Since Henry Ford’s development of the assembly line to assist mass production, quality and its method of implementation has been an integral part of the auto industry. Ford managed to cut costs of the inaugural Model T by more than half, making his cars affordable for the average American family, whilst simultaneously improving reliability and safety. The repetitive manufacturing process relied heavily on interchangeable parts, which had to be made to exacting standards in order to be effective. Ford had set the tone for quality in the auto industry, and despite Model T sales falling by the mid 1920s, had built a platform of growth based on quality products for Detroit’s Big Three – Ford, Chrysler and GM.
The onset of World War II brought home the importance of reliability, and military standards forced car manufacturers to adopt rigorous statistical process control (SPC) techniques. However, after the war ended, US manufacturers resorted to old ways and stopped making quality a priority. It became driven by inspection rather than by process; it was not fully supported by management, and product reliability as well as manufacturing costs suffered. Japanese manufacturers however adopted these techniques whole-heartedly, ironically under the instruction of American quality specialist W. Edwards Deming. The Japanese, historically known for shoddy production, began to infiltrate the US auto market in the 1960s, and Toyota and other foreign manufacturers were able to gain a foothold. The Big Three still did not foresee the issues, thinking price was the driving factor and not quality. Hit by a series of unreliable products, market share began to slide, and when oil prices started to rise in the 1970s, Chrysler were unable to react quickly enough despite having the resources in Europe to manufacture more fuel efficient cars. Management had failed the company – a foresight of what was to come twenty five years later.
In the words of Alan Mulally, Ford’s dynamic President and CEO during the 2008 bail-out crisis (in which Ford didn’t need bailing out due to his actions):
“These three companies have been going out of business for 80 years. They were insulated and had great success early on with 70, 80% of the market. But they were arrogant. They made fun of the Japanese. And then they made shoddy products; all of a sudden they had some competition, and their arrogance caught up with them.”
Quality of US vehicles only began to improve slowly in the mid 80s when US companies started to benchmark against some of their foreign rivals and implement techniques such as quality circles and SPC. But corporate arrogance led to a belief that they knew what was best for the customer, and that they were indestructible; as profits increased once more, ludicrously rich deals such as the "Jobs Bank", which paid 95% of salary to laid off workers indefinitely, were made with the unions resulting in astronomical fixed costs on every vehicle. These fixed costs cut massively into the margin of each car they produced, and put the Big Three far behind the eight-ball in comparison to its lean, focused, customer-driven overseas competitors. And despite constant decline of market share in the late 90s and early 2000s, they did not take heed of the practices of their rivals and continued to invest heavily in non fuel-efficient trucks – their biggest profit products. In 2007, as oil prices rose and the global economy faltered, their inventory mounted - in-fighting was common-place, relations with dealers became strained, and high-paid executives became ever-more isolated from their workers and customers.
However, Bill Ford recognized in 2006 many of the issues, and managed to entice to Ford a very successful executive from Boeing, Alan Mulally. Ford had reacted just in time, and demonstrated a perfect example of benchmarking outside of an industry. Mulally realized that Ford’s lack of focus, controlling multiple brands such as Jaguar, Land Rover and Volvo, was hurting the company significantly. He reduced the product line, selling most of the non-Ford brands, turned the focus to more fuel-efficient vehicles that customers so badly wanted, and implemented a total quality management system which included eliminating fear and allowing people to be open and honest – a trait not seen in the auto-industry for many years. His employees responded to him positively and things started to turn around at Ford on the back of some shrewd borrowing, divesting, sales and negotiations with the unions. Mulally and Ford went through the bankruptcy negotiations with GM and Chrysler, but they did not need to – they went only to provide support, and in turn show the world that quality was at the heart of Ford’s future. Once the Big Three came through the other side of the government bailout, it was Ford who showed the way, just as they had at the turn of the century. According to Ford, the “One Ford” philosophy:
“encourages focus, teamwork and a single global approach, aligning employee efforts toward a common definition of success. It emphasizes the importance of working together as one team to achieve automotive leadership, which is measured by the satisfaction of our customers, employees and essential business partners, such as our dealers, investors, suppliers, unions/councils and the communities in which we operate.”
It is likely the Big Three will never make these mistakes again. Then again, perhaps we will only have to wait another 25 years.
The onset of World War II brought home the importance of reliability, and military standards forced car manufacturers to adopt rigorous statistical process control (SPC) techniques. However, after the war ended, US manufacturers resorted to old ways and stopped making quality a priority. It became driven by inspection rather than by process; it was not fully supported by management, and product reliability as well as manufacturing costs suffered. Japanese manufacturers however adopted these techniques whole-heartedly, ironically under the instruction of American quality specialist W. Edwards Deming. The Japanese, historically known for shoddy production, began to infiltrate the US auto market in the 1960s, and Toyota and other foreign manufacturers were able to gain a foothold. The Big Three still did not foresee the issues, thinking price was the driving factor and not quality. Hit by a series of unreliable products, market share began to slide, and when oil prices started to rise in the 1970s, Chrysler were unable to react quickly enough despite having the resources in Europe to manufacture more fuel efficient cars. Management had failed the company – a foresight of what was to come twenty five years later.
In the words of Alan Mulally, Ford’s dynamic President and CEO during the 2008 bail-out crisis (in which Ford didn’t need bailing out due to his actions):
“These three companies have been going out of business for 80 years. They were insulated and had great success early on with 70, 80% of the market. But they were arrogant. They made fun of the Japanese. And then they made shoddy products; all of a sudden they had some competition, and their arrogance caught up with them.”
Quality of US vehicles only began to improve slowly in the mid 80s when US companies started to benchmark against some of their foreign rivals and implement techniques such as quality circles and SPC. But corporate arrogance led to a belief that they knew what was best for the customer, and that they were indestructible; as profits increased once more, ludicrously rich deals such as the "Jobs Bank", which paid 95% of salary to laid off workers indefinitely, were made with the unions resulting in astronomical fixed costs on every vehicle. These fixed costs cut massively into the margin of each car they produced, and put the Big Three far behind the eight-ball in comparison to its lean, focused, customer-driven overseas competitors. And despite constant decline of market share in the late 90s and early 2000s, they did not take heed of the practices of their rivals and continued to invest heavily in non fuel-efficient trucks – their biggest profit products. In 2007, as oil prices rose and the global economy faltered, their inventory mounted - in-fighting was common-place, relations with dealers became strained, and high-paid executives became ever-more isolated from their workers and customers.
However, Bill Ford recognized in 2006 many of the issues, and managed to entice to Ford a very successful executive from Boeing, Alan Mulally. Ford had reacted just in time, and demonstrated a perfect example of benchmarking outside of an industry. Mulally realized that Ford’s lack of focus, controlling multiple brands such as Jaguar, Land Rover and Volvo, was hurting the company significantly. He reduced the product line, selling most of the non-Ford brands, turned the focus to more fuel-efficient vehicles that customers so badly wanted, and implemented a total quality management system which included eliminating fear and allowing people to be open and honest – a trait not seen in the auto-industry for many years. His employees responded to him positively and things started to turn around at Ford on the back of some shrewd borrowing, divesting, sales and negotiations with the unions. Mulally and Ford went through the bankruptcy negotiations with GM and Chrysler, but they did not need to – they went only to provide support, and in turn show the world that quality was at the heart of Ford’s future. Once the Big Three came through the other side of the government bailout, it was Ford who showed the way, just as they had at the turn of the century. According to Ford, the “One Ford” philosophy:
“encourages focus, teamwork and a single global approach, aligning employee efforts toward a common definition of success. It emphasizes the importance of working together as one team to achieve automotive leadership, which is measured by the satisfaction of our customers, employees and essential business partners, such as our dealers, investors, suppliers, unions/councils and the communities in which we operate.”
It is likely the Big Three will never make these mistakes again. Then again, perhaps we will only have to wait another 25 years.
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