156-One Up, One Down, One Sideways

Three of the leaders of the automobile industry are presenting some interesting new stories. First, General Motors. The new Chairman of General Motors is Edward Whitacre. He is not a car guy. He came from the telecommunications industry, most recently as Chief Executive at AT&T. The Chairman recently asked the head of engineering at GM to call all the customers who had turned in their new cars under a recent quality program. This program offered customers a 60 day money-back guarantee. It allowed a customer who was unhappy with his automobile to turn it back to GM for a full refund. The head of the engineering group charged with calling the new customers noted that the focus on customer satisfaction was new at GM…and long overdue. This is a hopeful development for GM.

GM, for years, has had a poor reputation for reliability and durability. That problem seems slow to change, as witnessed by the recent quality survey by Consumer Reports. This survey criticized the company’s quality, finding it lower than the models from Ford, Honda and Toyota.

If the new top management attention to quality takes hold of the company, it is bound to improve its fortunes. It should move up with this development.

Fortunately for GM, its main competitor, Toyota, seems to be moving down, at least for now. Toyota became the leader in the automobile industry because of its reliability, but that reputation has begun to falter under the blows of recalls for rust problems and sudden acceleration in several models.

In a surprising upset, Hyundai Motors passed Toyota in J.D. Power & Associates survey measuring how many problems an automobile has in its first three months. A few years ago, Hyundai’s reputation for quality was equivalent to Madonna’s reputation for virginity. However, the Korean company instituted stringent measures to improve its quality, measures that seem to be paying great dividends today with their improved reputation and fast-growing market share. (See our blog on the quality changes at Hyundai HERE)

Ford seems to be moving sideways. On the one hand, its 2009 automobiles are getting good reviews from critics and the marketplace. The company is gaining market share. It also reported its first quarterly profit in four years. So, sideways, you ask? Yes, because Ford has a real problem with its cost structure. In October, the UAW refused to grant Ford the same contract terms that it had previously granted to Chrysler and General Motors. The most important part of the better terms that GM and Chrysler won was relief from the many work rules that restricted the work that an individual employee could do on the production line. These work rules make employees inefficient and idle. They reduce the company’s productivity. Not even Ford can face down a cost structure that is higher than those of its domestic and international competitors. Many of these competitors produce in non-unionized plants in the U.S., where work rules do not hinder productivity.

So, Ford is heading sideways until we see what it does to overcome this cost disadvantage. If the company follows the old GM approach of cheapening its fits, finishes and styling, it will lose market share and plunge into big losses. If, on the other hand, the company maintains the style and quality of its new cars, then it has a chance to address its longer term cost problems in ways that might be somewhat less disruptive to the UAW. (See the Perspective, “Achieving the Low Cost Position” on StrategyStreet.com.)

Ford’s situation is not promising. Many industry leaders, when faced with high and fixed labor costs in their industries, cheapen their products in order to eek out some profitability in the short-term. This always hurts them in the long-term. (See “Video #54: Cost Reduction by Winners vs. Losers in Hostility” on StrategyStreet.com.) The plight of the legacy airlines serves as an ample reminder of this tendency and its results.

Posted 12/3/09

Update:

As other competitors, particularly the Koreans, have grown their market shares with high quality products, Toyota’s US market share has stagnated.  In 2008, Toyota’s US market share was 14%.  By the end of 2021 its market share was 12.75%.  In 2020, Toyota led the global market with a share of 8.5%.  Volkswagen followed at 7.8%.  Hyundai was 3^rd at 5.4%.  Ford was 4^th at 5.1% and Honda was 5^th at 4.8%.

Over the 5 years leading to 2020, both General Motors and Ford both have lost US market share slowly.

The two major Korean automobile manufacturers have now become Standard Leaders in the US automobile market. They offer a wide range of products from Price Leaders to Performance Leaders in the US market. The broad product line and growing reputation for quality are yielding market share gains for these Korean manufacturers.

Genesis is the luxury vehicle division of the South Korean vehicle manufacturer, Hyundai.  The brand was introduced in 2015 and entered the US market in late 2016, with the G80 and G 90 models.  The G 70 model entered the market in 2017.  All 3 Genesis models garner impressive reviews and offer outstanding value for money.  The warranty coverage on Genesis automobiles parallels that of Hyundai and Kia.  They are clearly the best warranties in the American automobile market.  Beginning in 2017, the company’s Genesis US market share has grown slowly from .12% to .33% in 2021.

Hyundai’s US market share has grown from 3% in 2008 to about 5% at the end of 2021. During the same period, Kia’s share has grown from 2% to 4.5% of the US market.

We have found there are three major ways a company can innovate its products and services and add value by reducing some customer costs. See HERE for more detail. An improvement in reliability enhances the customers experience with the product by adding a sense of security to the customers purchase and ownership. See HERE for some detail.

8/22

***