To save on product-development costs, General Motors (NYSE: GM) plans to cut the number of vehicle and engine platforms it uses in half. Although I believe this should benefit GM in the long run, the company's history leads me to have some reservations.
Platforms: a primer
A vehicle platform is a car stripped down to its skeleton. It consists of the frame, suspensions, engine compartment, and floor. Because none of these parts does a lot to make the car feel unique, automakers will often save money by basing multiple models on a single platform. For example, Ford (NYSE: F) plans to build 10 models based on its C-car platform -- the basis for the Focus.
At the moment, GM boasts a staggering 30 vehicle platforms. It plans to reduce that number to 14 by 2018. It also plans to cut its 20 engine platforms down to less than a dozen. Because engineers won't have to start from scratch on every vehicle, the plan should both lower development costs and speed up the time it takes to get new cars to market.
Revenge of the bean counters
From a financial perspective, the plan works. I think GM has made the right decision. But I'm worried about the execution. The company has used similar parts-sharing schemes in the past, but it placed the mantras "Reuse Parts" and "Save Money" above "Make an Excellent Product."
When the recycling of parts produced an ugly car, executives would justify moving forward by arguing that it would cost too much to fix. Bob Lutz gives a good example of the problem in his book Car Guys vs. Bean Counters. When Lutz suggested altering the sunroof in an apparently ugly Cadillac CTS, the executive in charge responded with a report explaining how much money the company would lose by making the change. Rick Wagoner finally stepped in to say that he was tired of being told it was better to release a bad car sooner, rather than a good one later. He then decreed that GM wouldn't release the CTS until it was right.
I believe that GM has made a lot of progress in putting the focus back on design. You can see it in the cars. I've always found my mother's 2000 Buick Lacrosse downright soul-crushing, but I like the latest model -- although I'd rather have the 2012 Regal GS.
The problem is, you can't really quantify good design. So it isn't something you can measure, like efficiency or production costs. I'm afraid that if GM isn't careful, it will fall back into its old habit of getting lost in the numbers while forgetting about the more subjective, but equally important, factors.
Finding a balance
GM's past myopic reliance on easily tracked metrics probably grew out of its stifling bureaucracy. When you have too many managers, it's easier to get everyone on the same page with a chart. Fortunately, the company appears to be making substantive changes to its structure.
According to The Wall Street Journal, Mary Barra, the new head of vehicle development at GM, had proved before she moved into the position that she values product excellence. While still in HR, she argued in favor of making the Chevy Cruze more luxurious. That model is now one of the top-selling compact cars.
After stepping into the new job, she cut out a series of executive positions that sat between her and the head engineers in charge of product programs. In theory, bringing the head of product development closer to the designers and engineers should help GM identify flaws in its products before fixing them becomes too expensive.
Foolish takeaway
Five years ago, I thought of General Motors as a dying animal, but now I'm cautiously optimistic about its change in direction. The company seems to have learned that quality counts and is now making moves to eliminate barriers to producing excellent vehicles. If it can continue on this route, I see no reason why the company couldn't compete against Toyota (NYSE: TM) and Honda (NYSE: HMC) on quality instead of on price.
If you want to keep an eye on GM's struggles to transform itself into a lean, competitive car manufacturer, add it -- along with its competitors -- to your watchlist now.
- Add Toyota Motor to My Watchlist.
- Add Honda Motor to My Watchlist.
- Add General Motors to My Watchlist.
- Add Ford Motor to My Watchlist.
