Insider: Bad Management Did In the Auto Industry, Not Unions

American auto workers didn't send the industry into a decades-long tailspin. Managers did. At least, that's the argument made by legendary car executive Bob Lutz in a recent interview with Yahoo!'s Aaron Task. 

"Management became way too scientific, B-school oriented; way too cost-focused; and it was almost considered childish to be enthusiastic about automobiles," he said. Although Lutz placed the blame for Detroit's decline on incompetent management, he did not let the industry's unionized workforce off the hook entirely.

Lutz, who retired from General Motors (NYSE: GM  ) last year, has a new book out, Car Guys vs Bean Counters: The Battle for the Soul of American Business.

Lutz, who championed the Chevrolet Volt among other noteworthy American cars during his 40-year career, is right.  High labor costs hurt the industry, but were nowhere near the problem of poor design and low quality. "There was a certain blandness and absolute mediocrity," said Bill Visnic, an analyst with Edmunds.com, in an interview, a trend that Lutz, a former GM vice chairman, deserves credit for helping change. "GM thought they knew better than anybody else what GM should be doing. There was a certain kind of arrogance."

The attitude in GM was apparent to a lesser extent in Ford (NYSE: F  ) and Chrysler, though Visnic argues that with GM, "it was always about the process." The Big Three somehow lost sight of their mission to create products that people want to buy. The executives made bad decision after bad decision for decades.  

The perfect example
Nowhere was this dysfunctional attitude more evident than with the Pontiac Aztek. When the vehicle was introduced in 2001, North America's largest automaker described it as "quite possibly the most versatile vehicle on the planet." Auto industry experts saw things differently.

Visnic said the car was a "Frankenstein" with "poor dynamics. ... The execution was dismal." Pulitzer-Prize winning auto critic Dan Neil told TIME magazine in 2007 that he was at the Detroit auto show when the Aztek was unveiled. "I will never forget the gasp that audience made. Holy hell! This car could not have been more instantly hated if it had a Swastika tattoo on its forehead," he wrote.           

The Aztek case will be studied in business schools for years as an example of corporate hubris gone amok. GM is not the only company to have this problem. Boeing continues to struggle with delays to its 787 Dreamliner, which was originally supposed to be delivered to customers in 2007. The latest estimates from Boeing are that deliveries will begin in the third quarter of this year. And let's not forget New Coke, the disastrous idea that Coca-Cola introduced in 1985.

A mixed bag
In the end, the Aztek had a mixed legacy. The company quit making the vehicle in 2005 and four years later shuttered the Pontiac businesses, cutting 21,000 jobs. General Motors entered bankruptcy protection in 2009 and emerged later that year, leaner and freed of the debt that had weighed it down for years, thanks to a $17.4 billion government bailout.

Wall Street is now bullish on GM, even though the shares are down more than 16% this year. Morgan Stanley analyst Adam Jones recently said that GM was his favorite automaker stock, replacing Ford. Wall Street analysts have a median price target of $44, well ahead of the $30.75 where shares currently trade.           

Visnic and other experts say that American vehicles are much better than they used to be, thanks to the efforts of Lutz and the embarrassing lessons learned from the Aztek fiasco. Ford and GM's Chevrolet brands each won two awards from the J.D. Power and Associates 2011 U.S. Initial Quality Study. Chrysler, whose quality problems have been especially bad, has shown some improvements there as well, experts say.       

What do you think about the auto industry's woes? Has management finally turned the corner? Sound off in the comments section below.

Jonathan Berr owns no shares mentioned above. The Motley Fool owns shares of Ford Motor and Coca-Cola. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Ford Motor, and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 12, 2011, at 11:00 AM, DavesHere wrote:

    Why does no one ever mention the 5+ year cycle from conception to production? Even without a miss like the Aztec, the U.S. auto majors have long had the technology to re-platform overnight while re-design ends up being a series of tweeks on the pattern of four wheels and an engine. Yet, they insist on offering cars that people wanted five years ago.

  • Report this Comment On July 12, 2011, at 11:29 AM, kidshelleen51 wrote:

    It rarely gets mentioned but one of the biggest reasons for that bad mgmt was a little thing called ...Diversity. I saw Ford promote one buffon after another for no other reason than they weren't white. Regardless of how you feel about past discrimination, when even the biggest buffoons get promoted to "make your numbers", you spread little cancers throughout your organization. Having a masters from the Univ of Calcutta might sound impressive but it doesn't give you any insite into how to motivate and energize an American workforce. For most of the last 15 years huge percentages of the workforce were just going through the motions hoping to reach retirement age. As those cancers spread thoughout every area of the organization, those little cancers created a highly ineffective behemoth incapable of creativity or creative thinking.

    Anyone with the personality of Lutz or Iacoacca was shuffled out the door or to a back room.

  • Report this Comment On July 12, 2011, at 11:31 AM, doom0001 wrote:

    I, for one, will be watching the contract talks this fall to see if anything has changed in the bargaining process. Will it be the usual, pitting one company against the other or will the companies come to their senses and each control their destiny, irregardless of what the competitors negotiate? There should be no pattern bargaining, what is good for one may not be good for the other.

    Also, I will support the company in their effort to solve long term issues (more than 10 years down the road). If it takes a strike to wake the union I would expect the company to do what is best long term. The short term cost would be small, if taken in context with past negotiations where costs ballooned. Public support would be, in my opinion, in favor of the auto company that looks to the future.

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