One of the services that the USPS offers is that I get to read most of my neighbor’s magazines, placed in my mailbox, before passing them on to him. His April 2011 Consumer Reports arrived today and they’ve aggregated test results and reliability data by automaker. The top tier is Honda (#1 overall), Suburu and Toyota. Their cars test out well and are reliable. The next tier is Ford, Hyundai, Mazda, Nissan, and Volvo (pretty good cars with pretty good reliability). The German companies have their own tier of high test scores but poor reliability and BMW, Mercedes, and Volkswagen ended up with similar overall scores (VW had substantially better reliability than BMW or Mercedes, though).
How did your $100 billion in tax dollar contributions work out? GM was near the bottom, with crummy cars that have average reliability. Chrysler was an outlier at the bottom, with off-the-chart bad test results and worse-than-average reliability.
This could also serve as a scorecard for government industrial policy. The U.S. government has gone to extraordinary lengths to prop up GM and Chrysler, but their products remain uncompetitive. The Japanese government tried to discourage Honda, then making motorcycles, from entering the automobile market, but Honda ignored the bureaucrats.
We generally judge whether an enterprise is economic by whether it makes money. It’s not perfect, and there are certainly examples of enterprises that make money while overall destroying value in the economic system as a whole.
Still, the scorecard that most use to judge companies is profitability. Not product quality (which is a subjective measure), profitability. By that measure, the new GM appears to be doing OK, which isn’t too surprising, since despite the crappy nature of many of the products it makes, GM’s issue was not primarily its car marking per se, but rather the huge amount of retiree benefits it was dragging around from a time when it employed many more people. Pre-bankruptcy GM was sometimes referred to as a pension plan with a car-making subsidiary. Once those were removed, GM has actually done OK. Chrysler, by the way, is a different story.
Same thing, by the way, was true of the steel companies who pretty much all went bust roughly ten years ago. In bankruptcy they all shed their pension plans (unfortunately, this resulted in many retirees taking it in the shorts) and Wilbur Ross collected many of them (which were now profitable) and sold them on to Mittal Steel, making a huge amount of money as he did. That’s the kind of money making that gives money-making a bad name, because there was really no trick to it other than shearing a lot of fairly poor people of their benefits. Three cheers for capitalism, American style (i.e. Wilbur didn’t invent a better mousetrap, he just benefitted from the legal screwing of a whole bunch of relatively innocent bystanders).
By the way, one of the things this shows is the idiocy of company-centered benefits, whether medical or pension. GM would never have gotten into the trouble it was in if it wasn’t for being on the hook for that stuff, neither would the steel companies. For whatever reason, the US insists on continuing this incredibly stupid system that has laid low many sectors of our economy.
enplaned: GM is making money? If you gave our flight school $100 billion in 2011, we could show a book profit in 2012 too!
[Public companies began playing accounting PR tricks in the 1980s that were somewhat similar. They’d figure out all of the money that they could conceivably lose over the next, say, five years. They’d get their accounting firm to approve a “restructuring charge” or similar, so they’d have a massive loss in, say, Q1 1985. The stock would get hammered, but there wouldn’t be any more bad news for years. The announced loss was 10 times larger than the actual cash that went out the door, which enabled them to declare profits for Q2 1985 through Q4 1989, even though they might have been cashflow-negative. They figured that investors would have a poor memory and would notice only a “great quarterly profits” announcement. Despite Enron and what you’d think would be increased public skepticism of accountants, the same thing seems to be working for GM. Nobody looks at what it cost in 2009 to produce these GM “profits” in 2010.]
GM is doing “OK”, all things considered? I guess the reason the U.S. economy is still stagnating is that we didn’t have enough GMs. If only every U.S. corporation had been “OK”, on balance, our economy overall would also be “OK” and we wouldn’t have the lowest labor force participation rate (a harder number to cook than the unemployment rate) since the 1980s (source: http://www.census.gov/compendia/statab/2011/tables/11s0584.pdf ) nor approximately 18 million Americans unemployed, discouraged, or “marginally attached” (http://www.bls.gov/news.release/empsit.nr0.htm ).
Odd data point from Singapore….
Have had a ford focus for 8 years. It’s eaten a couple air conditioning compressors and maybe a radiator, but is otherwise in excellent condition.
Have had a Volvo XC-90 for 5 years and the interior has absolutely disintegrated. Even the headliner has sagged. Last time that happened to me I was driving a $1,250.00 10yr old buick in Texas. Volvo’s answer? 500$ to replace the headliner and to say it wasn’t covered under warranty. If they cannot build cars that tolerate equatorial conditions, they should not be selling their cars on the equator.
Now I’m driving a year-old GTI… fingers crossed.
Michael, the Saab’s I have owned have the same problem – apparently the hot-weather testing done by Scandinavians doesn’t include typical Pennsylvania summers (not even close to Singapore’s temperatures) either.
In a different lifetime I was unable to read someone salute the Japanese manufacturing system (really I should just say the Japanese system) as somehow less a product of government bureaucracy than our own without responding in under 3,000 words. Now I just say, well, you’re missing something.
Even if we start with a relatively short timeline from the Meiji Restoration, discuss the zaibatsu, the Sogo Shosha, the keirestu, and then end with Japan’s economic history from about 1955 to the present (if I remember correctly 1955 was the start of the “income doubling plan”), you will not find a nation on earth that is more our polar opposite than the nation of Japan. In fact, it wasn’t until I lived there for a couple years that I came to realize how much of what I thought was simple human nature was really just American (or a product of the Judeo-Christian West).
I’m not sure if it is still the case, but some years ago the business literature of Japan had libraries full of books discussing Honda and Sony because these were two great companies that succeeded without or despite specific policies of MITI at the time. But to even look at Sony and Honda and remove their story from the story of the Japanese financial system, from Japan’s university system (and I mean to keep university in the singular–Todai), from Japan’s corporate structure, and so on is to miss 95% of the story. And it is a story that thrives on bureaucracy. In other words Sony and Honda have an exceptional stories at their start, but overall their history isn’t so exceptional in a society that neither desires nor rewards the exceptional.
Don’t get me wrong–I am not remotely a fan of the Japanese system. I think it’s an absolute train wreck. I’d rather live in the old Soviet Union where at least folks were conscious of not having their freedom. Likewise, Japan’s corporate structure and corporate life I’ll just describe as something on the order of unlivable for an American. I’ll add that the system, and the nation as a whole is dying an unbelievable quick death. I don’t mean that metaphorically, I mean they will literally soon all be dead (check the demographic numbers). All I’m saying is that you can be all these things and you can be as removed from laissez faire as humanly possible and still make a good car.
See, I still can’t just leave it at “you’re missing something,” but this is a vast improvement…
P.S. I attended a conference in Salzburg once with a bunch of Japanese big wigs. I got into a couple battles with the right-hand man to Japan’s ambassador to the UN, but we ended up spending most of the week by one another’s side. At one point he asked me to sum up the Japanese problem as I saw it. I gave perhaps the best answer I think I could give when I said “the Japanese have no sense of the rule of law.” He actually really seemed to appreciate the answer. I’ll stick by it.
Douglas comment and others just ring a bell within me. The normal citizens in any “developed” country suffer under overbureaucracy, and unfortuntatly moral hazard also. Not just GM was “bailed” out but in Germany we had what they called “Umweltrpämie” (that’s politicians speak) in english ist would be “premium for the environment”, the Germans just have named it “Abwrackprämie” in english something along “wreckage premium”. I know that in other parts of EU land they has similiar things..
But anyway it was a way to “not close down companies”. Well currently our car builders really do well, the even sell as many cars then before into any area. However the damages to small repair shops are still unknown. And you can bet the politicians will do whatever they can to not “prove” that anything could have gone wrong with such premiums.
But back to the beginning. They pathway to a “complete” regulated economic doing are “in-the-making”. Now we know if you are too big you can not fail. So the logical way for all the “managers” is to grow beyond this limit. I expect that we’ll see some big buy-outs or maybe sell-outs. They will say it’s for the sake of everyone and you know beforehand this is just a lie. Now if you are too big too fail, who cares what you produce?
The cars are of poor quality so what. Drive to Washington and ask for a few billions for “quality improvements”, you probably mention some unfair competitive advantage for county xy and of you are. The consumer does pay twice or thrice for degrading quality.
I don’t know if anyone ever have mentioned it here.
Have a look into Atlas shrugged and see how “goodspeak” will be used to brand-mark the “ugly” capitalists. And the fattest grubs are sucking out anything they can to “bring” the productive working down…
So it’s not competiton who drives the direction it’s sucking out as much subsedies as possible…
I’ve had no end of squeaks and rattles in the headliner area with two different Toyotas manufactured in two different factories. While the cars have been pretty reliable, the noises they emit are unsettling, considering I paid north of $20,000 for each.
When you look at the headliner, you see a massive piece of plastic that is essentially glued and pinned to the roof. Sooner or later, the glue will come apart, at which point the rattles and sagging begin. Now, if manufacturers made their cars to be more repairable, say if the whole thing was screwed on, then all one had to do for a sagging headliner or a squeaky one was to tighten the screws.
I am intrigued enough to buy the CR issue you mention and read through Toyota’s ratings. Empirical evidence from my ownership of three Toyotas over the past decade has shown that the halo on the Toyota brand is gradually fading. But I guess, the other (non-Honda/Subaru) brands are going downhill faster, so Toyota looks good by comparison.
I have had a web subscription to CR for several years, and find the data useful for many purchases. However, I have always had some reservations about CR auto reliability recommendations, and suspected for a number of years that most Japanese makes were getting a free pass from CR. I knew about the serious issues with the Tacoma truck and frame decentagration problems several years ago as did others who follow auto news closely. Many thought the launch of the Tundra full-size truck would spell the beginning of the end for domestic truck manufacturers. The Tundra was one of the most problematic new vehicle launches in the past decade, but the issues with the Tacoma and Tundra hardly registered with CR because history suggested these would be great vehicles.
In a test of performance sedans last year the Cadillac CTS dominated in every performance category yet failed to earn a “recommended” rating due to “insufficient reliability data”. Lexus and Toyota autos continue to receive CR “Recommended” ratings despite recalls for significant mechanical problems. These makes might have good history, but does this always tell us how the current model will fare?
For many people, reliability ratings are but one factor in purchase decisions. Autos still have high emotional value to many buyers. CR has no measure for vehicle excitement, yet this can contribute a great deal to the ownership experience. A friend was recently considering the purchase of a used BMW M3 for a “fun car”. I asked him why he would want another grey-tone nondescript Euro Sedan that no one would notice? He is now driving a Torch Red C6 Corvette. It’s impossible to not look at it, and it is pure excitement to drive.
Detroit still understands fun.
Scott Seigmund,
Thanks for the history on CR and Japanese cars; I did not know about some of the cases you discuss there. A related story from quite a few years in a Harvard Business Review story from the 1980’s that came up in class one day. The Eagle Talon and the Mitsubishi Eclipse were pretty much the exact same car made in the same plant, by the same workers. In fact, most workers didn’t know if they were making an Eagle Talon or an Eclipse when it went past them on the assembly line because the cosmetics that determined that were found further down the line.
The Eagle Talon was sold as an American car, whereas the Mitsubishi was of course regarded as Japanese. The Eagle Talon had about 6X the reported problems as the Mitsubishi Eclipse. This is especially funny because at the time Mitsubishi made poor quality cars finishing well below every American manufacturer overall, and (if I remember correctly) even below Volkswagen.