Former Insider on the Auto Bailout: Never Underestimate Brainpower in Detroit


In all the many (how many) years I worked as an engineer in and around the auto industry, I got to compare conditions in Europe, Japan and America. Yet in many ways the American situation was perhaps the most tragic – the most potential, most eagerly squandered. It’s not Americans who are flawed, but the business model imposed from the top.

For example, I do not believe American engineers are inferior to those working elsewhere. It’s just the way their inputs are handled. Toyota and Honda have long-term viable plans that forecast many years down the road. This gives engineers a clear direction.

On the other hand, Detroit's automakers, as well as some European ones, tend to look at short-term gains in order to satisfy shareholders. GM's big problems were due to planning short-term while sacrificing the farm down the road.

GM became too big. They had too many brands and too many models. Alfred P. Sloan created all these brands in order to counter Henry Ford, but also to provide various products for people at all economic levels. These internal GM brands were to compete against one another as well as outside companies. What Sloan did not realize is how this internal competition would impact the engineers who develop products and the marketing staff who have to sell them.

Of course some of the problem had to do with the power and influence many of GM's shareholders had over the board as well as the CEO. These shareholders wanted their cut and they wanted things done their way. For years, it all came down to satisfying the shareholders at the expense of GM's long-term reputation. To this day, I know people who will not buy a GM product simply because they had a poorly made Pontiac back in 1983.

Keep in mind, buying a car is a HUGE purchase for just about anyone. This cannot be compared to purchasing a ticket on a bankrupt airliner or buying a golf club from a defunct golf manufacturer. Americans today have long memories when it comes to vehicle purchases. Yet, these are the same Americans who demand instant gratification and who trample people at stores on Black Friday in order to save an extra $12.00 on a Chinese-made sweater.

But my biggest complaint has to do with the wasting of great talent. There is a popular myth that American engineers are lazier or more stupid than their Asian and European counterparts. I highly disagree with this notion. There may well be different cultural values, but that does not define a worker's skill set or determination. American engineers are simply more independent in their thinking than their Japanese and European counterparts. Independently-thinking renegades will create nothing but extra trouble for a platform design team.

This is system that American engineers and designers are placed into once they graduate from college. It's a cultural "machine" if you will. In Japan, Toyota's engineers become "one" with the company and they simply work as one machine. There is no "I" in Toyota's system – or in Japan's industrial marketplace for that matter. Unfortunately, at GM people appeared to be hell-bent on receiving singular credit for their accomplishments.

Please understand that the Japanese people are not a diverse bunch. They are known in the automotive industry for improving upon established ideas, designs and systems. The Japanese, however, are not known to create something from the ground up like their American counterparts. American engineers take more risks, since they want to be rewarded. The Japanese simply create and work for the common good of their employer.

Toyota is a company that is known for its stubborn planning and ways. They take their time and do things right the first time. This is the Toyota way – most of the time.

But this is not always the case. Toyota got derailed with their Avalon model. This car has been nothing but trouble from the drawing board to the production line. It is a piece of garbage.

Why is it so bad? Maybe it is because this time they followed the flawed American model. Toyota rushed it because it saw the potential for a quick profit. They did not take their time to think things through. They simply used the American business model for a short-term gain and it failed them.

In contrast, GM took its time to develop the new Malibu, and Ford used over 1100 engineers to develop the new F150. The Malibu is better than anything Toyota has right now. How do I know? I drive a Camry and I compared it to the Malibu.

Interestingly enough, GM Vice Chairman Bob Lutz had personal input into the Malibu's development. That is the MAJOR divergence from traditional platform development in the past. Engineers and designers received personal hands-on feedback from a car-guy at the top, not some bean counter. I am sure they felt invigorated to hear his thoughts from him rather than receiving them in a fluff letter typed by a secretary.

Back to Michigan?
Up until the late 90s, many in Michigan simply did not value a college education. Many were simply cushioned by the fact that they could graduate high school and get a job on the assembly line. I fear that this attitude towards college will grow in the southern states such as Mississippi and Alabama. Many down there are starting to have the "I'll be fine" attitude that many in Michigan once had.

But the future in Michigan may be brighter than many suppose. Southeast Michigan will remain a research and development powerhouse well into the future. Many of Detroit's auto engineers and related companies can easily adapt (technically speaking) to alternative technologies such as wind, solar, and new materials. Never underestimate the amount of brainpower in Detroit. Prior to my stint in Detroit, I was under the impression that every Big Three employee was a lazy slouch. My ignorant attitude was squashed pretty damn quickly once I started working with them.

So here’s a bright point for the future. You will see more technical industries branching off from the auto industry. Companies like Dow are already taking advantage of Metro Detroit's diverse and increasingly well-educated Arab population. I see a future in Michigan revolving around chemicals, green energy, transportation and international trade in general.

But the car industry won’t go away either. Toyota, for example, decided to keep its R&D operation in Michigan rather than relocate to Alabama. There was simply no incentive for Toyota to migrate its brainpower to the South. Right now – although this may change – the auto industry in the south is incomplete since they lack the planning and design processes needed.

With or without a bailout, the Big Three as we have known them will not be the same. One or two could disappear. Others will no doubt shrink. But the intelligence that exists within the engineering and industrial talent of Michigan remains. This is what the country should look to save from extinction, not the mediocrities who have ruled from highest management.

Amy Fritz was born in Cambridge, England during World War II. Her mother was a seamstress and her father a pilot with the RAF. Her uncles worked in various capacities within the British automobile industry and her father became an engineer and professor.

After studying engineering at Cambridge, Fritz developed an interest in automobiles and went to work for a now defunct automotive supplier. Her occupation took her to Europe, Asia and North America, where she eventually settled as a technical engineering contractor for various auto-related companies. She is now semi-retired and living in the Denver area.

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Good points all, but I doubt anyone regards poor engineering as the reason the Big Three are on the ropes.

It's crappy management that's the problem.

If the economy weren't sliding into another Depression, I'd welcome one (or more) of the auto companies going bankrupt. As a way to force changes on managers/shareholders who would otherwise keep doing the same old same old. A tougher, leaner, post-Chapter 11 Chrysler (let's say) would force the same changes on Ford and GM.

After the first oil shock following the Yom Kippur War of October 1973, Detroit has never again led the auto industry. Beginning around 1980, Honda and Toyota set the pace and the Big Three, kicking and screaming all the way, tried to keep up.

Yeah, their cars are far far better than they were. But still not as good as Japanese models. (As prices of new and used cars attest.)

Instead, Detroit spent 35 years making excuses for its own unwillingness to compete against Honda and Toyota. And in market segments where Detroit still dominated, the Big Three bragged that there was something special about those segments that the Japanese couldn't copy.

Which was true -- until the Japanese entered those market segments in a serious way.

Whether we're talking full size sedans, pick-ups, SUVs, minivans, or luxury cars, Detroit ceded its leading position as soon as Toyota and Honda entered the market.

Take full-size sedans. When Reagan got the Japanese to agree to "voluntary" limits on the numbers of cars they would import, what happened? Before, the Japanese had been strongest in the low-end of the market. But with imports capped, Honda and Toyota instead introduced larger models that cost more, making up on price what they lost on volume. The yen was then strong, which further increased the price of their cars. Detroit responded by raising its own prices.

Within a couple of years, everybody was making lots of money and the newsmagazines ran cover stories about how Ford and GM had recovered and were stronger, better companies.

What actually happened was American car buyers were discovering that the Japanese full-size sedans were amazing values. Well-built, durable, and worth their premium prices (vis-a-vis the equivalent models from Detroit). And so Detroit began to withdraw from this part of the market.

Yes, Ford had the Taurus. An amazing car. A world-beater. And after a decade of robust sales, Ford pulled resources from the Taurus. It became an also-ran and was finally killed off. Can you imagine Toyota doing that with the Camry? (This year, Ford reintroduced the Taurus.)

By the late 1980s, Japanese cars had such reputations that Toyota introduced its Lexus brand and Honda its Acura brand. Which is to say, they were confident they take on Cadillac and Lincoln (and Mercedes) and win.

Remember what put Lexus on the map in America as a serious luxury brand? A few months after the first Lexus went on sale, Toyota discovered a persistently defective part. How would a mass recall play among buyers, given the brand's still-weak hold in the luxury market?

Toyota engaged in the one of the most brilliant PR moves ever. It not only publicized the recall, it invited reporters and TV crews along when it flew a mechanic from Seattle to replace the bad part on the one Lexus it had sold in Alaska. Toyota got so much favorable PR that three weeks later, the first year's planned production was sold out. Lexus never looked back.

Remember when Detroit claimed American labor was why its quality lagged the Japanese? As soon as US-built Hondas and Toyotas had the same build quality as Japanese-built models, that excuse vanished.

Or Detroit's claim that there was something special about pick-up trucks that the Japanese would never master. Does anyone think Toyota's San Antonio-built trucks can't compete with Ford's F-150?

(I could on and on here but I won't.)

None of Detroit's problems are caused by poor engineering. These are management's mistakes. (Remember Ross Perot's quip after serving as a GM director? That the US fought and won WWII in less time than it takes GM to introduce a new model.)

For reasons too complicated to explain, I talk to a lot of former top execs of the Big Three. Including CEOs and COOs. Now that they're out of the industry, they are scathing on Detroit’s shortcoming.

Too much short-term thinking. Sclerotic managerial methods. Nightmarish labor relations (when the unions weren't being bought off with non-competitive pay increases).

Even being in Detroit is a problem. One former CEO once told me that had one of the Big Three been HQed in Southern California, the US auto industry would be a world leader. Cars, he said, became a red-state industry in a country where all the excitement and opportunities are in the blue states. (This past February, one of these guys bet me a year's pay that Chrysler would be bankrupt by year's end.)

It would be nice if Amy’s right that all of that engineering talent in Michigan got redeployed to better, more cutting edge uses. But I wouldn’t bet on it.

A safer bet is that in 5-10 years, Michigan (and Ohio) will be America’s answer to failed states like the Congo or Somalia. The auto industry will be on life support and anyone with talent and initiative will have fled. Detroit will look post-apocalyptic with nature slowing reclaiming the land.

And that’s a tragedy. Because all of the industry’s woes are self-inflicted. Every single problem the Big Three today face was a problem decades before. The industry knew it but did nothing.

Capitalizing on Detroit's Brainpower

This is a great posting on Detroit and the industry that has been the home of revolutionary industrial advances for over 100 years. I couldn't agree more with Amy's statement to "never underestimate the amount of brainpower in Detroit." What strikes me is that in addition to the auto industry crisis, the added complication of housing prices and sales plummeting in the state means that thousands of talented professionals simply cannot leave the state right now; their homes will not sell for what they are worth.

There will be a finite limit to how much these bright people will be able to withstand. Michigan and Detroit must do everything possible to encourage existing businesses to expand, attract new businesses to the area and, on a personal level, we must all support each other during this transition.