Theta or Equinox? Centralized design operations vs. The Sloan Legacy

[Ming]

Theta or Equinox? GM is combining design operations
BY LEE HAWKINS JR. THE WALL STREET JOURNAL

General Motors Corp. is the biggest car company in the world. But in many parts of the globe it has long operated like a smaller regional player, with executives in places like Australia and Sweden given wide autonomy over the design of new models.

Now GM has put an end to that policy, which dates to the 1920s and legendary president Alfred P. Sloan. It’s insisting that its worldwide units share basic parts and work together to design vehicles that can be sold, with modest variations, anywhere in the globe. One example: GM wants to reduce the types of radios it uses in its cars from 270 to 50, saving 40 percent in radio costs.

Until "a couple of months ago," jokes Vice Chairman Robert Lutz, "GM’s global product plan used to be four regional plans stapled together."

The new policy, which has taken shape over the past three years, comes none too soon. GM’s profit margin on vehicles is just over 1 percent in North America, and it recorded a $161 million loss in Europe in the first half of this year. It has been losing market share in North America despite aggressive discounting and several new model launches.

Sharing designs and parts is a rescue strategy for Europe and a way of addressing problems in GM’s huge market in the United States. The automaker, whose health-care expenses add an average of $1,400 to the cost of each car, is having trouble pumping out new models as fast as rivals such as Toyota Motor Corp. By tapping engineers in far-flung units who previously would have worked only on local models, GM is hoping to speed up development of U.S. models without spending more.

GM is now using engineering centers in India, South Korea and China to get work done at lower cost while American and European engineers sleep. At a command post in Warren, Mich., executives are assigning jobs wherever staff is available.

Chief Executive Rick Wagoner and Lutz, his global product-development czar, have taken power away from GM’s regional engineering operations such as those at its Opel and Saab subsidiaries in Europe. A global council in Detroit now makes key calls on GM’s $7 billion annual spending for newmodel development and serves as a check on units whose plans veer off course. In late 2002, for example, engineers at GM’s Daewoo joint venture in South Korea wanted to develop a sport-utility vehicle just for the Korean market rather than build a version of the Chevrolet Equinox then under development. Wagoner said no. GM has yet to prove its new approach can work. In one case, it brought an Australian muscle car to the United States and sold it as the Pontiac GTO, but buyer interest has been less than GM expected. GM is just getting going with an ambitious effort that is crucial to its global strategy: building compact sport-utility vehicles on a basic structure known as Theta. That’s the platform the Daewoo engineers in South Korea at first wanted to ignore. Now Daewoo is working on a new version of Theta, to be sold in Europe and Korea. Lutz said GM’s goal isn’t to offer cars that look the same in every market. "We want to have all of these variations, but we want these variations to be plug-and-play."

GM’s struggle to find the balance between local autonomy and central control is a familiar one for global corporations. Wagoner says he wants GM to be the winner in what he calls "a race to the middle" in the centralization vs. decentralization debate. Merrill Lynch analyst John Casesa says GM needs to move quickly to keep up with Toyota and Honda Motor Co., which spend more of their revenue on new model development. GM "cannot get by... without a fresher product line," Casesa said. One example: the Chevrolet Cavalier, a compact model dating to 1982 that is now sold chiefly to rental fleets and penny-pinching buyers. GM is phasing out the Cavalier with the introduction this year of the Chevrolet Cobalt. GM’s stock price is down about 20 percent since the beginning of this year amid concern about its chronic competitive ills. Its credit rating has fallen to two steps above speculative grade. GM officials agree they need more new models — the company has said it plans to replace 90 percent of its lineup between 2005 and 2008. But Wagoner says the way to do that isn’t to spend more heavily but more intelligently.

SLOAN LEGACY The idea of centralized global product development is hardly new — many Japanese and European companies have been doing it for years. GM itself has assured Wall Street more than once that it was learning how to use its global scope to cut costs. But centralized operations cut against 80 years of GM history. The company was created, as its name suggests, by bringing together many smaller motor-car makers in the early decades of the 20 th century. When Alfred P. Sloan assumed the presidency in 1923 he imposed a management discipline he described as "decentralized operations and responsibilities, with centralized control." In the United States, Cadillac, Chevrolet, Buick and Oldsmobile all functioned as separate entities with their own manufacturing plants.

That philosophy applied overseas as well. GM bought Britain’s Vauxhall Motors in 1925, Germany’s Adam Opel in 1929, and Australia’s Holden in 1931. Each of these and many other overseas units had their own manufacturing and product-development divisions. Between 1923 and 1928, GM opened 19 assembly plants in 15 countries around the world.

The Sloan formula stopped working in the mid-1980s, as pressure rose from Japanese rivals in the mass market and German makers in luxury cars. Since its reorganization of North American operations in 1984, GM has been struggling to reinvent its strategy.

Full Story Here: http://www.nwanews.com/story.php?pap...&storyid=95219

[Ming]

This brings up interesting questions:

Can Buick and Chevrolet afford to offer completely different cars (not even sharing the same basic architecture) overseas than what is offered in the USA?

Can Chevy of Canada offer certain Daewoo platform cars while the US gets only a fraction of that number from Suzuki variants?

The S3X is perhaps a sign of the future, where more sharing = success for GM. Much attention is placed on the Holden Zeta cooperation on this enthusiast site, but it is cooperation in design of the non-enthusiast models that interests me more.

GM North America needs to drop the axe on old factories pumping out dated product that is only sold in America, while China and India actually get more attractive vehicles with modern styling and efficient engines and diesels.

Another point that should be raised

GM North America has had its own version of "centralized design". It's called the Crossover Sport Van badge engineering...

That practice could easily come to an end if GM would leverage more overseas designs like the Daewoo Magnus in place of Astros, Blazers, and Toyota Vibes.

[stewacide]

Anyone find is strange that Ford is trying to become what GM used to be, and GM Ford?

[awalbert88]

Originally Posted by stewacide

Anyone find is strange that Ford is trying to become what GM used to be, and GM Ford?

How do you figure? Ford is implementing a lot of platform sharing even faster than GM is - eg. Mazda3, Mazda6, Volvo, etc. Or maybe I'm missing your point.

[BigAls87Z28]

Ford being faster? Its coming up on 3 years to make a Mazda 6 rebadge. GM has designed, put together and designed a concpet, showed at an auto show, then forced it through GM, green lighted it, built the new chassis, redesigned it for production, showed a production version of it, and are tooling up the factory and making an all new car as fast as Ford could make some new sheetmetal for an already made car.

Yeah...real fast.

[quinnp12]

could be good for GM financially, but will the products be as good?

[AdmiralViscen]

lazerwizard, I wish all your posts were as constructive as that one.

I don't think most people here dislike you for your opinion, but for your prickish way of sharing it. More posts like that would reduce hostility towards you.

[caprice 511]

In the past , this system has work for years . The problem GM is having now is their turn over time . GM tried to give those separate entities and they lost Oldsmobile with that separation . GM is one company selling a cars that gives us different styles off of one idea . Baskin-Robbins has 31 flavors of ice cream . Why can't a car maker have the same concept ? Just make the flavor people want .

[zaxxis]

Originally Posted by BigAls87Z28

Ford being faster? Its coming up on 3 years to make a Mazda 6 rebadge. GM has designed, put together and designed a concpet, showed at an auto show, then forced it through GM, green lighted it, built the new chassis, redesigned it for production, showed a production version of it, and are tooling up the factory and making an all new car as fast as Ford could make some new sheetmetal for an already made car.

Yeah...real fast.

This is very little shortsighted. There are many other reasons why Ford is taken 3 years to roll out alternatives of the Mazda 6 platform. Lets see what we have, shall we?

1. Just a short time ago, Ford was in the red. Very much in the red. When you are losing money hand over fist, you cannot push 50+ new models out in a 3 to 5 year period. You have to stagger the releases out so you financially absorb it.

2. Just like #1, releasing so many new models also can stretch resources a little thin. This is putting more burden on suppliers, support, testers, equipment, etc. It might be difficult for Delphi to supply the new radio's Ford is using if they suddenly need 5 million of them. From last year's F-150 to all future models, Delphi can plan future increases in production.

3. The Mazda 6 is made by AAI (AutoAlliance International) which uses a build process that is very different than other traditional Ford plants. This plant is also going to be building the 05 Mustang. I forgot the total numbers, but the Mustang is supposed to be 65%+ of the production capacity. Ford apparently likes the way AAI builds cars and I've read where other plants are being converted to build them in a similar fashion. So I'm sure that converting an old plant that has made a particular vehicle for many decades, takes some time to retool. You are not just retooling for new stampings, your doing the entire process. AAI can't make all the other 6's cousins.

4. What about the Mazda 3 Series platform? That seemed to go from the drawing board to many products pretty quickly. (I do not know how long, though.. just felt like it.)

5. Ford is focusing alot of energy on PAG.

Anyway, is Ford perfect? No. However, Ford has been trying to push the "global platform" theory harder and longer than GM. Also, Ford has been pretty good at using various parts in a wide range of cars. Some of which is good, some bad.

-Z

[zaxxis]

Originally Posted by caprice 511

In the past , this system has work for years . The problem GM is having now is their turn over time . GM tried to give those separate entities and they lost Oldsmobile with that separation . GM is one company selling a cars that gives us different styles off of one idea . Baskin-Robbins has 31 flavors of ice cream . Why can't a car maker have the same concept ? Just make the flavor people want .

Mostly because people don't want to pay thru the nose for a Cadillac if it's 99% the same as a Cavalier. Nor does anyone want to purchase a Cadillac if the quality, looks and value are available on a car that is 20k cheaper.

Plus with Baskin-Robbins, if you get Chocolate and realize you wanted Mint Chocolate, you can easily just buy another one without going into major debt

-Z

[dav305z]

better late than never. GM doesn't build cheap, uncompetitive cars because they're stupid, they do it because their wasting most of their money on an outdate inefficient coporate structure. gm designs 3 cars where it could use one. i think if they did it like Lazerwizard said, and use one design in multiple markets, they could be a force to reckoned with.

[goblue1999]

Originally Posted by laserwizard

Big mistake in trying to cram a reduced number of product variations onto disparate regions. I applaud the reduction of radios (40 is still 30 too many), but GM needs to eliminate variations in radiators, seats, etc so that they can purchase fewer unseen components to allow a greater variation in the cosmetic aspects of the cars. GM does not need to repeat the stupid example of CSV's which are not different enough to be unique models. Perhaps using the example of the G6 and the Malibu being related to a degree is a better example (though the designs need to be improved). GM should decide to sell a car in Europe like Honda does with the Accord and then to bring it to the US as a more upscale version (like the Acura) for another division. The European and American versions would be virtually indentical save for suspension tuning and slight color or fabric changes inside. Both would meet the most stringent of emission and safety standards in the marketplace so that no changes in powerplants or structures would be needed. Selling a European Chevrolet or Vaxhall, for example, in Europe might fit as a new Buick (but definitely not as a Cadillac since Cadillac wants to Europeanize their cars so that they can be sold as the same in both markets). You'd have the clear difference in Brands here while having an opportunity to lower production costs by sharing platforms across the "pond". GM would have to be careful not to share dud vehicles like the Saturn L or the Caterra which looked cheap even when they were pushed into different market segments. Ideally, I would have made Oldsmobile the import marketplace for GM taking the best of the worldwide cars and placing them in the American division. Pontiac continues to be brash American and Buick goes softer with American luxury while Cadillac builds edgy ugly cars for the vision impaired. I'd turn Saturn into the Asian marketplace that follows the model of European cars going to Oldsmobile. Saturn could be the true import fighter by having true Asian imports with Saturn's exceptional sales staff. I'd leave Chevrolet alone to build low class American cars and trucks just as they have been doing for years.

Wizzer, your sour grapes are ahead of schedule, you can at least wait until Chevy officially beats ford before commencing the whine festival......

[Ming]

Originally Posted by zaxxis

Mostly because people don't want to pay thru the nose for a Cadillac if it's 99% the same as a Cavalier. Nor does anyone want to purchase a Cadillac if the quality, looks and value are available on a car that is 20k cheaper.

Plus with Baskin-Robbins, if you get Chocolate and realize you wanted Mint Chocolate, you can easily just buy another one without going into major debt

-Z

Yup -- I still can't beileve folks who shelled out good cash for the first version of the Escalade. You could take a Tahoe and buy the grille and logos aftermarket and viola! - you had an Escalade. To be fair, Lexus did the same thing with its expensive Lexus emblem version of the Land Cruiser.

[Hudson]

Originally Posted by BigAls87Z28

Ford being faster? Its coming up on 3 years to make a Mazda 6 rebadge. GM has designed, put together and designed a concpet, showed at an auto show, then forced it through GM, green lighted it, built the new chassis, redesigned it for production, showed a production version of it, and are tooling up the factory and making an all new car as fast as Ford could make some new sheetmetal for an already made car.

Yeah...real fast.

Zaxxis covered this quite well.

I'm assuming you're comparing the Ford Fusion to the Pontiac Solstice? A high-volume model key to Ford's car lineup compared to a relatively low-volume halo vehicle? Did you see how long it took Chrysler to come out with the Viper, which included an all-new engine? Why couldn't GM turn the Solstice around that quickly...they even used an off-the-shelf engine!

It's apples and oranges. The Fusion is hardly a rebodied Mazda6. Ford needs to clear out a factory, engineer a vehicle (even if the platform is already completed), set-up the factory with modern equipment (a plant which hasn't had new equipment in about a decade), and roll-out new vehicles. GM had the luxury of a poor-selling production which could be vacated from its factory quickly, and this new product is needed to provide an aura for the rebirth of a fading brand. Ford's vehicle is one of five high-volume (compared to the Solstice) products being launched by the brand in a short timespan. As was stated above, you need to stagger those costs.

[tgagneguam]

Wow, even more corporate restructuring. I remember lots of reorging under Roger Smith, a little under Stemple (he wasn't there for too long), more under Jack Smith, and now more under Wagoner. I wonder how this version will pan out. How many times can a company morph?

It sure would be nice to have nice cars and trucks consistently rolling off the lines rather than touting another reorg theory. God, this is painful.