Let me save GM – and most disappointing, Honda and Toyota who profess to know better – and the rest of the wholly dysfunctional auto industry the trouble. The root cause is abysmal leadership that runs their business through the accounting system.
Air bag inflators cost $2 each to make in LaGrange, Georgia. They cost 75¢ to make in Mexico. Takata, the outfit that made the airbag components that are killing people left and right, closed down their plant in Georgia and cut back on production at their plant in Washington, overloading the plant in Mexico.
Now they did this in spite of having trouble meeting demand. No time for quality because our amigos south of the border are under intense pressure to keep up with demand. They did this even though the plant in Mexico has a long history of quality problems. They did this even though the plant in Mexico blew up in 2006 due to mishandling the volatile gasses that go into airbag systems.
And they did all of this to save a lousy buck and a quarter a car.
So much for Toyota and Honda’s long term partnership approach to suppliers. They most certainly were not oblivious to the penny chasing business model Takata has demonstrated for better than a decade – especially Honda, which owns a small stake in Takata. Quality debacles on an epic scale are the norm at GM where they think accounting is accurate, complete and a thorough reflection of reality in all of its complexity. But Toyota and Honda have no excuse for buying much of anything from penny chasers like Takata – I mean Takata even makes stuff in Morocco! Who makes auto parts in Morocco other than people who know so little about manufacturing that cheap labor is the foundation for a strategy?
Most pathetic, these guys could have been buying the parts in question from AutoLiv – a very lean company if ever there were one; but no, AutoLiv make stuff that actually works and charges a fair price for it. Who would want that when they can get cheap parts from Takata?
Seems a safe bet the asking ‘why’ to get to the root cause will stop short of the real answer. Accounting that can’t seem beyond purchase price, and management that believes in accounting with the faith of a Southern Baptist is the root cause. But that won’t be the root cause our “top GM executive” identifies. That will be some poor Mexican who will take the blame for the coincidences that led him to be hired to do a job that cannot possibly be done properly.
Reasonable people can argue whether the failing of auto industry management is one of omission or commission. Unlikely they knew how dismal Takata management is. The auto guys contribution to the debacle is purchasing measurement that doesn’t go far beyond price. In that regard most manufacturing leaders should be breathing a ‘There but for the grace of God go I’. More than a few direct purchasing by measuring prices and not much else. Because they are out of the limelight and making products that don’t kill people when they fail, their focus on price over all else doesn’t play out so spectacularly on the Internet, but it can be just as devastating to their customers and their business.
Seems Harry Moser over at the Reshoring Initiative is going to have to update his Total Cost of Ownership model. It is missing the cost of lawyers, out of court and class action settlements, and government fines – annual expenses for those who think saving a 125 pennies per car no matter how that savings is made is a good deal; a group that sadly includes Toyota and Honda.