Showing posts with label Toyota. Show all posts
Showing posts with label Toyota. Show all posts

Monday, October 08, 2012

The death of the global auto industry

B&E’s Karan Mehrishi dives deep into the auto quagmire and gasps for breath...

This August 2008 couldn’t have been more ironic. Here I was supposed to file in the most devastating report I have ever made on the global auto industry, and there I had Audi’s offices requesting me to help them understand how Audi compares with other international auto players and the challenges Audi faces. Ironic because my research on America’s ‘greatest’ companies was complete, and the list of American idols – that is, the biggest five loss making companies America had created in the last year – was staring me on the face! These five stalwarts had a combined loss above $80 billion in the year 2007. What stunned me was that the leader of this bunch was clearly General Motors, with an individual loss touching close to a sickening $39 billion!!! Well, when I’d met Rick Wagoner, Chairman, GM, last year to get his exclusive quotes with respect to his $750 million investment in India, I had had no inkling of the times to come, and he’d also been quite confident that “GM wanted to leverage its global resources” to succeed in “such a high growth market.”

Strangely, nobody’s been picking up my phones in GM’s Detroit office since then. But Fritz Henderson, GM President and COO, Detroit, on August 20, 2008, writes in a rare letter to the editor in Wall Street Journal, “In the editorial ‘Can America’s Auto Makers Survive?’, Paul Ingrassia asks whether Detroit’s auto makers can survive. In the case of General Motors, the answer is, emphatically, yes. And not only survive, but thrive... At GM, we’re taking the difficult and necessary steps to reduce our cost structure to be more competitive and build a stronger foundation for our future.” I was stumped. It wasn’t that I was going to analyse the close to $2 billion loss GM suffered in 2005. The fact is that the last six months of GM (January to June 2008) has seen it rake up losses close to another $19 billion. In the last three months (April to June 2008), GM had losses of $15.5 billion! I really couldn’t see where the improvement, that GM President Henderson was referring to, was.

But it’s not as if GM’s alone in the bloodbath. Ford is not too far behind when it comes to sharing in the scathing hits. When William Clay Ford Jr. gave an interview to Planman Media a couple of years back, he had just entered India and was typically gung-ho about cutting it clean very soon. In the first week of August 2008, Ford reported the biggest and worst one quarter loss (April to June 2008) in the history of the corporation! $8.7 billion! Year 2007 loss: $2.7 billion! Year 2006 loss: $12.6 billion!

Not surprisingly, while annual sales have regularly fallen or remained stagnant at GM (2006: $205 billion sales; 2007: $181 billion; 2008 six months: $80.6 billion) and Ford (2006: $160 billion; 2007: $172 billion; 2008 six months: $85 billion), the sales at Toyota (2006: $179 billion; 2007: $202 billion; 2008 six months: $118 billion) and Honda (2006: $84 billion; 2007: $94 billion; 2008 six months: $54 billion) have been constantly rising. But more importantly, companies like Toyota and Honda have raked up humungous profits year after year! Toyota had profits of $11.6 billion, $14 billion and $6.18 billion in 2006, 2007 and the first six months of 2008. While Honda, during the same periods, had profits of $5 billion, $5 billion and close to $2 billion!

Compared to the accumulated profits of $44 billion in the last three years of the fuel-efficient focused Japanese Big 2, the Detroit Big 2 had accumulated losses of a mind numbing $82 billion!!! What gives?!?! That’s when I came across four extremely critical issues that could surely define the reasons why the global auto industry dies sooner than later...

The no-brainer auto issue #1

Understanding the first is unbelievably simple! Fuel-efficient cars [in other words, cars that run on traditional petroleum and give increasing miles per gallon]! The reality is that companies that have focused less on providing high level quality (in terms of say, styling, driving, luxury, SUV experience) and more on providing flat fuel efficiency have succeeded beyond anybody’s expectations. The corollary is that companies that have focused on the opposite have tasted devastating billion dollar losses. It’s obvious that the solution was not something hidden away in strategic thingamajigs. And to say all this as an afterthought is, like I wrote above, a no-brainer. But in truth, the concept that fuel efficient cars are the future, was for every auto major across the world to see. Sadly, the only ones that focused on it with passion were the Japanese giants.


Source : IIPM Editorial, 2012.

For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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Thursday, August 23, 2012

THE WORLD TODAY CAN ONLY IGNORE STAKE HOLDER ACTIVISM AT THEIR OWN PERIL

BE IT LEE SCOTT, RICHARD PARSONS, AKIO TOYODA OR HOWARD SCHULTZ, CEOS OF THE WORLD TODAY CAN ONLY IGNORE STAKE HOLDER ACTIVISM AT THEIR OWN PERIL

With the rise of blogs, such negative backlash can assume alarming proportions. A research conducted by University of Georgia, which studied three anti-brand websites for in-depth analysis: anti-Wal-Mart, anti-McDonald’s and anti-Starbucks, concluded that such blog activism activity actually hurts the company reputation as the word spreads faster than one can imagine. To tackle this form of activism, companies are launching their own communication platforms. According to industry reports, 15.8% (89) of Fortune 500 companies are blogging. Another case in point when discussing consumer activism is Toyota’s recent product recall, which fortunately hasn’t done much damage due to the company’s past reputation. In US, Toyota is facing 200 legal cases due to recalls related to faulty engineering. Contrast this with the fact that there are zero lawsuits against Toyota in Japan. Interestingly, Japan’s most famous consumer activist Fumio Matsuda is frustrated because there has been no consumer outburst pertaining to the recall in Japan. He says that the revolutionary activism he had ignited in Japan decades ago has lost momentum. According to Matsuda’s blog, “The Japanese these days are defending Toyota as though it is getting bashed unfairly.”

Employee Unrest becomes Activism

In today’s times of uncertain business fortunes, it is often natural for employees to feel that they are getting the shorter end of the stick. This is increasingly evident in China, where activism is actually getting well organised and hence dangerous for the establishment with associations being formed and legal advice also being sought. The younger lot of migrant workers there are far more aware of the happenings around the world and about what their rights should be, a trend with workers across the globe. Among the complaints of workers is the misuse of the ruling on the minimum wage by the government of 1100 yuan. Often, that’s all that owners provide them. Wages are not the only bone of contention in such cases. In a bizarre twist of events, 800 workers at the Carlsberg brewery went on a five day strike on April 8, 2010. The reason was a new company policy that put a ban on the drinking of beer during work hours. Earlier the workers were entitled to three free beers a day, which was brought down to just one during the lunch break. The strike caused the brewery to halt operations and delay domestic shipments for two days. This policy change by Carlsberg was a healthy and positive step but it faced huge agitations from workers. The strike at BA in 2009 was more about retrenchment policies. BA decided to reduce its staff strength by about 5,000 by March 2010, introduce changes to staff contracts and carry out a 2-year pay freeze plan. This led to huge disagreements between the workers union and the airline management, which led to cancellation of BA flights between December 22, 2009 and January 2, 2010. The 12 day planned strike by the cabin crew cost BA $5.6 billion, not to forget the loss on the reputation front. It is indeed risky to ignore employees in today’s time.

Green Activism

Exxon’s Valdez oil spill in March 1989 was one of the biggest man made environmental disasters before the current BP oil rig leak (refer to the special coverage on BP in this issue). It occurred when an oil tanker on its way to Long Beach California hit Bligh Reef and “Eleven million gallons of oil spilled into Alaska’s Prince William Sound; killing hundreds of seals, thousands of otters and hundreds of thousands of seabirds. Alaska’s marine life is still eating oil from the spill two decades later,” says John Hocevar, Oceans Campaign Director, Greenpeace USA. After the event occurred, all the blame was put on Exxon for the horrible disaster and Exxon was held responsible for loss of livelihood (fishermen) and wild life in the Alaskan region, “When the spill occurred, Exxon lied, covered up as much information as possible, and also enlisted an army of lawyers to fight the claims of fishermen and other injured parties. Of the plaintiffs in the litigation, over 6,000 died in the 20 years it took to settle the claims, ” says Dan Strickland, Bristol Bay Fisheries Liaison for Alaska Marine Conservation Council. And as the BP case shows, an environmental disaster can be even more damning in today’s time and age.

Relevance of the green word today hardly needs a mention. It may not even need a disaster at times. Wal-Mart is an acknowledged ‘enemy’ of the environment by green groups. Part of the problem is its size itself, which automatically means a huge carbon footprint attributable to one irresistible target company. Its logistics in US alone involves a mammoth number of 7,000 tractors and 50,000 trailers. The company was slapped with fines for environment damage across 9 states in 2004 and has come under fire for alleged water pollution, greenhouse emissions, et al. It responded by unleashing a campaign in 2005 under the then CEO Lee Scott, which also laid out a target to reduce greenhouse emissions in its operations by 20% in seven years and improve fleet efficiency by 25% in three years. Now Wal-Mart makes it a point to highlight its green initiatives. While the scepticism persists, the lesson cannot be missed. If you are taking actions on the environment front, ensure that the world knows. Genuine intent is important; a strong communication campaign all the more.



          
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