Allan Sayle's Comment (The downsizing of Ford Motor Company)

The downsizing of Ford Motor Company

Contrary to popular wisdom, size does not matter. As big as you are, the rules and risks are the same. Large size does not guarantee survival. Another example of that fact was confirmed on Monday, 23rd January, 2006, Ford Motor Company announced its long awaited restructuring plan. Some 30000 jobs will go and about 14 plants will be shuttered. One of them is the Wixom facility, home of the Lincoln, a few miles from my home.

As they stood beside the venerable, aged Town Car model, at last week’s international auto show in Detroit, three retirees from Wixom gloomily expressed their views about Ford, the Lincoln and the plant. They observed three shifts were already reduced to one. Contrasting the sad looking Town Car, of which they said they were no longer proud, the Ford display was spectacular with its enormous, enveloping array of hundreds of computer coordinated, lively pixel boards. It was the best conceived display at the show (IMO). Yet, as I drove past Wixom, on my way to that show, it looked somewhat forlorn and careworn. Gone were the once familiar masses of employee cars in the parking lot and the caravans of trucks delivering components for assembly.

The closure comes as a result of an inadequate quality program at Ford over many years.

Roman

For most of us, buying a motorcar is a major purchasing decision. What we do not realize is that motorcars are commodities because available global supply substantially outstrips demand and it has been that way for a decade at least. In 1997, I was a guest speaker at an annual supplier conference organized by The Standard Products Company – a firm that was taken over a few years later. One of the other speakers was a senior Ford manager who showed the (then) extent of over capacity in the industry. (Since that event it has got worse and will continue to do so as China and India begin flooding the market with their products.) He advised the assembled delegates the solution had to be dramatically raising quality performance so that customers would detect a value proposition. Though Ford has pursued a number of quality initiatives such as Ford 2000, Q1 and Quality is Job 1 as a (now retired) slogan, and has supported QS_9000 and TS 16949 standards, the results are now patently disappointing. Had those efforts worked their magic, Ford would not need to announce it will reduce its car making capacity by some 26% while Toyota is expanding through its reputation for delivering a solid value proposition, with fine quality at its core.

After living in Michigan for a couple of years, and having no association with Ford whatsoever, I concluded nobody liked the company. Talking to current employees, past employees, employees at suppliers it seemed every one disliked the firm. Employees would say they yearned to reach their 30 years for retirement eligibility and get out. Retirees, while generally satisfied with their package of benefits, claimed they were glad to leave. Former employees working at suppliers, often standing-out like the proverbial sore thumb for the attitudes they brought, would say how they were glad to be away from Ford.

Suppliers disliked the adversarial, even hostile and threatening, self-righteous tone of Ford employees with whom they came into contact. All I met would aver they prefer dealing with the Japanese. So, as company cars became an extinct benefit in most suppliers, some folk would say they could express their feelings by not spending their personal money on Ford cars. The daytime supplier is the evening and weekend’s customer. And supplier employees’ market greatly exceeds that of Ford employees.

It is clear that Ford’s top executives are aware of the problem as Nick Scheele, at the very top, issued an email to all Ford employees, August 16, 2002 urging them to show suppliers respect and reminding them that, “Our suppliers can choose the customers with whom they do business. If we are not our suppliers’ customer of choice, they will dedicate their best people, invest their best resources, and offer the newest technology and innovation to our competitors – putting Ford at a competitive disadvantage.” Widespread anecdotal evidence that has come my way since that time suggests he was right and that his email had little effect inside the firm.

Like the other American carmakers, Ford maintains any number of incentives for buying their cars. Cash backs, refunds, discounted price, low interest rates and sundry gimmicks are the norm. In the long run, though, you cannot buy your market. Your products must sell themselves and protect your brand name.

Michigan currently has (I dare not say “enjoys”) the highest unemployment rate of all 50 of the United States. Naturally, the effects of Wixom’s closure will seriously increase the state’s problems so it is little wonder before the closure announcement Governor Jennifer Granholm offered various tax incentives hoping Ford would keep open Wixom. Michigan is a state that has failed to adequately diversify its economic base beyond automotive: the state relies disproportionately on that industry for its jobs, tax base and prosperity.

The combined effects of global competition and quality are exacting a severe toll and will continue to do so for years to come. And yet, tax incentives are only a government’s way of trying to buy a market, or at least, help the firm to buy the market through reduced costs. Some individuals might be seduced by lowered prices but markets cannot be bought. The tax incentives, at best, may have bought a little time for the Wixom plant, but Ford’s problems go deeper. Those Wixom employees, at the motor show, said they felt the plant was doomed and I first suspected it when Ford removed Lincoln from the models regarded as its prestige group, Aston Martin, Jaguar, Volvo etc. Though one of the Astons at the show featured a chilled champagne and glasses facility in its trunk (boot), no one will be drinking that stuff in the Wixom area for a while.

The failure of Wixom is not just about management. It is also about the unions who won spectacular wages, benefits and “rights” for their members. One “right” common to the Detroit Big Three carmakers, is for employees to be paid almost their entire wage even when they are laid off awaiting work. Thus, if that has been the case at Wixom, operating only one shift, Ford still had to bear the labour costs for three shifts. What has been forgotten is that improved packages might be affordable and winnable when times are good but become a destructive burden when times get worse. Unions do not like to give back what they view as hard won gains. But, they need to accept that packages should be flexible: if times do get bad part of the package must be forgone so that jobs can be maintained and the firm can compete. Employment negotiations and packages involve key processes that are a neglected aspect of corporate quality programs.

As to product quality, the various foreign implant factories continue demonstrating well the American worker can produce good quality and support a viable plant. One cannot believe at heart the ordinary Wixom employee is any different given proper leadership. So, why, then, apart from egregious remuneration packages, has that plant failed? Employees do respond in kind to the tone set by management. Only a few years ago, a disaffected employee entered the plant and shot several workers and supervisors. Such was the man’s rage that the adjoining I-96 freeway was closed by police and an armoured car brought in to deal with him as he took pot shots at whatever and whoever he chose. It brought a new meaning to the idea of bullets on a PowerPoint slide, I suppose.

Of course, with the closure will come accusations, finger pointing and anger. Wixom is the largest manufacturing plant in the immediate area. The effects of its closure will be felt for miles around. One can only guess how many suppliers may also be shuttered, employees made redundant, restaurants and stores that will face closure as they lose business. The entire community will suffer. Metropolitan Detroit house prices were already flat and falling contrary to the general upward trend throughout the rest of America. Now, one can expect a glut of houses on the market as people try to leave the area, finance companies repossess property from families who cannot pay their mortgage, which is rising along with rising national interest rates.

It ‘s a grim mess. But, a lesson for all is that “stakeholder” has a real meaning that often becomes apparent only through an economic crisis. Such crises, however, can be averted only by running a business with a company high and company wide quality program in which every single process from that of the board of directors, the chief executive and top management through to the lowest paid employee is involved.

Ford is a big company. It used to be bigger. No matter what size is your organization, the rules and results of breaking them are the same. Wixom people and the whole of Michigan are discovering that. Others involved in the Ford restructuring plan are doing likewise and America as a whole will feel the effects, especially as General Motors also sheds jobs and closes plants and the giant Michigan based suppliers Delphi and Visteon go through their travails of bankruptcy or restructuring. Size might not matter, but quality does. Ford stopped proclaiming, it as “Job One” but it still is.

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