Monday, March 29, 2010

Everything old is new again

On the face of it, the headlines "GM to recall, hire new workers" looks like good news, right? Yeah no. Wrong.

I hate to rain on the parade but GM's old school "let's pump up production to sell as many of these hot units as we can" is a part of their age old problem. "We want our plant running at full capacity" gets workers accustomed to the paycheck but also means they'll be really busy and that's a challenge to quality. Is there a correlation between Porsche's recent accolades and their production numbers? Better yet, is there a correlation between Toyota's production ramp up over the last two years and its quality problems?

Ramping back up to full capacity quickly will produce quality issues. Those issues will erode a fragile consumer confidence. Residual values will stay low. Demand will drop, layoffs will happen and it's deja vu all over again.

Check back with me in a year - hopefully you can say "boy, were you wrong." After all, "a year is a long time from now", some will say. "This move is good for right now" I'm being told. To which I reply, short-sighted planning is part of their genetic problem. SUVs are hot now. Hummers are hot now. A multibillion dollar global corporation should have a much longer production management view than "right now". That fluctuation habit continues, like they really haven't learned anything.

If I'm wrong, I'm wrong. GM has scaled back its reliance on fleet sales, and that's good. And the marketplace is absolutely refusing to sponge up oversupply the way it has before the fall, so feeding whatever consumer demand they still have isn't bad, of itself. And it's fairly obvious that "hiring new workers" means paying less per hour than for a more tenured, experienced assembly line worker, so costs shouldn't skyrocket out of control. There's an argument to be made that things aren't the same as pre-2009. Be that as it may, I'm just not confident that they realize they should build fewer cars than they can sell, rather than building more cars than they can sell.

Production/supply should always lag demand so that demand is always pulling, which is part of what raises the perception of value and thus the residual. Controlling production means ensuring the manufacturing processes are sure, and quality is being put out at a pace that's manageable. Controlling production means a recall number is smaller both in terms of incidents and number of units involved.

These guys have to be clear that sales, units sold, is not the most important measure of success. Quality, profit, customer satisfaction, residual value - these are all necessary components that are threatened by overproduction.

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