While reading the book Comeback (1994), written by two Wall Street Journal’s bureau chiefs, Paul Ingrassia and Joseph B. White, I was also fortunate to receive Imprimis February issue tackling the same topic.
Comeback reconstructs how America’s premier industry stumbled, fell, and picked itself up again. The story begins in 1982, when Honda started building cars in Marysville, Ohio, and the entire U.S. car industry seemed to be on the brink of extinction. It ends just over a decade later as Japan’s car industry falters after a double whammy: a deep recession at home and a simultaneous surge in the value of their currency overseas, succumbing to “the same sins of complacency and arrogance that had almost destroyed Detroit” and America’s Big Three—General Motors, Ford, Chrysler-Daimmler—emerge as formidable global competitors.
Almost twenty years later, the same is happening again. White (2009) speaking in a seminar, “Cars and Trucks, Markets and Government,” in Hillsdale College, oversimplifies the five factors that contributed to the current crises—a crisis that have been more than 30 years in the making:
“First, Detroit underestimated the competition—in more ways than one.
“Second, GM mismanaged its relationship with the United Auto Workers, and the UAW in its turn did nothing to encourage GM (or Ford or Chrysler) to defuse the demographic time bomb that has now blown up their collective future.
“Third, GM, Ford and Chrysler handled failure better than success. When they made money, they tended to squander it on ill-conceived diversification schemes. It was when they were in trouble that they often did their most innovative work—the first minivans at Chrysler, the first Ford Taurus, and more recently the Chevy Volt were ideas born out of crisis.
“Fourth, GM (or Ford or Chrysler) relied too heavily on a few, gas-hungry truck and SUV lines for all their profits—plus the money they needed to cover losses on many of their car lines. They did this for a good reason: When gas was cheap, big gas-guzzling trucks were exactly what their customers wanted—until they were not.
“Fifth, GM refused to accept that to survive it could not remain what it was in the 1950s and 1960s—with multiple brands and a dominant market share. Instead, it used short-term strategies such as zero percent financing to avoid reckoning with the consequences of globalization and its own mistakes.”
Although the story of Comeback revolved around the automotive industry, several of the lessons are equally applicable to the steel industry. It has been said, for half a decade or so, the steel and automotive industries belong to the same milieu, as both needs each other to exist.
Comeback dissects the triumphs and the tribulations of the America’s Big Three: GM, Ford and Chrysler. Ingrassia and White focussed more on the management aspect, especially the reign of the succession of Chairmen of the Board and the Presidents (or Chief Executive Officers) of each one. The story is spiced with larger-than-life characters: Lee Iacocca, Henry Ford II, Donald E. Petersen, Roger Smith, Philip Caldwell, Robert Stempel, Robert Lutz, among several others.
Between revealing anecdotes, juicy gossip, and captivating stories, this definitive recent history of the American automobile industry vividly illustrates both the difficulty of change and the grievous consequences of trying to avoid it.
Reading the book, Comeback, brought forth to mind the recent history of the steel industry in the Philippines, in general, as well as the recent events particularly in the former National Steel Corporation [NSC] plant, now known as Global Steel Philippines (SPV-AMC), Inc. [GSPI].
In most of the previous posts in this blog, The Grey Chronicles have usually compared the gist of some reading and its significance, whenever applicable, to the Philippine steel industry as well as to GSPI. This post will equally do the same.
There are several management lessons to be learned from the book, Comeback, as well from the White’s speech. Foremost of which are competition from overseas, the Big Three and the labor union, the problem with quality, the mishandling of adversity, and zero financing.
GSPI, a long-distance “sister” company of Ispat Industries Ltd. [IIL] under the over-reaching umbrella of Global Steel Holdings Ltd [GSHL], competes globally with input materials, as well as prospective customers against a horde of other steel manufacturers and suppliers. Recently, with GSPI plant on shutdown or operating on order-basis, several local endusers declared their desire to import steel products under the provisions of the Japan-Philippines Economic Partnership Agreement [JPEPA].
The National Steel Labor Union [NASLU] was a formidable partner during the privatized NSC era. Workers’ employment benefits were numerous, as the last Collective Bargaining Agreement of NASLU would attest. Meanwhile, when the rank-and-file employees of GSPI opted for a certification of its labor union, GSPI apparently tended to block all attempts of the locals’ basic constitutional right to form a union. On its early years of existence, even the labor union president was sacked, underwent litigation and reportedly the latter won the case, now sitting comfortably while awaiting his pension.
Quality matters most to most people. From the onset of GSPI’s announcement of commercial operations, several downstream industries have incessantly complained about GSPI’s commitment to quality of products and delivery, as well as customer service. Even with the announcement of GSPI adopting a Six Sigma methodology of continuous improvement; and the last year’s press release of attaining ISO 9001:2000 certification for its cold-rolled coils production in addition to an earlier TPM Excellence Award-1st Category in March 2008; the ‘vilification’ campaign, as GSPI claimed, still continues to this day.
The Big Three of Detroit mishandled adversity, i.e., in White’s words: “did so badly when times were good”. At GM, the plan was to gain sales and profit from a “network” of alliances with automakers such as Subaru, Suzuki, Isuzu, and Fiat, automakers where GM had invested capital; use the Internet and automation to turbocharge GM’s performance. But five years latter, all this was in tatters. Ford used the cash it rolled up during the 1990s boom to buy junkyards. Chrysler was peddling itself to Ford, after the Fiat talks collapsed. This blog already posted how GSHL invested when the times were good, but apparently failed to live up to its promise to turnaround the plants it acquired.
Since 2001, GM’s marketing strategy has come down to a single idea: zero percent financing, the automotive version of the addictive, easy credit that ultimately destroyed the housing market, leading to the current global economic crises. Between 1990 and 2007, White reported, GM lost a combined total of about $33 billion. The six unprofitable years wiped out the gains from 12 profitable gains. Financing for GSHL companies, however, were a different matter. Under a corporate directive, GSHL expects every plant to generate its own surplus to pay salaries (LiveMint, 2008). The Filipino Galvanizers Institute [FGI] letter, quoted in a previous post, claimed that GSPI, a GSHL subsidiary, even required its customers to open Letters of Credit [LC] to back financing of GSPI’s purchase of slabs! (Manila Bulletin, 2009).
Notes:
Cahiles-Magkilat, Bernie (2009). Steel industry seeks zero-duty import under JPEPA. Online. Manila: Manila Bulletin, 28 June 2009. back to text
Handique, Maitreyee (2008). Global Steel owes salaries, answers. New Delhi: LiveMint, The Wall Street Journal, 02 April 2008. back to text
Ingrassia, Paul & White, Joseph B. (1994). Comeback: The Fall and Rise of the American Automobile Industry. Place: Simon & Schuster, 1994. 514pp. back to text
White, Joseph B. (2009). How Detroit’s Automakers Went from Kings of the Road to Roadkill, Imprimis. 38:2. Hillsdale, MI.: Hillsdale College, February 2009. Adapted from a speech delivered at Hillsdale College on 26 January 2009 at a seminar, “Cars and Trucks, Markets and Government,” co-sponsored by the Center for Constructive Alternatives and the Ludwig von Mises Lecture Series. back to text
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The Grey Chronicles
Kings of The Road to Roadkill
Tags: America’s Big Three, Automation, Car Industry, Chairman of the Board, Chevy Volt, Chief Executive Officer, Chrysler-Daimmler, Cold-rolled coil, Collective Bargaining Agreement, Comeback, Commercial Operations, Competition, Customer Service, Delivery, Donald E. Petersen, Failure, FGI, Fiat, Filipino Galvanizers Institute, Ford, Ford Taurus, General Motors, Global Economic Crises, Global Steel Philippines (SPV-AMC) Inc., GSPI, Henry Ford II, Hillsdale College, Honda, Housing Market, IIL, Import, Imprimis, Internet, ISO 9001:2000 Certification, Ispat Industries Ltd, Isuzu, Japan-Philippines Economic Partnership Agreement, Joseph B. White, JPEPA, labor union, LC, Lee Iacocca, Letters of Credit, Litigation, Management, Marketing Strategy, NASLU, National Steel Corporation, National Steel Labor Union, NSC, Paul Ingrassia, Philip Caldwell, President, Production, Quality, Rank and File, Recession, Robert Lutz, Robert Stempel, Roger Smith, Salary, Six-Sigma, Slab, Steel Industry, Subaru, Success, SUV, Suzuki, TPM Excellence Award, United Auto Workers, Vilification, Wall Street Journal, Zero Percent Financing
Comeback reconstructs how America’s premier industry stumbled, fell, and picked itself up again. The story begins in 1982, when Honda started building cars in Marysville, Ohio, and the entire U.S. car industry seemed to be on the brink of extinction. It ends just over a decade later as Japan’s car industry falters after a double whammy: a deep recession at home and a simultaneous surge in the value of their currency overseas, succumbing to “the same sins of complacency and arrogance that had almost destroyed Detroit” and America’s Big Three—General Motors, Ford, Chrysler-Daimmler—emerge as formidable global competitors.
Almost twenty years later, the same is happening again. White (2009) speaking in a seminar, “Cars and Trucks, Markets and Government,” in Hillsdale College, oversimplifies the five factors that contributed to the current crises—a crisis that have been more than 30 years in the making:
Although the story of Comeback revolved around the automotive industry, several of the lessons are equally applicable to the steel industry. It has been said, for half a decade or so, the steel and automotive industries belong to the same milieu, as both needs each other to exist.
Comeback dissects the triumphs and the tribulations of the America’s Big Three: GM, Ford and Chrysler. Ingrassia and White focussed more on the management aspect, especially the reign of the succession of Chairmen of the Board and the Presidents (or Chief Executive Officers) of each one. The story is spiced with larger-than-life characters: Lee Iacocca, Henry Ford II, Donald E. Petersen, Roger Smith, Philip Caldwell, Robert Stempel, Robert Lutz, among several others.
Between revealing anecdotes, juicy gossip, and captivating stories, this definitive recent history of the American automobile industry vividly illustrates both the difficulty of change and the grievous consequences of trying to avoid it.
Reading the book, Comeback, brought forth to mind the recent history of the steel industry in the Philippines, in general, as well as the recent events particularly in the former National Steel Corporation [NSC] plant, now known as Global Steel Philippines (SPV-AMC), Inc. [GSPI].
In most of the previous posts in this blog, The Grey Chronicles have usually compared the gist of some reading and its significance, whenever applicable, to the Philippine steel industry as well as to GSPI. This post will equally do the same.
There are several management lessons to be learned from the book, Comeback, as well from the White’s speech. Foremost of which are competition from overseas, the Big Three and the labor union, the problem with quality, the mishandling of adversity, and zero financing.
GSPI, a long-distance “sister” company of Ispat Industries Ltd. [IIL] under the over-reaching umbrella of Global Steel Holdings Ltd [GSHL], competes globally with input materials, as well as prospective customers against a horde of other steel manufacturers and suppliers. Recently, with GSPI plant on shutdown or operating on order-basis, several local endusers declared their desire to import steel products under the provisions of the Japan-Philippines Economic Partnership Agreement [JPEPA].
The National Steel Labor Union [NASLU] was a formidable partner during the privatized NSC era. Workers’ employment benefits were numerous, as the last Collective Bargaining Agreement of NASLU would attest. Meanwhile, when the rank-and-file employees of GSPI opted for a certification of its labor union, GSPI apparently tended to block all attempts of the locals’ basic constitutional right to form a union. On its early years of existence, even the labor union president was sacked, underwent litigation and reportedly the latter won the case, now sitting comfortably while awaiting his pension.
Quality matters most to most people. From the onset of GSPI’s announcement of commercial operations, several downstream industries have incessantly complained about GSPI’s commitment to quality of products and delivery, as well as customer service. Even with the announcement of GSPI adopting a Six Sigma methodology of continuous improvement; and the last year’s press release of attaining ISO 9001:2000 certification for its cold-rolled coils production in addition to an earlier TPM Excellence Award-1st Category in March 2008; the ‘vilification’ campaign, as GSPI claimed, still continues to this day.
The Big Three of Detroit mishandled adversity, i.e., in White’s words: “did so badly when times were good”. At GM, the plan was to gain sales and profit from a “network” of alliances with automakers such as Subaru, Suzuki, Isuzu, and Fiat, automakers where GM had invested capital; use the Internet and automation to turbocharge GM’s performance. But five years latter, all this was in tatters. Ford used the cash it rolled up during the 1990s boom to buy junkyards. Chrysler was peddling itself to Ford, after the Fiat talks collapsed. This blog already posted how GSHL invested when the times were good, but apparently failed to live up to its promise to turnaround the plants it acquired.
Since 2001, GM’s marketing strategy has come down to a single idea: zero percent financing, the automotive version of the addictive, easy credit that ultimately destroyed the housing market, leading to the current global economic crises. Between 1990 and 2007, White reported, GM lost a combined total of about $33 billion. The six unprofitable years wiped out the gains from 12 profitable gains. Financing for GSHL companies, however, were a different matter. Under a corporate directive, GSHL expects every plant to generate its own surplus to pay salaries (LiveMint, 2008). The Filipino Galvanizers Institute [FGI] letter, quoted in a previous post, claimed that GSPI, a GSHL subsidiary, even required its customers to open Letters of Credit [LC] to back financing of GSPI’s purchase of slabs! (Manila Bulletin, 2009).
Notes:
Cahiles-Magkilat, Bernie (2009). Steel industry seeks zero-duty import under JPEPA. Online. Manila: Manila Bulletin, 28 June 2009. back to text
Handique, Maitreyee (2008). Global Steel owes salaries, answers. New Delhi: LiveMint, The Wall Street Journal, 02 April 2008. back to text
Ingrassia, Paul & White, Joseph B. (1994). Comeback: The Fall and Rise of the American Automobile Industry. Place: Simon & Schuster, 1994. 514pp. back to text
White, Joseph B. (2009). How Detroit’s Automakers Went from Kings of the Road to Roadkill, Imprimis. 38:2. Hillsdale, MI.: Hillsdale College, February 2009. Adapted from a speech delivered at Hillsdale College on 26 January 2009 at a seminar, “Cars and Trucks, Markets and Government,” co-sponsored by the Center for Constructive Alternatives and the Ludwig von Mises Lecture Series. back to text
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