What GM Can Learn from Toyota

Andy Grove, one of the founders of Intel (INTC), is famous for saying that "only the paranoid survive." The long-term success of his company suggests he's right.

These days, Toyota (TM) is looking like one of the most paranoid companies on the planet. It's the world's biggest carmaker but certainly isn't coasting. The global recession has hammered sales and profitability, with Toyota losing $8.4 billion in the fiscal year that ended in March. Sales are likely to be down 18 percent more this year, with a turnaround next year looking modest at best.

That weak performance isn't surprising to anybody who has followed the woes of the U.S. auto industry. But here's something that is surprising: Toyota's CEO, Akio Toyoda, said at a recent news conference that his company is "grasping for salvation" and is deep in the grip of long-term decline. "Toyota has become too big and distant from its customers," Toyoda said grimly. Then he apologized for losing money and letting down the motoring public.

American car buyers have believed for a while that their homegrown automakers—especially the recently bankrupt Chrysler and General Motors—got too big and lost touch with their customers. But Toyota? Its products consistently rank near the top in quality and reliability. Sales in the United States are down about 29 percent so far this year, but that's roughly the same as the industry average; GM and Chrysler are down more, and BMW nearly as much.

But Toyota is far more contrite than its rivals. Public apologies are traditional in Japan when a business loses its way, and for Toyota, losing billions in the Detroit tradition is a dramatic comedown. Besides, Toyota is very likely to get its act together, return to profitability, and continue its ascent. Projections by forecasting firm CSM Worldwide show Toyota gaining U.S. market share over the next several years and battling neck and neck with Ford and GM to be the top seller of cars. That would make Toyota the only foreign-based automaker ever to come close to the No. 1 spot in the world's biggest auto market.

Apologizing for missteps helps explain Toyota's success—and Detroit's decline. It's hard to imagine an American CEO apologizing for much of anything, and GM, Toyota's biggest rival, has done the opposite for years, hyping even the lamest products. GM famously predicted it would claim U.S. market share of 29 percent sometime in the early 21st century and reach earnings of $10 per share. Instead, its market share has dwindled to about 19 percent, and the company recorded historic losses before declaring bankruptcy. For 20 years, GM has maintained that eight divisions—five more than Toyota—was the right number, until it was on the verge of bankruptcy, when four divisions suddenly seemed like the right number. And, of course, former CEO Rick Wagoner insisted that bankruptcy would be ruinous, instead pleading for an open-ended lifeline from the federal government; four months after declaring bankruptcy, GM seems to be doing OK.

GM has received about $51 billion in taxpayer aid, and it's unlikely that the company will be able to repay all of it. Yet there have been no apologies for the colossal destruction of shareholder wealth or the dependence on public funds. Sure, there's a certain theatricality to a public apology, which is no substitute for a sound business strategy. But humility at least shows you're aware of the problem and taking responsibility for it.

GM, by contrast, has been as jaunty and proud as ever since its quick emergence from bankruptcy. The company is right that its products are improving, but there's still too much hype coming from Detroit. There was a big flourish when GM rolled out its program to sell cars on eBay (EBAY) this summer, an effort that has quietly ended with no significant sales. GM is touting the forthcoming Chevy Volt as a wundercar that will get more than 100 miles per gallon, yet there are questions about cost, practicality, and reliability. GM still seems to believe it can convince skeptics if its executives are insistent enough. Less bravado, and even some paranoia, might work better.

Disclosure: no positions

Comments

[markfl]

The August/September sales trend showed that auto sales dropped by almost 40% month over month. Clunkers went away and so did the showroom buyers. A VP on Ford's earnings conference called it a "rollercoaster." GM had better hand out the air sickness bags in anticipation of a plunge. At least Ford and Toyota have some clues about how to run an auto company. Not so sure about GM and MOPAR. Toyota makes some excellent products; the Prius was green and marketable before GM could spell the word, and the Toyota Tundra is a fierce competitor with the F-150.

2009 Oct 04 05:09 AM

[Roger Knights]

"Apologizing for missteps helps explain Toyota's success—and Detroit's decline. It's hard to imagine an American CEO apologizing for much of anything, and GM, Toyota's biggest rival, has done the opposite for years, hyping even the lamest products.
..............
"GM still seems to believe it can convince skeptics if its executives are insistent enough. Less bravado, and even some paranoia, might work better."

Here's a motto for Toyota: Big enough to be small.

(The double entendre wouldn't translate into Japanese, though.)

2009 Oct 04 06:56 AM

[Leftfield]

GM and Detroit in general, have long been financing operations that happened to sell cars. Management and unions milked it for all it was worth. The business model depended on hyping short-term results constantly as an interruption to this unstable model would be (and was) disastrous.
American management is mostly all hype and short-term gain. Nationally, it is doing the same to the country as this game has been good for the elites. Long-suffering average Americans in the shrunken private sector don't count.

2009 Oct 04 08:09 AM

[Rwong8200]

Apologizing for poor results means little to American's. Affordable, efficient, reliable, world class products would go a long way towards improving our view of automakers.
My 1997 Ford F150 is a world class product less then $200 in repairs lifetime. It has outlived three Chrysler products in my household. If the money spent on the job bank had been devoted to quality improvement we wouldn't be where we are today.

2009 Oct 04 08:34 AM

[Randy Miller]

Both Toyota and Ford owe us an apology in one particular area, and that is they are not selling diesel cars in America. The Ford Fiesta diesel is very popular in Europe, will get over 60 mpg, but Ford refuses to sell it in America. I talked to a Toyota dealer about diesel, and they are putting all their eggs into Prius technology.

Once again car companies are doing poor market research, and using that market research to justify timidity. Somebody like Volkswagen, with the Jetta TDI , is going to start selling a lot of diesels in the US, and everyone else is going to be years behind. Remember how the Rabbit started selling like hot cakes in the US, and the Big Three started buying Rabbits and reverse engineering them.

Do this with your market research, Ford and Toyota. Ask the American people if they would buy a reasonably priced 60 mpg vehicle with an engine that will run for over 200, 000 miles. When they say yes, tell them it is a clean burning diesel. They may hesitate, but they will certainly take a good hard look at it.

2009 Oct 04 09:19 AM

[User 419736]

Randy I totally agree with you here. I want to buy a reliable American diesel car or SUV but where are they. I already have a diesel pickup dually and the only other diesel cars are VW, Audi or BMW. But the American public largely rejects diesel cars and the big three aren't going to invest in manufacturing for a gamble. I guess it's up to you and I to try and convince our countrymen that diesel cars make sense. I work overseas and my S/O has a 96 Toyota Corolla that is still running strong so no need to buy right now until I get back to the US on a full time basis...like 2012. Maybe by then I'll have a choice but otherwise I'll probably buy a BMW and hope it's an X3 or X5 diesel.
Come on folks, realize that diesels are the way to go. A diesel hybrid powering an electric generator is the way to go at this stage of the game. If GM were to create a Volt with a diesel power plant and get 150 mpg then it'd be worth $40,000 in my book.


On Oct 04 09:19 AM Randy Miller wrote:

> Both Toyota and Ford owe us an apology in one particular area, and
> that is they are not selling diesel cars in America. The Ford Fiesta
> diesel is very popular in Europe, will get over 60 mpg, but Ford
> refuses to sell it in America. I talked to a Toyota dealer about
> diesel, and they are putting all their eggs into Prius technology.
>
>
> Once again car companies are doing poor market research, and using
> that market research to justify timidity. Somebody like Volkswagen,
> with the Jetta TDI , is going to start selling a lot of diesels in
> the US, and everyone else is going to be years behind. Remember how
> the Rabbit started selling like hot cakes in the US, and the Big
> Three started buying Rabbits and reverse engineering them.
>
> Do this with your market research, Ford and Toyota. Ask the American
> people if they would buy a reasonably priced 60 mpg vehicle with
> an engine that will run for over 200, 000 miles. When they say yes,
> tell them it is a clean burning diesel. They may hesitate, but they
> will certainly take a good hard look at it.

2009 Oct 04 09:35 AM

[Mad Hedge Fund Trader]

cgi I was somewhat saddened when I saw US Treasury owned General Motor’snew chairman, Ed Whitacer, Jr., who admits he knows nothing about cars,herald the rebirth of his new employer. I’ll tell you what is the big problem of USauto industry. My dad was a lifetime GM customer, religiously buying anew Oldsmobile every five years. Once he even flew to Detroit for afactory tour, and drove his new trophy home. Thirty years ago I toldhim he was doing GM no favors by buying their cars, and the only way toforce them to improve a tragically deteriorating product was to buybetter made German and Japanese vehicles. This was right after theState of California required auto makers to install seatbelts on newcars, which the industry fought tooth and nail. Airbags and ABS brakesystems were still a decade away. His response, “I didn’t fight theJapanese for four years so I could buy their cars.” (He was a Marine atGuadalcanal, and worshipped the Continental radial engines on hisStewart tank). GM’s problem is that my Dad passed away eight years ago.Of the original 17 million WWII veterans, 1,500 a day are dying, thereare only one million left, and few of those buy new cars. All of themloved Detroit because it built great the Jeeps, tanks, trucks, and halftracks that brought them home from harm’s way. Their kids preferGerman, Japanese, and Italian vehicles, and their kids will buy Korean,Chinese and Indian electric cars. GM never understood this. It is nocoincidence that the US industry’s problems really accelerated with thepassing of the “greatest generation.” During the last 35 years, whenJapan’s share of the US car market climbed from 1% to 40%, I beggedDetroit to mend its ways and build a quality, price competitive productthat Americans wanted to buy. The answer was always the same; “Nobodycan tell GM how to build cars.” Now there’s no one left to listen.

2009 Oct 04 10:06 AM

[La Marque]

For everybody's whining about American cars, in September, GM sold 21% of all vehicles. This is no apology for GM; yet Americans are still buying domestic brands. Ford and GM are still doing well overseas.

Toyoda's humility is cultural Japanese. Americans are 'what have you done for me lately.'

2009 Oct 04 10:21 AM

[Phillip Whisenant]

GM can learn a lot from Toyota!! Do you see any GM makes on the F1 sircut? Toyota junped right into Nascar and was successful their very 1st year. My Mom drives a Lexus (Toyota Made) and is 10 times the automobile then the last Jeep she drove.Can GM cars go for over 250,000 miles without any major work done to it? No!! Quaility control is the key at Toyota. It will take decades for GM to catch up with the quaility of Toyota that is if they ever do. Don't get me wrong. My first car I wanted was a Chevelle then a Corvette but I began to read up on mantinace on them and had a Honda as my 1st car and have owned 6 since then.

2009 Oct 04 10:24 AM

[Clint007]

Before I will buy a GM car, I will need a 5 years of the proof on reliability and quality. Means I won't buy GM for a long tiiiiimmmmmeee.

I agree with some post calling for diesel cars. The new VW BMW, Mercedes, are doing a huge hit with is new no pollution turbo diesel motor.
Many Asiatic cars are selling Diesel cars in Europe (Ex. Mazda).
very few diesel cars sales is not only in US but also in Canada.
The US/Canada car industries, they saying the people don't want diesel it is not popular enough!!!!!
They should, AT LEAST try!
I would certainly tempted to buy an electric/diesel car.

2009 Oct 04 10:26 AM

[Clint007]

I found two interesting article... "But will Americans really get behind diesel-powered cars?" www.newsweek.com/id/21...
"Why automakers don't sell a car that gets 50mpg." www.newsweek.com/id/13...

2009 Oct 04 10:57 AM

[Fred Linn]

-------------"Both Toyota and Ford owe us an apology in one particular area, and that is they are not selling diesel cars in America. The Ford Fiesta diesel is very popular in Europe, will get over 60 mpg, but Ford refuses to sell it in America. I talked to a Toyota dealer about diesel, and they are putting all their eggs into Prius technology."--------

Diesel may be the new direction for environmentally conscious drivers. The new clean diesel technology and ULSD(ultra low sulphur diesel) fuel makes them squeaky clean to run. VW is coming out with bi-fuel natural gas models now. Golf is on sale now(gasoline/natural gas)---Jetta TDI will be on the market with a factory option bi-fuel soon, end of this year or early next year as I understand.

Diesel/natural gas is an almost perfect wedding both from a practical and from an environmental standpoint. Diesel engines are durable, and the high compression ratio makes them much more thermally efficient than gasoline engines of similar power range. With a comparative octane of ~120, natural gas is uniquely suited to take advantage of the higher compression ratios of diesel engines---compression ratio is what determines thermal efficiency in internal combustion engines, the higher the compression ratio, the more % BTUs put into the tank as fuel are gotten back at the wheels as actual work done. Bi-fuel engines have been around for a long time, and easily solve one of the most vexing problems with liquid fuel diesel engines----fuel gelling and starting in cold weather. With a bi-fuel diesel engine, just start in natural gas mode, and run till the engine is warm, then switch to liquid if you need to.
Diesel engines offer similar over all thermal efficiency to hybrids, without the complicated and expensive battery technology. While hybrids achieve most of their efficiency savings in stop and go, city driving---diesels offer their efficiency savings equally across the board--both city and over the road.

Natural gas in in plentiful supply right now, and over all methane far outstrips even coal for recoverable deposits. Natural gas is not only plentiful, it is also cheaper, and much easier to extract than coal----strip mines don't work for natural gas. No expensive shovels, drag lines, trucks, skip loaders, conveyors etc. needed---it can either be piped or liquefied and shipped in highly dense form. Environmental damage is minimal compared to coal and petroleum.

The methane molecule is CH4. For each atom of carbon that is burned, four atoms of hydrogen are burned. You get more energy, and about 1/2 the carbon dioxide than burning an equal weight of coal. And we can easily make methane doing things we need to do anyway---treating sewage for one thing, or tapping into landfills and capturing methane produced naturally. If we capture methane that would have ordinarily escaped into the atmosphere---mixing it with fossil methane in a mix as low as 6% means that we can lower the greenhouse effect of the resulting emissions even though we are mixing it with fossil fuel. Methane captures heat 17X better than CO2---if we capture and mix methane, we exchange high greenhouse effect methane, for much lower greenhouse effect CO2. Mixtures of over 6% biomethane means we can actually lower and reverse greenhouse warming.

--------"Ask the American people if they would buy a reasonably priced 60 mpg vehicle with an engine that will run for over 200, 000 miles. When they say yes, tell them it is a clean burning diesel. They may hesitate, but they will certainly take a good hard look at it."--------

Yes, then ask them if they want avoid environmental damage from oil and coal----(plug in hybrids will still be powered largely with electricity made from coal--Chevy Volt). And ask them if they would drive a car that will have no problems with cold weather(batteries on hybrid cars are subject to very reduced efficiencies in cold conditions too).
Ask them if they would drive a car that with the right fuel mix would actually be able to lower the effect of global warming----and prevent and reverse climate change. Ask them if they want a car that will give them a freedom of choice about what kind of fuel they can drive with, and not have to worry about what the price of petroleum will do in the future. We can make liquid biodiesel fuel from any kind of plant material at all, waste wood or agricultural waste----or algae. We have many choices. And with a bi-fuel engine like diesel/natural gas they can use a biofuel made from anything biological at all. You could run a diesel bi-fuel its entire lifetime and never use one drop of petroleum.

And we do not need to change anything major about our manufacturing, supply, storage, distribution, or servicing network. You would simply fill up with whatever is available with a bi-fuel, liquid or gas. And most service stations already have a utility connection for natural gas.

Last added bonus. The Jetta TDI has EPA mileage figures of 40 mpg compared to 50 for Prius. 20% less mileage than Prius--but at 140 hp vs. 98 hp----almost 50% more horsepower. Americans like horsepower.
Then ask them if they want to lower their cost of driving. Natural gas is cheaper to use than both petroleum and electricity.

I can't think of anything that is a downside that is a problem with diesel/methane bi-fuel vehicles.

2009 Oct 04 11:05 AM

[lastboyscout]

Randy,

There are diesel's all over the world made by all the manufactures, even Ford and GM (Mopar??), and have great mileage, but......they will not meet California emissions. If you don't meet these strict standards, you don't sell the vehicle in the US. California has the most stringent standards in the world!!. Even VW stopped selling diesels in US for 2 years until it could come up with a diesel that met the standards. Again, U.S. Govt. has gotten in the way of common sense. Lead follow or the out of the way! The US govt is neither a leader or a follower and has put the people it governs in the way, where they will get run over by the rest of the world.


On Oct 04 09:19 AM Randy Miller wrote:

> Both Toyota and Ford owe us an apology in one particular area, and
> that is they are not selling diesel cars in America. The Ford Fiesta
> diesel is very popular in Europe, will get over 60 mpg, but Ford
> refuses to sell it in America. I talked to a Toyota dealer about
> diesel, and they are putting all their eggs into Prius technology.
>
>
> Once again car companies are doing poor market research, and using
> that market research to justify timidity. Somebody like Volkswagen,
> with the Jetta TDI , is going to start selling a lot of diesels in
> the US, and everyone else is going to be years behind. Remember how
> the Rabbit started selling like hot cakes in the US, and the Big
> Three started buying Rabbits and reverse engineering them.
>
> Do this with your market research, Ford and Toyota. Ask the American
> people if they would buy a reasonably priced 60 mpg vehicle with
> an engine that will run for over 200, 000 miles. When they say yes,
> tell them it is a clean burning diesel. They may hesitate, but they
> will certainly take a good hard look at it.

2009 Oct 04 11:25 AM

[Clint007]

lastboyscout say "Even VW stopped selling diesels in US for 2 years until it could come up with a diesel that met the standards"
Where did you get that? "Diesel Vehicles Currently Available in U.S." www.dieselforum.org/us...

Fred Linn, you are mentioning Natural Gas/Diesel cars, I don't think there will be a natural gas car life in Canada before many many years. Many don't trust the security of natural gas and also no place to fill cars here so to built the network for distribution will cost to much to built. Also, your going to put diesel (OK) in one place, then you go to another place to fill with natural gas!!!
Diesel/electric, no problem in travelling in US and Canada. (Electricity at your home)

2009 Oct 04 12:56 PM

[tc48374]

While Japanese vehicles appear to be a favorite of the environmental and animal rights movement; why is there no cry for the stop to and apology for the Japanese whaling industry as well as the slaughter of thousands upon thousands of dolphins??

To say the Japanese government has no influence over their industries is laughable. They're partners with them in the auto industry.

It's astounding how gullible and hypocritical the animal and environmental rights movement can be.

2009 Oct 04 01:31 PM

[Fred Linn]

Clint---most homes and service stations here are already connected to natural gas via utility hook up here. I've used bi-fuel in while living in Europe. There was no problem with availability anywhere, including Latvia,Lithuania, Poland, Estonia, Russia, Byelorussia, Ukraine and Finland.

That is the advatage of bi-fuel, you can use whatever is available. You simply change a switch on the dashboard to use either liquid or gaseous fuel, whichever you choose. There is no detectable difference in performance when in use with a warm engine. There is however, a HUGE difference in starting up and getting going when it is cold---such as Scandinavian or Siberian winters(probably true in Canada too). That, and the huge price difference between petroleum and natural gas have made bi-fuel diesels popular there for a long time. The bi-fuel option was mainly to avoid the cold weather problems with liquid petroleum fuel---but the slowly evolving price difference between petroleum and natural gas did not go unappreciated either.

In the future---as you point out---with enough widespread availability from natural gas----it is possible that diesels could go to just natural gas only. This hasn't happened over there because like you say----there are still situations such as remote locations where it is still handy to be able to use liquid fuel. It is easier to move, store and use liquids instead of a gas in those cases.

Mostly---bi-fuel option is about freedom and flexibility.

2009 Oct 04 01:36 PM

[W.E. Heasley]

Long, long, long ago GM lost touch with its customers. They merely give lip service to wanting to build vehicles that the public demands/values.

The management and the union are both third stringers. The management doesn't manage well and the Union is more interested in Politics than its members or the viability of the auto industry. The management and union should adopt the slogan: "GM, Where Quality is Job 57".

2009 Oct 04 01:43 PM

[realtaxpayer]

If GM started apologizing for the err of their ways, when would they stop? How do you apologize for 30-40 years of arrogance and mismanagement? GM lost their way so long ago, when they stopped innovating and began just trying to build cheap and sell the most vehicles at the highest margin. Sure that is capitalism at its finest, but if you you are not going to be good stewards of the customer, and lead innovation in the industry, it stands to reason that long term you will stand a chance to lose your customer base to someone who values them more highly.
While initial quality of GM vehicles has improved over the last few years, quality and more importantly "value", which Toyota offers, in retained value of the product over its life has not improved. Ever trade-in a 5 year old GM product versus a 5 year-old Toyota product and compared the percent of retained value from its original purchase price? How about cost of ownership over the 5 years?
GM is finally at least making the move to more visually attractive vehicles where they ruled in the 50's and lost the edge along the way. The late 70's and up until the last 3 years, they have made some ugly ducklings in mass quantities, while Toyota and Lexus actually improved and now are very much in tune with styling trends, perhaps one can say have styles other seek to emulate.
I've purchased several new GM vehicles over the years and everyone has had major component failures that required warranty adjustments. Each clearly a quality issue. When the last one a 4WD GMC Yukon suffered ruined transfer case bearings in the first 4000 miles (yes 4000) due to insufficient lubrication in the transfer case even after vehicle make ready at the delivery dealership failed to discover it and then I was denied repairs under warranty-I bought my last GM product. Still I cheer for them as they have brought our some newer vehicles that appear exciting. Certainly the Covettes have really led the way an are the best example of GM setting a standard others have to respect. The Cobalt is more attractive certainly in coupe versions but far from a Toyota Corolla in finish and driving feel-or even Hyundai. Much closer to a KIA. Then the new Impala which is exciting visually, while not a bad start, it once again is miserable in comparison to a Camry or Accord. Closer sure-on initial impression but check back after 30K miles-I had one as a rental recently and it was not holding up well. I've had 60K mile Camry rentals that were far better.
The bottomline for GM is if you aren't or can't build attractive cars that have a quality owner experience, that you will stand behind with your warranty and that provide real ownership value, you will lose this battle and believing you will retain market share is dilusional. Once you do these things well, then perhaps you can make enough money to actually invest in R&D and innovate new products. The comeback story for this company will have to be amazing or it will be dust in another 10-20 years. The unfortunate reality is that so many jobs from manufacturing, to dealerships, to suppliers, rely on this behemoth, that the impact on our country right now would be devastating. I sure hope GM stops fooling themselves long enough to really figure this out and get it right. If they do, it will be good for America, if not it may truly be disasterous.

2009 Oct 04 02:41 PM

[thotdoc]

Maybe someone from GM is reading this. You build 1 good line of cars and 1 good car in one line; Cadillac and Corvette.

Car companies can be quite successful when they build cars that people WANT to buy and drive. By drive, I don't mean press the pedal and turn the wheel while braking for minimal curves in the road.
Think VW, Cooper, Porsche, BMW, MBZ, Mazda,

Car companies can be quite successful when they build OK cars and understand the needs of their customers. Think Toyota, Lexis, Infinity, and Hyundai, and now Ford.

I could go on with models and approaches but the GM is not paying me to think for them.

So GM. Decide who you are and build cars you want to drive, yourself. Visceral or rational. Ford has you beat on rational, unless you can steal Mulally away, and you seem to do visceral well. I vote visceral...Become the BMW of America.

And get rid of the 3 divisions with completely different cars. That is last century. It is a family of cars, not a car family.

But, cars are not charicatures of cars; don't screw up an OK design like the new Camaro by putting a charicature rear end on it. And cars are integrated wholes. Don't build cars that look acceptable on teh outside and then sell it with hard plastic loaded interiors.

Is there anyone at GM who is an executive with power to lead, and who loves cars...who is as passionate about cars as I and thousands...millions of enthusiasts are?

2009 Oct 04 10:14 PM

[Steve0]

My next car is a GM and more Americans should do the same.

2009 Oct 04 11:58 PM