GM Failed to Announce Serious Quality Defects for Over a Decade! - How will Their Fine Compare to the 1.2 Billion Fine for Toyota?

General Motors (GM) not only delayed announcing a well known and serious quality defect of their vehicles for over a decade, but now had to recall over 3,000,000 vehicles, related to at least 31 crashes and 13 deaths.

GM is recalling over 3 million vehicles worldwide due to faulty ignition switches. The faulty inanition switched can not only cut off power to the engine but causing the driver to lose power steering, breaks, and air bags.

The unbelievable part is, that GM did not make the serious quality defects public for more that a decade! GM knew about the problems as early as 2001 and failed to initiate any warning nor made any attempts to fix the problem.

Car makers are required to report any safety issue within five days or incur a penalty, based on the Tread Act. Right so, that now GM not only has to answer to the Senate Commerce Committee and the House of Energy Committee, but also to a Criminal Probe initiated by the Justice Department.

Now we will wait and see what consequences for GM may occur, for not announcing well known quality problems years earlier. This is especially of interest after the huge Toyota Gas Pedal
problems in 2009 which turned out to be mostly a floor mat (third party mats!) and sticky gas pedal issue. The investigation under involvement of NASA concluded, that there was nothing wrong with the vehicles electronically, but that the uncontrolled acceleration was caused by driver errors and media hysteria.

However, in 2010 Toyota announced recalls of approximately 5.2 million vehicles the the pedal entrapment/floor mat problem plus an additional 2.3 million vehicles for the accelerator pedal problem. Adding the additional recalls in China and Europe, Toyota recalled around 9 million vehicles. In addition, Toyota was fined with a 1.2 billion settlement over the safety problems.

GM's CEO Mary Barra is scheduled to testify before Congress next week and to explain why GM has failed for over a decade to order a recall, especially since GM has recently acknowledged it knew the switch was defective at least for a decade ago.

No wonder that even Crash Test Dummies resist in getting into any GM....

Does a Sustainable Lean Implementation require inventing the Wheel again?

The comparison of a Lean implementation with evolution is exactly what I think Lean ‘was’ all about, when Toyota started their Lean journey in the 50th.

Today, everyone is staring at Toyota as role model, but at the same time many seem to be paralyzed like a bunny staring at the snake!

Some companies I consult for want to be a Toyota – at least at the beginning before they understand what it’s really about.

But we need to keep in mind that in respect to successfully implementing Lean, there is a huge differnece between

1. Toyota in the 50th and how Toyota started and evolved over time and
2. Toyota today and how inexperienced companies want to jump into being the Toyota of today.

For instance, people will - or will not - get the hang of why Toyota is so successful today, after 50+ years working hard on their TPS system or more correctly on their ‘Toyota Way’, how they found the way of single piece flow, documentation, standard work, applying the Asian cultural advantages, respecting people etc. etc. etc. …

But how can Toyota build one plant after the other in the Western world, hiring Western people and still run a TPS system very successfully and [almost] flawless within weeks…???

There is s clear and very important difference between starting a Lean journey from scratch and duplicating a Lean status quo within an organization into a new entity in the same of very similar industry.

What is the difference?

When starting a lean journey from scratch you face the same situation Toyota was facing in the 50th and you have to make your way through evolution, trial and error etc. to move forward and to improve. Yes, not quite because you can take some, but limited experiences and learning from Toyota to speed up your process. If you are an automotive manufacture your implementation will – should - go faster than for companies outside that industry.

When duplicating a well defined model such as TPS into a new entity or industry, everything is based on two aspects:

1. The ‘EXACT’ knowledge of how to build your product with bulletproofed and very well developed and defined processes and Standard Work Instructions for ‘EVERY!’ process involved including a system with 100% transparency in sharing and communicating this knowledge to everyone in the most effective way – the framework.
   
2. An advance hiring and training process to select exactly the right people with the right skills, knowledge, desire and personality profile that are matching the job profile to be filled.

I am not elaboration on the technical infrastructure such as equipment, IT and logistics, since this usually does not make the difference in business performance.

So, it’s about ‘knowing’ the best way to build a car or product PLUS having this ‘documented’ in a way that everyone understands it, without any room for errors or misinterpretation.

This is the case for Toyota, knowing how to build cars and having it documented in a way that the execution is people independent to a high degree.

GM – and some others – know how to build cars but the degree of process optimization and especially bulletproofed documentation of standard processes, not to mention open internal information sharing is far behind the leading companies.

Even if GM - or some others - would fire all their workforce to get around the always stressed Union constraints and benefit burdens and would hire all new employees, they would fail completely since they don’t have the best processes in place nor are they documented as standard in the needed sufficient way.

=> Catch 22 or tough luck, right?

I believe Toyota’s journey was exactly an evolution of trails and errors with a clear goal in mind. The main contents or goal might have been: ‘JIT and no inventory’ and the evolution took place around that guiding principle.

Like a tree that might be guided by the nature of growing, but without a pre-set building plan about where exactly the branches and leaves will be growing – well, I might be on thin biology ice with this comparison …

A better comparison might be to ‘us’ – humans -, born and just equipped with the BIOS chip to get us booted up but without an operating manual and (almost) doomed to fail…if we did not have our parents to start programming some application software into our brains.

I would still call this evolution, even if the experiences of our parents are guiding and biasing their programming, training and teaching.

Now, trying as company to get to today’s Toyota level as sort of benchmark is already doomed to fail, since

1. It took Toyota 60+ years of evolution to get there, if at all you could benchmark against Toyota’s level in the 60th or 70th and trying to get to that level – but who wants THAT??
   
2. No business nor company is comparable in products and culture, hence most of the time it would not even make sense to use Toyota as benchmark

By the way, benchmarking against other companies makes not a lot of sense anyhow, since you limit yourself automatically. The only benchmark acceptable from my perspective would be against ‘perfection’ or ‘excellence’ or something like that.

Now, does this imply, that in order to implement Lean successful we always have to invent the wheel again and need to go through all failures and have to spend 50+ years to move our companies towards today’s Toyota level…???

If looking at the ONLY real difficulty in implementing Lean sustainable – The Human Side or Cultural Aspects of Lean -, one might come to a conclusion that is pretty close to that….

The bailout amounts go up, and up, and … yes, they will go up further!

Not long ago we learned about a $39billion tax write off, out of the blue? – These losses were accumulated and it was well known that this will hit the bottom line. Now we are in the bailout bidding process, it feels like being on an auction.

The reason lies in the fact that currently no one has any idea about the TRUE situation of GM. But we will learn pretty soon about what really happens behind the financial scenes. Pretty soon GM will file for bankruptcy protection and a few days later the public will be told about the true GM situation. We better take a comfortable seat and enjoy the bumpy ride, since these numbers aren’t even funny anymore and my best guess is that they at least will double the currently publicized financial situation of GM.

Filing for Bankruptcy protection is inevitable, and always was!

Around one year ago I was part of a discussion with senior automotive executives, government representatives and other experts. The common view was pretty stunning. For almost all of us it was very clear that GM will file for bankruptcy protection no later than within 12 months – which is now and we are getting pretty close to it.

Why?

Let’s look at one other player out there: Toyota. While Toyota also lost money the first time in history this year, Toyota has become the number one in global care production. Both, Toyota and GM are experts in state of the art assembly technology and in implementing Lean and Six Sigma process improvement methods – one in theory & practice and one only in theory. Toyota has developed a unique and extremely successful enterprise philosophy over the last 50! years. This so called “Toyota Production System TPS” is primarily based on Lean Manufacturing principals but most importantly TPS manages to address the “Human Factor” and consequently the company culture in a remarkable way. TPS flawlessly combines business and process improvement with engaging and truly respecting their employees leading to continuous improvement and more importantly to sustainability in every improvement step they take.

As Stephen Hawking ones said:
“Intelligence is the ability to adapt to change.”

It’s all about change and the speed in which companies can mobilize their workforce to adjust to the ever faster changing world, environment and customer demands. The time of economy of scale is coming to an end, small lot sizes, fast response times and highly dynamic and innovative companies will make the race of the future. In short, change it’s all about Leadership and Company Culture.

Unfortunately, GM will not be one of them, because it’s too late now!

A change in GM top and middle management was avoided for far too long. GM missed the chance to find a way to re-brand itself in order for their employees to even being willing to mentally join in. GM missed the chance to change its company environment since a culture cannot be changed directly! The culture will follow if the environment in which people work is changed first. The people will make the change to the new culture – if only somebody would have gotten them involved.

The sad part: Nobody listened to all the dedicated and hard working employees at GM and their great ideas and willingness to help. So stop blaming the employees and unions and legacy cost and high health obligations for the GM mess! These are just consequences and effects of wrong handling for years. It is the fault of management and the fault of the system of how management is brought in and how management’s incentive system is set up (to name only a few). In the 50’s Dr. Edward Deming (the guy who taught the Japanese quality since nobody in North America was listening) brought up “The System of Profound Knowledge” that already at that time highlighted the need to understand psychology and working with your people instead of against them.

Let’s keep one think in mind: Ford that was in a worse financial shape than GM. There is one difference: Alan Mulally; a true leader with his head at the right place. Since he came in as president and CEO things did start to change to the good. As prior executive and president for The Boeing Company, Mulally follows the Toyota Way and he knows how crucial a healthy company culture really is. He started to align and engage the minds and hearts of his team nicely and Ford is the only D-Three automaker not asking for bailout money.

Dr. Juergen Boenisch, Ph.D., CMC
JBeeline Consulting
++++++++++++++++++++++++++

Hello Everybody!

I just got some notes and comments from Dennis DesRosiers, a great guy and one of the leading automotive experts. This inspired me to bring up some points and I would love to hear your view and feedback.

In a nutshell, Dennis explains the automotive downswing based on three effects that are happening at the same time:

1. the cyclical downturn in the US market
2. the continued move away from the Detroit three to import OEMs
3. the rapid shift in product mix driven by increasing oil prices

These are excellent points and it’s a great summary. However, my question would be why do some automotive OEMs perform exceptional well (most Japanese OEMs) and others (the Detroit OEMs) have a very hard time event staying afloat. All of them operating on the same battle field and serving the same customers.

This leads me to a couple of questions, such as:


Why is it, that the big three did not see the change to more fuel efficient vehicles coming?
Toyota for instance started developing the Hybrid car in the 80th or so. GM has been present in Europe (Vauxhall in UK, Opel in Germany) long before the Japanese even shipped their first car overseas, so they should have known much better and much earlier than anybody out there what to expect on fuel efficient vehicles and where the trend is leading to.

Why do consumers shift to Japanese brands, away from the big three?
Isn't it also because of the price, quality and reliability? As a matter of fact, you get much more car with better quality and better gas mileage for less money when buying a Japanese car. And by the way, consumers did move to Japanese large cards some years ago already. When Toyota came out with the 4Runner and Sequoia, many customers moved away from GM and Ford (you probably have better statistical data than I have). At that time it was not so much the fuel consumption as more the reliability and quality and maybe – but now we are getting into the art of cars - the design.

And the most interesting equations is:
Why can Japanese manufacturer build what customers want, and the big three can't?
A good design for a new model, a fuel efficient engine, the knowledge of how to build a car with high quality and low cost, how many cup holders to put in a van, etc. etc. does not fall from the sky, does it?
So again, WHO is designing the cars at GM, Ford, Chrysler, Toyota, Honda, Hyundai, BMW, Mercedes, .. .you name it?
---> The cars are designed and build by their employees, and nobody else!

Now think about it… Toyota is opening another plant this year in Woodstock, and funny enough the plant is staffed mostly with western people, actually mostly Canadians, God Thanks.
Can we assume that Oshawa has the same mix of people in their plant, Canadians? For sure, yes!

Well, you might say: “Yes, the GM workers can build a GM car the same way the Toyota car is build. Listen, GM has even a joint venture with Toyota since 1984 in Fremont California, the NUMMI plant. So, GM knows how to do it in the same way Toyota does. The assembly process is not the issue, that’s the easy part. It’s the design that sucks! How can I build a nice looking, high efficient car if the car is not designed that way? … “

Well, first of all this statement is not true. I am arguing that even if you would give GM a nice designed Toyota to assemble it, the quality would never been reached and the costs of such a car will go through the roof. Secondly, who is designing the car? Yes, again, their people.


OK, let's go back to the question above:
Why can Japanese manufacturer build what customers want, and the big three can't?

There are simplified only two (2) reasons why Japanese and specifically Toyota are able to build what customers want:

1. Toyota (and other Japanese OEMs) has not only established world class, best practice processes to design, build and assemble cars, they also documented these processes in a unique way which makes it very easy to train people on these processes (just as a side note, GM processes are mainly documented as skill sets in the heads of most of their employees…So, even if GM could replace all Union workers with new non-Union young people, than.., yes, GM would have a real problem not being able for quite some time to figure out how to build a car).
2. Toyota managed to develop a company culture over more than 50 years that support improving and communicating these world class processes even further and constantly, 24/7 – called Kaizen. Even more impressive is that Toyota managed to sustain this culture over such a long time, this alone is absolutely remarkable and hard to believe.

So it’s a combination of Best Processes and People Engagement, that’s what makes the difference. And by the way, this starts at the top management level and nowhere else!

Sorry, but I don’t understand how Mr. Rick Wagoner who has been driving GM totally into the ground for years and years is not only still in power but worse, continues the journey of ruining GM completely. This is totally outside my horizon, but maybe somebody can help me out here. By the way, most of the overaged second level GM management needs to go if hopefully soon a new leader takes over. Look at the NUMMI plant, the 50/50 joint venture GM/Toyota. When the joint venture was started in 1984 and Toyota took over reorganizing the whole location, almost all union employees where kept but only 7 management people. The same think MUST take place at GM, very, very quickly.

Ford in contrast with much higher debts, but with a dynamic and intelligent Mr. Alan Mulally, who is not only on the right track but also moving (as you know, being on the right track is not good enough, if you don’t move you eventually will be ran over by a train) by listening to his people and spending even a day as a car salesman in a car dealership – with $28m for 4 months work maybe slightly overpaid, though ..– will most likely outperform GM on the long run and will make a turn into profitability.


Yes the economy and the three (3) aspect mentioned at the beginning are very important factors, but the true reason for the big three failing lies much deeper. And as long as we are not willing to start digging to find the root causes and start working with our employees instead against them to fix it, no company will ever succeed in being a leader in its field.

I have seen and being involved with numerous companies jumping on the Lean and Toyota (TPS) band wagon as flavor of the month, so to speak, but I only saw very few that really managed to implement sustainable improvement. All of these companies, without a single exception, have a very strong leadership team and an amazing focus on their people and how to engage them.

The recipe for making it happen is simple, the outcome unbelievable and external support available.
To finish my question series:
Why is it that only a few companies go this way?


I am looking forward to your comments.

Thank you!

Juergen Boenisch


Juergen Boenisch, Ph.D., CMC
Executive Management Consulting
2113 Falling Green Drive
Oakville, ON L6M 5B6
Canada
Phone: (905) 847-9298
Cell: (416) 839-7759
Skype: Juergen.Boenisch
Email: Juergen.Boenisch@jbemc.com

I had an interesting discussion about how the “Human Side” is or could be addressed in a practical way. It was described how one company is “engaging” suppliers and employees and how to possibly assess the cultural status quo.

A cultural assessment might consist of a “questionnaire approach” plus a “Genchi-Genbutsu” (go and see for yourself) approach where you just observe people and situations. Additionally top management is seeking close contact to the Gemba (place were action takes place) inside and outside the company.

Toyota is using a very advanced recruiting methodology that might take up to two (2) years – form first contact of hiring. A significant part of this assessment is most likely the personality evaluation of a candidate.

I wonder if Toyota is using any cultural assessment tools (questionnaire or observation) in their daily operation or during their periodical employee evaluation.

I would very much welcome any comment that might help clarifying this issue.

Thank you,
Regards,

Juergen Boenisch

The GM Debacle and what to learn from Toyota

If you open any newspaper today, you most likely will find an article about General Motors GM, explaining – or at least trying to explain – in detail why GM is currently in such desolate situation. To make it even more interesting, some of these articles compare GM & Ford with Japanese car manufacturers - mainly with Toyota - and they try to explain the differences: Why is it that GM and Ford are losing market share in breathtaking speed and Toyota gains double digit market shares at the same time?

Depending on what paper or magazine you open, commonly used explanations for GM’s current situation include:

• Huge pension liabilities dated back to the times when lots of money was made on cards and significant commitments toward the unions were made so everyone could have a happy life
• Enormous health cost liabilities to their current and retired workers, totaling up together with the pension liabilities to $2,500 - $3,500 per car
• Higher overall costs in North America that cannot compete with Asian costs
• Extremely good marketing of Toyota that makes cars increasingly attractive
• GM’s “gas guzzlers”, especially the SUV’s in combination with increasing gas prices make consumers more sensible
• Toyota is subsidized by the Japanese government with consequential lower total costs per car
• Toyotas hybrid cars – that are also subsidized by the Japanese government – take GM’s market away
• etc. etc.

Only to make it clear, this is not my opinion!

The current GM situation is surely not easy to handle, since certain actions should have been taken years or decades ago and – to make it even worse – GM’s recovering strategy is still not clear. GM is experiencing – and Ford as well - a situation or better “the effects of causes" that lie much deeper than obvious.

How is this possible? Well, Toyota - they say the world’s #1 car manufacturer in 2010, but Daniel T. Jones just announced that that already “this year Toyota will almost certainly overtake GM to become the number one in the global car industry” - has developed a unique and extremely successful enterprise philosophy over the last almost 50 years! This so called “Toyota Production System TPS” is primarily based on Lean & Six Sigma principals but most importantly TPS managed to address the “Human Factor” and consequently the company culture in a remarkable way.

But let’s stay with the GM news a little bit longer. What is GM going to do about their current situation?
Well, the main point seems to be closing down plants to adjust the capacity to the “market needs”. First GM announced to close down three (3) assembly plants in North America (Nov. 21, 2005) and only one day later they corrected to closing down nine (9) assembly plants, laying off 30,000 people and saving $7billion – yes, billion with a “B”! - by the end of 2006 (Nov. 22. 2005: CEO Rick Wagoner). Actually this number has already increased to ten (10) plants and we will see what the real numbers might be. You tell me how the "economy of scale" will impact plant closures.

Additionally, some insight has been generated that it makes sense to look at the supplier side and to work on aggressive procurement cost reduction through “Outsourcing $15billion to keep an Industry Icon Alive” (AMR research, Dec. 19, 2005). It might be important to notice, that this initiative is “purely IT driven”! Here are two GM statements:

• “With a five-year contract, technology partners are expected to aid innovation…”
• “Based on 10 years of experience in working with outsourcing arrangements, GM’s IT management team had the level of understanding needed to construct a two-tier vendor sourcing strategy, knowing how to make these arrangements work…”

It is hard to believe, but seems to be true: Even innovation will be outsourced. I cannot help it, but what happened the last 10 years with all the experience; where are the results? Sorry guys, but maybe somebody at GM should start talking with your suppliers in order to “ask for their help” instead of “telling them what to do”.

Coming back to my original question or should I say questions:

• Why is it that GM is loosing massive market shares in North America and at the same time Toyota is gaining more than this?
• Why is it that 85% of suppliers rate their relationship to GM as “poor” and only 3% as “good/very good” in contrast to only 17% of Toyota’s suppliers who say the relationship it poor but 63% say it is “good/very good”?
• Why is it that Toyota front ranks reliability and quality ratings way ahead of GM?
• Why is it the GM/Toyota joint venture NUMMI plant in Fremont, CA became the most productive plant in North America and GM seems not be able to transfer the philosophy to other plants?
• Why is it that Toyota – and Honda, Nissan – are assembling cars and engines with 20-25% less labor hours?
• Why is it that you “feel” a significant higher “energy and dynamic” when touring a Toyota plant versus touring a Ford or GM plant?
• Why is it that GM is using highly educated and skilled people just to drive finished cars to the outside parking lot, and this for 15 years?
• Why is it that Toyota has "highly motivated and engaged people who continuously improve and solve problems in a remarkable natural way" and GM fights the union?
• Why is it that GM hybrid development is at least one year behind the Toyota models?
• Why is it that Toyota has a "Long-Term Strategy" and GM’s strategy seems to change from one shareholder meeting to the next?
• Why is it that Toyota “never laid off” a worker and GM is just in the process of laying of over 30,000+! people?
• Why, why, why and there are many more “Why questions” that could fill the pages!
  

I might have some strong opinions about the answers but let me tell you what are “NOT THE REASONS:

• It is not because GM has these huge pension liabilities!
• It is not because GM has these enormous health cost liabilities to their workers!
• It is not because the unions drive GM into the ground!
• It is not because GM cars must be more expensive!
• It is not because Toyotas marketing is better!
• It is not because the overall costs in N.A. are to high (see example NUMMI plant in CA with ~40% costs disadvantage to other US states)!

Most of the above factors are just consequences of basic“ignorance, mismanagement, incompetence and arrogance”.
WAKE UP GM, if it is not already to late! Toyota is producing over 3/4 of its cars sold in North American in North America! So were are the cost disadvantages?

Let's just compare the mission statements of Toyota and GM (actually I had a hard time finding a GM mission statement). Toyota is using words like “contribution to growth of community, well being of team members and adding value to customers” in contrast to GM’s mission statement with words like “world leader in transportation, becoming the best, return to stockholders”. This alone shows a huge difference in behavior and culture. While every Toyota worker is not only allowed but has the duty to stop the assembly line when a quality problem is likely to leave the workers section, GM takes such a car off the line and “worries about it later”. Can you imagine what most likely happens if a GM worker stops the line? I don’t know but I could guess what happens if he or she does it the second time...!

So why is it that Toyota is so successful and GM is loosing its shirt?
Both are experts in implementing Lean and Six Sigma process improvement methods, one in theory & practice and one only in theory. No, the real difference is the “Human Aspect”. Over more than 50! years Toyota developed the Toyota Production System TPS which flawless combines process improvement (mainly Lean Manufacturing) with “The Human Side”, e.g. by engaging and truly respecting people.

Now, cold it be possible that this works in the western world as well?
Absolutely yes! Toyota is just showing it to everybody again with the new plant in Woodstock, Canada which will open in 2008. And believe it or not, when Toyota turns the key the plant will operate 100% under TPS with North American employees.

To be fair, I should mention hat the requirements for employment with Toyota are tougher than getting accepted at Havard Business School with a selection process that might take up to two (2) years. But again, GM could do it, too. Or couldn’t they?

So, if the difference is the human factor and people engagement, how can it be addressed or even improved? First of all it has to change with top management since they produce the company image internally and externally, e.g. to the shareholders. GM has to find a way to re-brand itself in order for their employees to even being willing to mentally join in. GM has to change its company environment. Yes, environment since a culture cannot be changed! The culture will follow if you change the environment in which people are working. You need to “pull” the culture along. The environment needs to change, away from workers coming in the morning and “Turing their brains off” only to turn it back on at 5pm when they leave the plant.

By the way, the same workers – after work - plan, organize and execute the most complex vacation packages you ever saw. Every flight, bus trip, car rental, hotel arrangement, scuba diving booking and donkey tour fits perfectly the planed time schedule and nothing is left to change. Isn’t it amazing?

To make it clear, I am not blaming the workers at all, since it is 100% not their fault or responsibility! It is the fault of management and the fault of “the system” of how management is brought in and how management’s incentive system is set up (to name only a few). In the 50’s Dr. Edward Deming (the guy who taught Japan quality in the 50’s since nobody in North America was listening to him at that time) brought up “The System of Profound Knowledge” that consist of four (4) knowledge requirements for management:

• Appreciation for a system
• Theory of Variation
• Theory of Knowledge
• Understanding of Psychology

That’s the only thing GM management needs to understand and respect and than to slowly implement. Look at Dr. Deming’s point #4 and please keep in mind that he brought it up in the 50’s: “Psychology”. Already at that time it was clear that you MUST address the human factor in order to be successful.

I think it is not too late for GM, even if it will take quite an effort and a “few years” to gain trust and communicate a required new company philosophy. If GM does not know how to start this process of recovery, may be GM should start with just “asking their employees” how to do it. Just ask your most potential resource and engage your employees actively.

Because the people will tell management what to do, if someone would only ask and listen…

Sorry, but I cannot understand how GM management can believe that closing 10 plants and firing 30,000+ employees will change anything about GM’s root cause problems. Good night GM if you don’t start now addressing these so obvious issues!

Juergen Boenisch, Ph.D.
Executive Management Consulting
Toronto, Canada