The Ballad of GM

By James Kwak

Once again proving that they do in-depth business reporting as well as anyone on the radio, This American Life did an episode this past weekend on NUMMI, the auto plant in Fremont, California that is jointly operated by Toyota and GM. Well, since the GM bankruptcy it’s been operated by Toyota. And Toyota is closing it this week — the first plant to be closed in the history of the company, according to TAL.

I listened to the episode this morning in my car, a 1999 Chevrolet Prizm that was built at NUMMI and that was the first car my wife and I bought. (It has 111,000 miles and has only required minor repairs, like a power steering pump and a muffler strap.) I’ve passed by the plant itself many times on 880, driving between the East Bay and the southern end of Silicon Valley. So it was a sad and poignant story for me.

In its basic outlines, the story goes like this.  (I’m basing this on the radio show, since I don’t have independent knowledge of the facts.) Toyota and GM agreed in the early 1980s to build cars together in what had previously been a particularly low-quality GM factory; GM wanted to learn about the Toyota system, and Toyota wanted to learn about building cars in the United States. NUMMI itself was a near-instant success in terms of efficiency and quality, because the American workforce was trained in and adopted the Japanese production methods. But GM, through a combination of short-sightedness, bureaucracy, and organizational inertia, wasted well over a decade before really implementing what it had learned across its North American operations, and that combined with a number of other strategic errors (reliance on SUVs) and structural problems (fixed and increasing retiree benefits) pushed it into bankruptcy when the financial crisis hit. (Note that the radio show didn’t really try to prove that the failure to implement the lessons of NUMMI was more important than those other factors.)

But more valuable than the simple history are some of the basic business lessons to be learned from the story, which were very familiar from my years in the business world: Put quality before volume. Everyone has to care about quality. People need to feel ownership over their work. People want to see other people using their products and services. (One NUMMI employee walked around with postcards addressed to himself and put them on the windshields of cars he saw that had been built at NUMMI, asking for feedback.) If people are doing work they are proud of, they will care about it more and will be happier. And, as the head of Toyota recently said before Congress, you shouldn’t grow faster than the natural capacity of your organization.

Update: I forgot to mention that Simon also had a Prizm for ten years, also built at NUMMI.

26 responses to “The Ballad of GM

  1. CBS from the West

    Tangentially, This American Life also produced two truly spectacular shows on health insurance in America, replete with important facts and told with no axe to grind. If you missed them, you can find them at:

    http://www.thisamericanlife.org/radio-archives/episode/391/More-Is-Less

    and

    http://www.thisamericanlife.org/radio-archives/episode/392/Someone-Elses-Money

    The show is a national treasure!

  2. I suppose the NUMMI staff were unionized and better paid than Toyota’s other plants in the US, which presumably share the same corporate culture.

    I would also guess that the only reason Toyota agreed to a deal that would help GM was to preempt protectionist tariffs on Japanese imports.

  3. I also thought that show was very well done, on a timely and important topic. Good to see it get a mention here.

    My main takeaway was focused around the line worker who turned up (when he didn’t just blow it off) with a thermos full of vodka and orange juice at the failed plant GM operated on the NUMMI site before the joint venture.

    He and lots of fellow UAW workers were hired back when the JV started. Sounds like a formula for disaster but their performance at NUMMI equaled their Japanese counterparts in quality and productivity.

    GM failed to understand that the entire supply chain must operate to high standards in order to achieve these results. The JV had access to quality parts and subassemblies, while other GM plants did not.

    The effort put into re-setting labor relations is also a major lesson. Tough to imagine a PE-owned firm stuffed with debt taking the measures needed; in the NUMMI case they flew small groups of line workers across the Pacific for training. All too easy imagining what happened when another GM plant empowered its workers to stop the line at will, without first implementing cultural change. Big cheers to the TAL team for discussing the cultural aspects.

    The main lessons are, I think, that it’s necessary to think in terms of whole systems. Seems to me that interpretive disciplines such as history and anthropology offer better models of approach than “hard sciences” such as physics.

    I grew up in the suburbs of a city where people (many of them second-generation immigrants or first-generation blacks who had fled resurgent slavery* in the rural South) worked to produce the steel that went into GM products. Union wages got the whites small houses in good school districts, and on the rear windows of their station wagons they proudly displayed stickers naming the affordable state universities their children attended.

    That was in the USA, back in the ’60s. Seems such a long way from where we are now.

    *Douglas Blackmon, “Slavery by Another Name: The Re-Enslavement of Black Americans from the Civil War to World War II”

  4. I get the American Life downloaded on podcast every week. It’s a good show but for some reason I never seem to get around to it. I’ll have to make the extra effort. I also like Studio 360 which is pretty good, and “To the Best of Our Knowledge” a Wisconsin public radio show has some high points as well.

    The American car industry strikes me as fascinating all my life. I think it’s been down, really ever since I can remember. I was in my teens in the late ’80s and they’ve turned out crappy cars since about 1980, when Datsun (now Nissan) started to make inroads in the American market because the neanderthals at GM couldn’t figure out working people couldn’t afford high gas prices that came with cars shaped and weighing like a Bradley tank. My father bought a VW Jetta which performed well for years (except a crappy A/C). My father religiously bought Toyotas, helping me pay for part of my Camry and buying his 2007 Camry. That will most likely change.

    I encouraged one of my closest relatives to buy some Ford stock around $13.90 a share recently. Beings it’s the first time I showed ANY faith in American cars in my life, I hope they don’t disappoint me. What the idiots need is a modern version of W. Edwards Deming, but I don’t expect to see anything that great until the dumb basturds have clubbed themselves into submission.

    I always wonder if Asian Americans feel some kind of cultural pressure to buy an “American” car (like a Chevy instead of a Honda) due to some cultural pressure to be “American” when they know damned good and well the Japanese (up to very very recently) make a superior car. There’s no way to ever know, but if you could magically go into their psyche I think the answer would be interesting.

  5. For the record my Toyota was assembled in Tennessee (or Kentucky?? I think Tennessee). 99% the parts made overseas. Did me well even though I abused it towards the end. Kind of the reversal of my relationships with people (joking).

  6. Just for James and Simon. Get the Happy smile like Dinah.

  7. Sundog,
    This is one of the best comments on “Baselinescenario” I have seen. Terrific stuff—you should comment more often. I think this is what makes America the greatest country in the world. When I was overseas I feel ashamed to tell people “W” Bush was my President. Now I feel so proud we are the first western nation with a black President. When will France do that?? Britain?? Germany?? We saw the intelligent, well-educated, and articulate Obama and we voted for him. So even in these downward times in America where we have many things to feel self-doubt and second guess, we can look to President Obama and say “Yes, America is still that city set upon a hill”.

    Did you see the picture of President Obama on March 27th “The Economist”?? They would never do that to a British Prime Minister. Oh well. They don’t even have enough respect for their own writers to give them a byline. I wouldn’t pay a nickel for that rag.

  8. I bought my 1st car, a Ford Escort 1997 (I think), in the US in 2006. We had just moved here from Singapore. We were surprised how many Asians were shocked we had bought a US car. **All** of them (not Asian Americans, but new migrants) bought Japanese cars. This might be due to being frugal over the long term, but the stereotyping was so intense, it was amazing to us.

  9. Wron, Ted K, they did a lot worse things to British PMs. The Economist is far from perfect, but it certainly is the best magazine published in English.

  10. I thought the stereotype was that Asian Americans bought Japanese cars, even if the Asian American in question was from an ethnic group that didn’t necessarily have specifically the fondest possible recent memories of the Japanese.

    Never owned a car newer than 1994. Owned two Chevys: a 1953 and a 1969. Both were good cars.

  11. Tell me/us the date of the cover where they marked up the British Prime Minister’s face, or put a bandage large enough to be headgear??? What date did that magazine come out??? The Economist stopped being a good magazine the same day they wanted to give the magazine masthead credit for their writers’ work. The insult to the leader of their biggest ally and a man who helps keep London streets safe is just another low of many for a garbage rag.

  12. crocodile chuck

    Ted

    That was great. Thank you!

  13. I recommend that readers download the NUMMI show – its on This American Life’s website. My program (federal bureaucracy) has done a Toyota-like transformation with great results, but are having similar issues spreading it through the rest of the agency. The show is an eye-opener, but as a commenter said, the concepts are simple: empowerment of the employee, constant improvement, etc.

  14. My in-laws immigrated from Taiwan about 30 years ago and consciously purchased American cars. That is until they bought 2 Ford Taurus’s that both began to fall apart within 2 years of purchase. Now its Toyota all the way and nothing but contempt for American cars. Its unbelievable how much customer goodwill Detroit squandered in recent decades.

  15. The Chevy Prism is a great car because it is a re-branded Toyota Corolla. Basically this means that GM can build good cars when it builds a Toyota.

  16. Americans are not the only ones who can be stupidly arrogant about their own superiority – at least that’s what my Japanese in-laws tell me.

  17. JK wrote…

    “Everyone has to care about quality.”

    Good point… except far too few people don’t know squat about “quality.” Moreover, that’s true regarding the work they do and the products/services they buy. Most _believe_ they “know” something about it but, when asked, can only regurgitate marketing slogans and “feelings.” What kind of “quality” did Enron and WorldComm get from Arthur-Anderson? (That’s not to say that any of them actually _wanted_ quality accounting.)

    Tell me, why is it that most _any_ make/model car made in the past 2-3 decades must be taken to the shop to change the oil and filter or spark plugs? Then tell me why that shop charges you $60, $80 or more per hour to do that work, which takes at least twice as long as it did in the ’60s, and the work is performed by someone making $10-15/hr? How are these “captains of industry” any different than the assholes at GS, JPM, BoA and Citi?

    In the early ’70s I worked on a Ford assembly-line for a short time. It was _the_most_ boring, tedious, mind-killing job I ever had. Yet most of the workers there “enjoyed” their mindlessly repetitive tasks and believed that made them “wonderful people.” Monkeys could be trained to do most of those jobs and would probably be more attentive. I doubt any of that has changed except for the profits.

  18. I have been thinking about credit ratings lately. While Moody’s was giving subprime CDS’s triple A ratings, they were constantly downgrading the Big 3 automakers, thus making their cost of debt that much worse.
    I come from Lansing Michigan. We are totally ravaged by the desertion of the auto industry. We had 31,000 GM employees in 1980; we now barely have 6,000. This has not only killed employment directly, but many of the small businesses that were founded in the good times are now dying away. We have become a shopping mall town. That’s the only “growth” there is. Really all they do is steal business from each other. There is no growth; these large mega corporations are just stealing business from our local businesses.

  19. My bad! In my first sentence, above, I missed changing “few” to “many” in a too hasty rewrite.

  20. Back around 1969-70 by the Marina district in San Francisco there was a large lot filled with Hondas. Tiny little things and so underpowered they could not climb the hills of that city. They sat there for the longest time unwanted,unsold till, I presume, Honda loaded them back aboard some ship and disposed of them elsewhere. Yes,even Honda could get it wrong.

    GM’s mistake was not making SUVs.They sold so many every European and Japanese carmaker had to clone one for the North American market, but adhering to a business model that sought to fill every niche in the auto business. Appropriate when GM had the bulk of the US market but ridiculous GM was just one of many car companies.

  21. “The Economist is far from perfect, but it certainly is the best magazine published in English.”

    Hardly.

  22. That you knew where your car was built is telling.

    GM’s organization, which built Pontiacs and Buicks and Chevys together in the same plants, using common designs, tended to undermine their ability, as an organization, to get rewarded for success in building better quality. A Pontiac couldn’t be better designed than a Chevy, and most customers couldn’t use the reputation of “Buick” as a clue about manufacturing quality.

    GM had elaborate internal systems of “score-keeping” comparing the performance of units internally, but defective systems for getting effective, external market feedback. The result was internal conformity to norms established in comparative performance review, and an isolation from market and customer feedback.

  23. GM sort of tried with the Saturn. They had a good enough design (hired out, I think), built a new plant and ran it right. The UAW workforce built the cars well — winning awards for beating Japanese plants at quality control, and they didn’t go on strike, until…

    After more than 5 years without a new model, they saw their sales drop. The union went on strike demanding updated designs. It took several more years for GM to bring out designs that were still way behind the competition.

    Now the plant has been shut down in the GM restructuring, and all the workers are out of a job.

  24. There are some other explanations:

    GM Is Sunk. Just Ask the Merchant Marine:

    http://www.washingtonpost.com/wp-dyn/content/article/2009/05/29/AR2009052901551.html

    The Unions had a lot to do with the demise of many of America’s industrial “jewels”.

  25. I’m a little disappointed that one significant, if not dominant, factor in the GM demise has been omitted, the “financialization” of GM. The continued profits of GM’s finance division, along with countless other corporate examples, must have served to quiet criticism of GM’s poor management. I don’t have the figures for GM, but according to Keven Phillips, Sears and many others have for years been making the bulk of their profits from financing their products. Were it not for these profits, many more corporations would have been much more motivated to make needed changes.

    Along the same line, the generous and continuous tax breaks handed out to corporations from 2000 to the crash would have served the same purpose. The profits of many corporations relied exclusively on them to remain profitable – and smug. After all, No corporation I know of could ignore ROI in lobbyists – which were as high as 30,000% (sic!).

    As to the argument that pre-2000 taxes were too high and should have been reduced anyway, I would ask who could be expected to pay the costs of urgently needed functions – such as a much larger SEC that could have avoided the severity of the crash or the decrepit infrastructure. After all, the wages of the lower 80% income levels were actually DECLINING (A fact hardly noticed because the CPI didn’t include such items as health care costs (17% of wages) and housing.

  26. nothereforalongtime

    Was once a good magazine, and far superior to anything available in North America for scope. That was when I graduated from U in 1980. Now it’s a shallow, analysis-lite cheer-leading rag, just like Time, Newsweek, WSJ, etc. But still I subscribe ’cause at least I know its biases, prejudices and ‘group-think’ patterns and can read around them.

    Or maybe over the years I’ve just turned into a cranky grey-hair too easily rankled by the certitudes of journalists with practically no understanding of what they write about and besotted with their own talent.