was some rather significant news this week concerning the automobile parts and distribution industry which promises to be of continued interest within the U.S..
General Motors announced that it will sell its steering-parts operation to a Chinese based venture. The Wall Street Journal and other sources noted this development “as the largest move by a Chinese company into the U.S. auto parts industry.” Nexteer Automotive, which was once known as GM’s Saginaw Steering group, is to be sold to Pacific Century Motors, a joint-venture of Beijing-based Tempo International Group and a Chinese government-owned company known as Beijing E-Town International Investment & Development Co. Ltd. (E-Town). Financial terms were not disclosed. The transaction is expected to close sometime in the fourth quarter.
GM assumed ownership of this parts unit a year ago from major Tier One supplier Delphi as part of an arrangement to insure a reliable flow of parts supply and help Delphi exit out of a complex bankruptcy. The press release announcing the sale notes the following statement: “E-Town and Tempo have followed the developments of Nexteer closely during the last two years and worked diligently over the past six months with General Motors, the UAW, global customers, critical suppliers, and Nexteer management, to ensure a successful transaction and seamless transition of Nexteer to an independent automotive supplier with a market-leading position and unrivaled steering technologies.”
The obvious question for the automotive supply chain management community is what, if any, may be the longer-term implications of this sale?
Nexteer currently operates 22 global manufacturing plants, and according to the WSJ article, does business with more than 60 automotive manufacturers. This does not include relationships with parts distributors serving the global auto parts aftermarket. While there have been other deals involving Chinese owned companies, this is certainly the biggest to date, and Tempo International is also a part owner in the former Delphi brake and suspension parts business.
While the U.S. provides a huge market in autos, the largest and most promising worldwide growth segments reside in the markets of China and India. The major Chinese automotive companies are expanding operations to serve their high growth domestic market, and to some day export world-class autos to other markets, including the U.S. As we all know, any world class company supporting robust markets requires the support of innovative and cost competitive supply chains.
E-Town, which was inaugurated in March of 2009, is noted as providing financial development support for companies residing in the Beijing Economic Technological Development Area (BDA) to help promote industrial upgrades and clusterization. That implies that this announced investment has a lot to do with insuring Chinese competiveness or control in key automotive parts supply. My fellow bloggers in China may want to offer more commentary.
GM, which is 61% owned by the U.S. government, states that it is working to get its finances and operations in order ahead of a planned public offering of new stock to pay back the U.S. government. While it may not be in the strategic interest of GM to continue to be in lower-tier supply businesses, this development certainly raises questions as to the longer-term implications to U.S. based auto and aftermarket parts supply chains.
In March of 2009, I penned a commentary, Prescriptions for Detroit’s Supply Chain Crisis, which related to the raging U.S. debate concerning the bailout of GM and Chyrsler that essentially agreed with the conclusions of a Forbes published article, which stated: “The growing fear is that without help the auto industry may collapse from the bottom, rather than top down.” At the time, I and others argued that the real issue to a bailout was not just saving the OEM’s but rather saving the essence of the parts supply chain, which was in far more serious financial trouble. I called attention to a profound quote from Laura Macero of the Corporate Advisory and Restructuring Services team at Grant Thornton: “Without a structured approach of consolidation to the benefit of the entire supply chain, the industry may lose critical partners with the technology, scale and geographic footprint that are linchpins in the viability equation”
Now, fifteen months later, it appears that the U.S. government, as an owner in GM may be strategically conflicted. Is the milestone really the renewal of GM or Chrysler, or the renewal of the entire industry supply chain, or both?
While the interests and employees of Nexteer gain renewed financial banking, and perhaps new strategic perspectives, one has to wonder whether the U.S. government is giving-up on the broader and more important strategic objective.
What’s your view? Is this a watershed event or just a reality to the current state of automotive supply chains?