Ambrose proves herself a Big Bag of wind as she expounds on the State of the Automotive Industry
Ever since I was probably in high school, I wanted to work in the automotive industry. At one point I told my then-boyfriend that I wanted to go into electrical engineering to design electrical systems for cars. Then-boyfriend (and you know who you are haha) told me that was stupid, because that wasn't what electrical engineers did. His brother was in school to be an electrical engineer, and that wasn't anything like what he did. I was ridiculous for thinking this because clearly I had no idea what electrical engineers did.
So I went to college and majored in math. When I decided I didn't want to become a teacher, I ended up taking an engineering job at a local magnet manufacturer that was Tier 3 automotive supplier. I spent most of the next 10 years working for automotive suppliers, working closely with the design teams on electro-mechanical systems for cars. Most of these folks were electrical engineers. Hmmm. If I hadn't listened to then-boyfriend, I probably would have made $10,000 a year more at any given moment. Humph!
Anyway, the automotive industry is very near and dear to my heart. So when I read this post of Ono's yesterday, I couldn't help but go on and on. For folks that used to work with me over the years won't be suprised by my protracted (and should I say spot-on) analysis in his combox. In response, he posed a few questions:
Wow, great observations. You should copy this comment to your blog because I have a couple of questions and it might be easier for you to respond there:
1. What is vertical v horizontal integration in the automotive industry? Is it centralization v de-centralization?
Vertical integration is when you control the supply chan because you own the supply chain. This was very important to Henry Ford, who went so far as to own mines where they got the iron that went tho his own casting plant that went to his own and so on all the way up to the assembly plant. He owned it all. Horizontal integration is when you expand what you already do, I think usually to go into different markets. This can be done by just expanding your operations or by M&A. As I said in your combox, Chrysler was in the early 90s the most profitable of the Big 3 because they were the least vertically integrated. Most of the components and systems were sourced from companies they didn't own, and usually with multiple sources. Chrysler's major focus is building and marketing cars. Ford and GM have effectively (and I say effectively because they are still majority share holders) spun off Visteon and Delphi so that they can focus on building and marketing cars.
The centralization/ de-centralization has more to do with corporate structure, rather than operations. If a company has multiple business units or divisions, centralization would have all common admin functions, like accounting & HR, in one place (structurally, not necessarily geographically) rather than each unit having their own, which would be decentralization. For the first company I worked for, we had two Strategic Business Units (SBU) that had their own engineers, manufacturing staffing, and Operating Chief. Our Human Resources, Sales, and Accounting were not divided between the two. I really don't have a strong basic opinion either way, just so that whatever company I work for doesn't waste money with a stupid structure.
2. Are you suggesting that the Unions are a bulk of the problem, at least as they currently configured? (I'm pro-union too, but a tad pro-corporate too)
My husband, who has managed both Union and Non-Union shops, always says if you get a union or if you end up with union problems, it's your own fault. If people are happy with their working conditions, pay, and benefits, you won't have a problem. That being said, it is unfortunate that there is still a need for Unions in the United States. You think we would have learned by now, or at least seen a John Sayles movie or two.
I don't want to say that the UAW is the problem, because I don't want to come across as the person who says union=bad. The UAW contracts, and the management's poor responses to those contracts are definitely problems. If Ford an dGM are serious about long-term survival, the structures need to change radically. Right now, the contract negotiations only get incremental changes.
3. IN biz school for undergrad I studied some of these Japanese auto strategies for avoiding unions. Would you say that the big difference b/w the US auto industry and the foreign industry is the union issue (i.e, flexibility). I know south Koreo has some very strong somewhat inflexible unions, and they produce Daewoos, I wonder how that's going.
Again, if you have a union and a union problem, it is your own darn fault. In the current business climate, manufacturers need to be flexibility is essential for profitablity. Flexibility is a sign of a profitable company; waste has been eliminated. Flexibility is definitely one of the biggest differences in between the U.S. auto makers and the Japanese in terms of financial success. I definitely think the next biggest would be have to be the supply chain issue, which I described in your combox.
So I went to college and majored in math. When I decided I didn't want to become a teacher, I ended up taking an engineering job at a local magnet manufacturer that was Tier 3 automotive supplier. I spent most of the next 10 years working for automotive suppliers, working closely with the design teams on electro-mechanical systems for cars. Most of these folks were electrical engineers. Hmmm. If I hadn't listened to then-boyfriend, I probably would have made $10,000 a year more at any given moment. Humph!
Anyway, the automotive industry is very near and dear to my heart. So when I read this post of Ono's yesterday, I couldn't help but go on and on. For folks that used to work with me over the years won't be suprised by my protracted (and should I say spot-on) analysis in his combox. In response, he posed a few questions:
Wow, great observations. You should copy this comment to your blog because I have a couple of questions and it might be easier for you to respond there:
1. What is vertical v horizontal integration in the automotive industry? Is it centralization v de-centralization?
Vertical integration is when you control the supply chan because you own the supply chain. This was very important to Henry Ford, who went so far as to own mines where they got the iron that went tho his own casting plant that went to his own and so on all the way up to the assembly plant. He owned it all. Horizontal integration is when you expand what you already do, I think usually to go into different markets. This can be done by just expanding your operations or by M&A. As I said in your combox, Chrysler was in the early 90s the most profitable of the Big 3 because they were the least vertically integrated. Most of the components and systems were sourced from companies they didn't own, and usually with multiple sources. Chrysler's major focus is building and marketing cars. Ford and GM have effectively (and I say effectively because they are still majority share holders) spun off Visteon and Delphi so that they can focus on building and marketing cars.
The centralization/ de-centralization has more to do with corporate structure, rather than operations. If a company has multiple business units or divisions, centralization would have all common admin functions, like accounting & HR, in one place (structurally, not necessarily geographically) rather than each unit having their own, which would be decentralization. For the first company I worked for, we had two Strategic Business Units (SBU) that had their own engineers, manufacturing staffing, and Operating Chief. Our Human Resources, Sales, and Accounting were not divided between the two. I really don't have a strong basic opinion either way, just so that whatever company I work for doesn't waste money with a stupid structure.
2. Are you suggesting that the Unions are a bulk of the problem, at least as they currently configured? (I'm pro-union too, but a tad pro-corporate too)
My husband, who has managed both Union and Non-Union shops, always says if you get a union or if you end up with union problems, it's your own fault. If people are happy with their working conditions, pay, and benefits, you won't have a problem. That being said, it is unfortunate that there is still a need for Unions in the United States. You think we would have learned by now, or at least seen a John Sayles movie or two.
I don't want to say that the UAW is the problem, because I don't want to come across as the person who says union=bad. The UAW contracts, and the management's poor responses to those contracts are definitely problems. If Ford an dGM are serious about long-term survival, the structures need to change radically. Right now, the contract negotiations only get incremental changes.
3. IN biz school for undergrad I studied some of these Japanese auto strategies for avoiding unions. Would you say that the big difference b/w the US auto industry and the foreign industry is the union issue (i.e, flexibility). I know south Koreo has some very strong somewhat inflexible unions, and they produce Daewoos, I wonder how that's going.
Again, if you have a union and a union problem, it is your own darn fault. In the current business climate, manufacturers need to be flexibility is essential for profitablity. Flexibility is a sign of a profitable company; waste has been eliminated. Flexibility is definitely one of the biggest differences in between the U.S. auto makers and the Japanese in terms of financial success. I definitely think the next biggest would be have to be the supply chain issue, which I described in your combox.
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