Story of Three Turnarounds

The Detroit Three pursue three very different turnaround strategies

By Igor Holas

04.22.2008

All three major domestic manufacturers are in the midst of major turnarounds, but while their ultimate goals are the same, their approaches to this turbulent process could not be more different: while Ford is paring the business down to a centrally managed core, GM has re-grouped to dissolve much of its central management, and Chrysler commenced its path to a potential merger with Nissan. These three strategies show the vastly different philosophies guiding the leadership of each company, and point to very different challenges faced by each.

General Motors

We shall begin with the biggest of the “three” – GM. In a radical move, GM announced last week creation of four “marketing channels.” Each one of these channels has its own “CEO,” product development, and marketing team. The four channels are: Cadillac-Saab-Hummer, Buick-GMC-Pontiac, Chevrolet, and Saturn. The first channel is supposed to market global premium brands, the second smaller-volume mid-level brands, leaving Chevrolet’s mass-volume, and Saturn’s import-image independent. Each channel semi-independently manage its own business, including having say in product development. To aid this functioning, GM has also dissolved or weakened many of its corporate-level departments, such as marketing.

Three years ago, while Wagoner was still fresh in his CEO seat, he ordered an audit of all GM brands and their sustainability. However, when the conclusion included the elimination of both Hummer and Saab, Wagoner decided to pursue a different path. GM kept all of its brands open, but embarked on a mission to make them run effectively all under the same umbrella organization. Having eight divisions might seem like a lot, but in a world of General Electric managing everything from light bulbs, to locomotives to national TV network, GM seems like a tiny, homogeneous organization; it just needs the tools to make it all work together. After years of planning, and with the experience of the Buick-GMC-Pontiac channel under its corporate belt, GM believes that this new strategy will work.

If this new structure is implemented properly it will return GM to the brand strategy essence of its heyday. Back then, GM managed independent and competing brands that were happy to piss each other off. Now, while we will not see the return of Pontiac or Chevrolet-specific engines, or Buick commercials taking cheap shots at Cadillac, we should see more independence between the channels. GM should once again become an organization of loosely related brands (channels) each run much like an independent company. Many fellow automotive journalists expressed worry that the new four-channel strategy will remain no more than a formality, leaving key product, marketing, and other decisions to global executives such as Wagoner, Lutz, and Welbrum. That worry is not unwarranted, but I am hopeful, GM is finally moving past its all-too meaningless divisional structure.

Ford Motor Company

Ford also began their turnaround saddled with too many brands, too many models, and too many dealers, but unlike GM, they did not attempt to make sense of the mess; instead they set out to simplify their business. With the hiring of Mulally in 2006, Ford Motor Company re-focused on the first word of its name: Ford. The Ford brand not only accounts for the lion’s share of the sales and revenue, but is also the key image-maker for the company. As such, Mulally declared the revival and revitalization of a strong global Ford brand the key priority. With this mindset everything else became secondary. Aston Martin, Jaguar, and Land Rover were sold so Ford does not have to spend time and energy worrying about them. Volvo is being pushed aside to a semi-independent Mazda-like status.

In the meantime, every part of Ford is becoming global: product development, purchasing, manufacturing, quality control, and marketing. Ford’s local chiefs are increasingly responsible for only market research, communication with dealers, and oversight of local personnel. In light of this new structure, Ford is also paring down its models and architectures and unifying similar vehicles globally. Within five years our Fiesta and Focus will be virtually identical to the Fiesta and Focus anywhere else in the world, and our Fusion will be a re-named Mondeo. Ford will eliminate its array of several locally-built small trucks into a single one, and eliminate many of the locally-developed models. All this reorganization also aims to eliminate duplicate staffing, and duplicate processes, creating one single, centrally managed global company.

The only anomaly to this system is in North America, where Lincoln and Mercury continue to exist as off-shoots of the Ford brand. Lincoln was made into a second corporate priority – being groomed for a targeted Buick-style global roll-out. Mercury continues merely surviving, relegated to the back burner for now, waiting for its chance to shine. According to internal sources, that time will come within four years, when Ford and Lincoln are stabilized and can function on cruise control.

Overall, Ford is very closely following Mulally’s “One Ford” mantra and globalizing every department. There is no more local product development, no more local manufacturing, no more local purchasing – all these functions were relegated to global-level departments that manage all the local branches of these functions.

Chrysler LLC

Finally, Chrysler LLC is moving in yet another direction. After GM and Ford publicly, and repeatedly, rejected the invitation to join the Renault-Nissan conglomerate, Chrysler has finally answered the call. According to internal and media sources, Cerberus, the new owner of Chrysler, sees the benefit in sharing products and technologies with outside partners and plans to pursue this strategy. Initially, Chrysler entered into a very limited agreement with Chinese Chery to produce subcompacts for Latin America and later for North America. More recently, Chrysler entered into a similar agreement with Nissan, agreeing to purchase re-badged compacts for the South American market. These steps made sense, as Latin America has a big thirst for inexpensive small cars, not always caring much about quality or features. These products rarely bring in profit, so using partners who can build them cheap enough (Chery), or already sell such cheap cars (Nissan) makes perfect sense.

Even more recently, however, Chrysler’s tie-up with Nissan became much more involved with addition of two new products. First, Nissan will develop a unique compact for Chrysler’s North American division. Nissan will build it in Japan and sell to Chrysler. Second, Nissan will be allowed to use Chrysler’s Ram truck frame and architecture to design replacement for the Titan full-size truck. Chrysler will then build this truck for Nissan in Mexico.

Unlike Ford and GM who focused on fixing their problems internally, by reinventing their product development teams, developing or buying designer talent in areas such as small cars, Chrysler decided it would be easier to let a partner do the work. Part of this decision is the fact that unlike Ford and GM, Chrysler does not have a European division experienced in building efficient small cars. Where Ford and GM could look at their European product and quickly learn what to do in North America, Chrysler would truly have to hire in (or develop internally) a whole new generation of designers. Chrysler used to rely on Daimler and on Mitsubishi for this expertise, but with those partners gone (and the bridges burned), the learning opportunity has vanished.

When analyzed closely, there is merit in each one of these strategies, and each automaker’s circumstances can easily explain why their choice was the best (or easiest) for them to pursue. For instance, Ford’s strategy would not work at Chrysler or GM. Chrysler is already run centrally with only three brands, all of them well defined and based in North America, but lacks internal small car expertise. GM, on the other hand, lacks a unifying global mass-market brand it could position as the key brand for its future; even in Europe it rides on four brands (five if you count Vauxhall and Opel separately). Therefore, pursuing an empire combining four semi-independent car companies into one simply makes the most sense.

Despite these rationalizations, however, each strategy seems to have its faults or potential criticisms. Many have criticized GM for focusing on ways to shuffle its empire of brands rather than simplifying its array into a workable set of clearly defined brands. The new four-channel system will probably move GM in the opposite direction with nourishing cross-channel product overlap.

Ford’s direction makes perfect sense until you look into its US market and the overlapping mess that is Ford/Lincoln/Mercury. Ford repeatedly said it has a plan for defining and differentiating these three brands, but concrete details have been sparse. In a structure, where both Volvo and Mazda are kept as semi-independent brands, the continuation of Lincoln and Mercury, both of which are directly based on Ford products seems decidedly non-systematic. Finally, the current target for Lincoln seems precariously close to Volvo, and their co-existence will be as fun to watch as the coexistence of Buick and Cadillac, or Chevrolet and Saturn; Ford will have to work hard not to build one at the expense of the other and find a way to differentiate them in the consumers’ eyes.

Finally, Chrysler’s moves might be viewed as throwing the proverbial towel into the ring. With the agreements, Chrysler is not remedying its lack of small-car talent; instead, it is taking the easy way out and buying finished products and talent from others. Moreover, after a decade under German hands, sucked dry to finance Daimler’s turnaround, many wanted to see the star shine again under American ownership, standing on its own. With the expanding partnerships, Chrysler might remain just a shell of its old self, with half of their lineup built by others.

Regardless of the potential failures of each strategy, they seem to fit each company’s situation, and address the key problems. Each of the companies is still years away from finishing their transformations, so many things can happen. We will no doubt see some excellent moves, and some mistakes, but one thing is for certain: Detroit is far from dead; they are alive and kicking, and they are working hard to climb out of the hole they have dug over the past decades.

COPYRIGHT Autosavant.net – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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4 Comments

  1. Great summary of each company’s situation. I would have to disagree with you on Fords US brand overlaps. Ford and Mercury do overlap in price and styling – grills excluded, but Ford has managed to at least price point-wise differentiate Lincoln from Ford. Ex: the Fusion and MKZ are both based on the the CD3 platform, but while the Ford is priced from $18-30k, the Lincoln is priced $31-38k. Same with the Edge/MKX. Edge is priced $26-38, the MKX $35-45. The upcoming MKS, based ont he updated Taurus chassis, will be substantially more expensive than the Taurus. The Taurus currently stickers from $25-$33k, while the MKS will base at $38k and go to $48k. The real question is whether there is enough differentiation to justify the price premiums.

    This compare to Chevy, Pontiac and Buick, all of which sell sedans that very much overlap in price, size and equipment, and with Dodge/Chrysler which are priced very closely on many products.

  2. Interesting observations. I think the chances of Chrysler surviving as an independent at this point are far worse than when Cerebus purchased them not so long ago. Ford existence is also in doubt, but I think GM will make it at this point.

  3. Chrysler’s path is the most interesting. I digged in the archives about the article of France‘s Long History of Executive Car Failure as Andy Bannister said “If at first you don’t succeed…” I could complete the sentence by “If at first you don’t succeed buy a company who’s specialized in executive cars” even if Chrysler don’t have the same level of pedigree it had in the past before the coming of the “small Chrysler” (the Cordoba) in 1975 and later, the K-car LeBaron and its relatives.

    Here a comment then I posted:
    “…If Renault-Nissan do some agreements with Cerberus and Mercedes (who own the remaining 20%) to bring Chrysler under their umbrella, RN could sell Chryslers in France as their executive line-up….”

    Even if they plan to bring Infiniti in Europe. Infiniti have a “sportier executive” image. It’s close but no cigar, it’s not a “luxury executive” image, Chrysler might fit the void in a future Chrylser-Nissan-Renault/CNR (unless it’s a CRN/Chrysler-Renault-Nissan) comglomerate. I could imagine the following scenario: Infiniti going after BMW while Chrysler goes after Mercedes. Jeep will stay in its niche market while Dodge will take the affordable-performance route while Nissan will be a step-up. What I mention next is pure speculation and suppositions but who knows? 😉

    Let’s see in Europe, the CRN will consist of
    -Dacia
    -Renault
    -Dodge
    -Nissan
    -Infiniti
    -Chrysler
    -Jeep

    while in South America, the line-up might be the following since Dacia models are sold under the Renault nameplate and I don’t know if there some plans to bring Infiniti in South America and Jeep plays the same role it do in Europe
    -Renault
    -Dodge
    -Nissan
    -Chrysler
    -Jeep

  4. Great overview. So many times the media reports you see tend to treat the Big 3’s problems as monolithic and the same, when the reality is a lot different.

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