Innovation in the Auto sector?

With all the talk lately around how to bail out the Big 3 automakers, there have been many comments on how to administer / police the firms that receive government bailouts. Which is all well and good: many of these firms have been less than successful in adapting to the needs and realities of the current market. As a condition of a bailout, the taxpayers should have some measures to ensure that their “investment” is being properly used to rebuild a stronger more responsive industry.

But in talking to a colleague with a long history in the automotive industry, they mentioned that this has been coming for a long time based on the structure and bureaucracy rampant in the firms. One example they recalled was that resources were not allocated to the projects with the best chances of success, but those which were championed by persuasive leaders in each silo of the company. So one has to ask; will this bailout give the firms a chance to re-organize for success or just continue along the same path? I believe that what can tip the balance towards the former is a belief from the top down in product/service innovation.

Looking back to the late 1979 and Chrysler’s last brush with insolvency we can see fundamental differences between today’s market conditions, industry players and other elements that make direct comparison difficult. But there are a few notable items to highlight that point toward why they were successful in making it through their earlier crisis.

At the same time as the company asked the U. S. government for $1.5B in loan guarantees former Ford executive (and “car guy”) Lee Iacocca was brought in to lead the company. A persuasive leader, he was able to rally the public behind the comeback and by to some extent, bashing the Japanese imports that were selling in greater numbers in the U.S. (It also helped the company’s cause that the U.S. Military bought thousands of Dodge pickups to bring into service.) Iacocca also brought in quality improvements on the assembly line which made the vehicles more reliable and the factories more efficient.

However what I believe gave the company its most significant boost was the development of the (at the time) innovative models, the K-car and the Minivan. As Iacocca believed in the products, the entire company could see that from the top down, product innovation was being given the support it needed to flourish. (What was interesting is that both of these concepts had been initially investigated at Ford and rejected.) Coming after the oil crisis of the late 70’s, the front-wheel drive K-car platform sold extremely well paving the way for the introduction of the Minivan.

Introduced in late 1983 (a three-year development cycle, which was unprecedented in the U.S. auto industry at the time), the minivan concept met customer needs for a vehicle with the space of a van, but could fit in a residential garage and have a low step-in height for small children. It continues to be the best selling minivan in the industry with over 12 MM units sold to date.

So although there are few direct comparisons that can be made between the two situations, I fear that unless the companies start to do a better job of really listening and responding to deep customer needs, we may be extending the automakers a few more months or years of struggling sales and poor performance.