Differentiation

How does a company differentiate itself from other competing companies in the market? This question can be approached through various perspectives, such as that of the consumer, a competing company or even an objective observer. I will begin by looking at the automotive industry as a parent looking for their child's first car. As a parent, the first and probably only thing I am concerned about is the safety of my child. When I look at the vast ocean of automotive options, certain names pop into my head like, Kia, Volvo and Mercedes Benz. The next thing, which also leads into my additional perspective is the pricing on the vehicle. How much will this vehicle cost? Not only am I looking for safety but also affordability. As much as I care about my child, I don't want to the break the bank purchasing my child's first car. This is where competing car manufacturers come into play. Each car brand is looking to out perform the other not only through production efficiency but through revenue gains. Parent's are not concerned whether Kia is looking to generate more profits than Mercedes Benz this year, but car companies are looking for various shortcuts and new innovations to outdo the competition. So I go fishing around the car market and finally find a car that not only offers practicality, a bit of style and safety, but also affordability. My child hugs me and tells me that I am the greatest half male/female parent ever and I feel proud of myself. But am I truly proud of myself or did I just get jipped and pay way too much for a vehicle that is worth much less. This is where finally, the objective observer comes into play. Each company has it's own marketing scheme. May it be safety, national pride or technology, are the big companies brainwashing consumers into buying cars that are beyond our budget and practical use? More questions can arise such as is the company I am buying a product from support child labor or do they perform unethical business practices?

In the end, it comes down to the question of "what is in it for me"? Consumers want to find the best product, companies and their CEO's want the biggest profit margin, and objective observers support causes that enforce their agenda (agendas that support their personal beliefs). I believe that differentiation is a matter of capitalism, and that we cannot actually point a finger to how companies differentiate themselves. This is a topic that is constantly changing shapes quicker than an amoeba. For now, each company has its poignant marketing campaign, but in the future I believe that it will evolve to attract customers, gain more profit and ease third party observers.  

Auto Makers Aim at Reducing Car Weight to Improve Fuel-Efficiency

Generally, when one thinks of ways to increase fuel-efficiency in cars, the only thing that comes to mind is the development of alternative fuel sources such as electricity and ethanol.

To meet the federal government's demand for an average gas milage of 62 miles per gallon by 2025, auto makers will have to explore and implement other ways of increasing fuel-efficiency in cars. One way of doing that is by reducing the car's weight.

In this year's Paris auto show, some companies showcased cars that combine fuel-efficiency, power, and design. Among those companies is Lamborghini which managed to accomplish that by releasing its new model, the Sesto Elemento, which is approximately 700 pounds lighter than the current production Lamborghini Gallardo because it is built almost entirely with carbon fiber. Land Rover, known for its big sport utility vehicles, also presented a more fuel- efficient vehicle that emphasizes lightness: the Evoque. The SUV, which have aluminum hood and roof panels, aluminum suspension parts, and plastic front fenders and tailgate, weights 3,500 pounds, almost a ton less than Land Rover's Range Rover model. The car has a smaller engine, that improves fuel-efficiency by 20%, without sacrificing performance.

Reducing the car's weight, is specially important for high-end automakers that don't want to sacrifice power and comfort for fuel-efficiency. "We see the future as not so focused on increasing power, as there is a limit to power increase due to emission regulations, but in reducing weight," says Lamborghini Chief Executive Stephan Winkelmann.

Usually, technology developed in luxury cars starts to become more popularized with time. Although we are not expected to see popular cars being built with carbon fiber or having a eight-speed transmission designed to improve fuel-efficiency (BMW 5 -series), these changes are important and relevant in achieving the Obama administration goal of making cars drive twice as much with the same fuel by 2025.

Picture from thecarconnection.com

One of the most fascinating leaders within the auto industry, personally, has been Bob Lutz who retired earlier this year. BusinessWeek’s David Welch wrote about Mr. Lutz at the time of his retirement. Many notable vehicles can trace their origins to him like the Dodge Viper. He has been in the industry for many years, working for Chrysler, BMW, Ford and most recently at General Motors.

Lutz has been working in the industry for 47 years but has been most known for his work in the past decade at GM. A former Marine pilot, Lutz is a no-nonsense guy who does not believe in Global Warming or government fuel economy standards but became the force behind the new Chevy Volt.

Many credit Lutz for focused GM back towards quality products when he first entered the company in 2001. He has consistently pushed for better quality design and materials in all of GM’s products. Products like the newest Chevy Malibu and Cadillac CTS directly reflect his work for better GM products. When he arrived at GM, they were building hopeless vehicles like the Pontiac Aztek and within a decade they were producing impressive products and pushing new technologies with the Chevy Volt. Lutz’s primary role at GM was one of product development but at the time of his retirement was Vice Chairman and a senior advisor at General Motors.

David Welch expresses concern with the exit of Lutz. He sees no one else within the company who fights for quality designs and interiors the way Lutz has done. Considering GM’s eagerness to repay distance themselves from government loans and return better profits to their shareholders, GM leadership could be tempted to cost cut and cheapen designs without Lutz’s voice.

I disagree with this fear and truly believe GM, like the others within the Big Three, understand the need for more competitive products. What Lutz did was convince GM to invest in design and push the company to sacrifice production costs to future sales. The reason I mention Mr. Lutz is because his job is my dream job, working with the design department to create vehicles like the Cadillac CTS and Chevy Volt seems to be a very rewarding career.

http://www.businessweek.com/autos/autobeat/archives/2010/03/bob_lutz_retires_from_gm_long_live_his_influence.html

http://www.dailyfinance.com/story/company-news/having-reinvigorated-design-at-gm-bob-lutz-is-retiring/19382022/

GM cuts Historic Deal with UAW

General Motors and the United Auto Workers, the largest automotive worker union, reached an historic deal to manufacture a subcompact car in the United States. At a time when many US plants face closure or reduced operation, this is great news of workers, consumers, and management.

Dave Barkholz of Automotive News reported this news on Monday, October 4:

The UAW has negotiated a landmark local labor agreement with General Motors Co. that should allow the automaker for the first time to produce a subcompact car profitably in the United States.

The agreement calls for just 60 percent of all hourly workers at GM's assembly plant in Orion Township, Mich. -- where the Chevrolet Aveo will go into production next year -- to receive traditional production wages of $28 an hour with full benefits, said Mike Dunn, shop chairman for UAW Local 5960.

The other 40 percent will receive a so-called Tier 2 wage equal to roughly half that of so-called legacy workers.

Effectively, that means about 900 of the 1,200 to 1,500 workers on layoff at the plant will be able to return at full wages and benefits, Dunn said. The remaining workers on layoff will have the option of coming back with Tier 2 wages and full benefits or seeking a transfer to another GM plant, he said.

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20101004/OEM01/101009947/1261#ixzz11bhIueXd

I believe this deal is good news for all involved parties. Not only will it put laid-off workers back to work, it will also cut GM's wage costs, allowing the company to competitively manufacture a small and fuel efficient car for the US market, the Chevy Aveo. Currently, the Aveo is manufactured in South Korea. It is an underwhelming vehicle at best. When it first came out, it sold pretty well because it cost just $10,000. People looking for a really cheap new car found one in the Aveo. But over the past few years Honda brought the Fit to US shores, as did Nissan its Versa and Toyota its Yaris. These three cars are leagues better than the current Aveo.

The next-generation Aveo, on the other hand, it a sporty-looking machine with a fairly nice interior (for a subcompact). This small car will allow GM to be competitive in the subcompact segment, and they should be able to turn a profit on the selling of this car. According to Mike Dunn of the UAW, "The wage agreement is expected to reduce GM's labor costs enough that the automaker can make a profit on the small car."

For the most part, subcompact cars are not made in the USA. Because of the cars' cheapness, labor costs are too high to manufacture subcompacts in America. For example, Ford's new small car, the Fiesta, will be manufactured in Mexico, where labor costs are lower.

Unionized workers would not typically be open to the lower wages imposed in this deal, but with the sharp decline of auto sales, and the subsequent lay-offs, many workers are just happy to have a job.

I find this deal encouraging, especially as GM continues to roll out highly competitive vehicles to compete with the like of Toyota and Honda. This deal between GM and the UAW is just one small step on GM's rode to redemption.

Influential Figures

One of the automotive industry's greatest icons is Henry Ford. Beginning with the Model T, Ford was able to provide Americans with practical yet affordable vehicles. The Model T became an ubiquitous symbol of wealth and being an American. Taken on family picnics and even to Sunday mass, the Model T became Henry Ford's golden ticket into automotive stardom. One of greatest ideas was the implementation of the assembly line to begin the mass production. The concept behind an assembly line went that workers would be given specific sections along a line where their responsibility consisted of one section of the production of a vehicle. The assembly line was able to increase production and reduce average production time.
Had it not been for Henry Ford's three concepts that drove his company toward excellence, "reasonable price, reliability, and efficiency", Ford might not be the company it is today (hmfgv.org).
Ford's cars were so affordable, not only was he able to turn America into a nation of automotive drivers overnight, but "by 1918, half of all cars in America were Model Ts" (hmfgv.org). The surprising fact remains that there were engineers who had created self-propelled vehicles before Ford, none of them , however, were able to match Ford's mass production of vehicles. 

I believe that Henry Ford is one of the automotive industries great icons and tributes. Hence, America should build the Ford memorial right next to the Lincoln memorial. 

- Paul Jung

Pictures were acquired from google.com

China plans for being green.

As reported in the Wall Street Journal on September 16, 2010, China's Ministry of Industry and Information Technology is preparing a plan to make China the "the world's leader" in developing and producing battery-powered cars and hybrids. China expects to achieve its goal by acquiring technology from multinationals by forcing them to form joint ventures with Chinese companies if they want to produce key energy components in China. Because China is an indispensable market for multinationals and costs to import these components to China are too great, companies would feel the need to produce these components in China.

Companies are now caught between losing technology or losing the biggest market to sell cars. Most likely, multinationals will be forced to comply with china's rules, and China will become a leader in the electric car segment. As reported in the Wall Street Journal article, China projects to have five million electric cars and plug-in hybrids on the roads by 2020. For that, they plan to invest as much as 100 billion yuan, or about $15 billion, in areas such as charging stations and other infrastructure. In 10 years from now, China could become a prototype for what could be the our future, a world moved entirely by electric cars.

http://online.wsj.com/article/SB10001424052748704394704575495480368918268.html

The Toyota Way

Toyota is not just a leader in the automotive industry; it is also influential in the world of business management. "The Toyota Way," as it is called, is the set of principles and leadership techniques that Toyota uses throughout its global operations.

Here are the fourteen principles (from the book The Toyota Way: 14 management principles from the world's greatest manufacturer, available for preview at http://books.google.com/books?id=9v_sxqERqvMC&lpg=PP1&ots=g6SVeCsLKA&dq=The%20toyota%20way&pg=PA1#v=onepage&q&f=false):

1. Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.
2. Create a continuous process flow to bring problems to the surface.
3. Use "pull" systems to avoid overproduction.
4. Level out the workload (be the tortoise, no the hare)
5. Build a culture of stopping to fix problems and get quality right the first time.
6. Standardized tasks and processes are the foundation for continuous improvement and employee empowerment.
7. Use visual control so no problems are hidden.
8. Use only reliable, thoroughly tested technology that serves your people and processes.
9. Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.
10. Develop exceptional people and teams who follow your company's philosophy.
11. Respect your extended network of partners and suppliers by challenging them and helping them improve.
12. Go and see for yourself to thoroughly understand the situation.
13. Make decisions slowly by consensus, thoroughly considering all options; implement decisions rapidly.
14. Become a learning organization through relentless reflection and continuous improvement.
    

I believe that these principles are a large part of Toyota's success. Despite the recent recalls and runaway RAV4s, Toyota remains the worlds number one automaker. In light of the recalls and evidence of Toyota trying to cover up the problem, some of these principles may seem a bit ironic. However, that in no way reduces their importance in explaining Toyota's success.

Many other business managers and supervisors have implemented the Toyota Way. These principles apply to any industry that seeks to have more effective management and long-term success.

Toyota has become an influential leader in the auto industry by following these principles. And by proving the success of these principles, they have become one of the most influential companies in the world, as more and more executives mimic the Toyota Way.

GM and other car companies should do themselves a favor and adopt these principles. Just don't ignore them when it's convenient, as Toyota did during the recall scandal. A runaway Camry is one thing, but a runaway Escalade would be even more frightening.