What colour icing would you like on your cake?General Motors is in trouble. And Ford is struggling too as the American car buying public increasingly chooses Toyota and Honda and other foreign owned cars. GM and Ford are having trouble giving their cars away.
At the beginning of June 2005, Rick Wagoner, GM's chairman and chief executive, announced plans to cut 25,000 blue collar jobs, one in five of its US workforce, and a further 12,000 jobs in Europe during the next four years to reduce its costs as losses spiral. GM lost £708 million in the first three months of 2005 from its US operations alone, and losses are projected to rise during the year. Sales of the company's most profitable vehicles have collapsed.
It's a sorry and poignant story. Henry Ford, Ford's founder, pioneered the production line, while Alfred Sloane, the boss of GM, pioneered the modern, multi divisional corporation, financial controls and fact-based management. Whereas Ford famously offered 'any colour as long as it's black' and affordable cars the public wanted, Sloan gave his customers choice in brands, models, styles and colour.
What went wrong? While the Japanese invested in their core products, General Motors squandered its capital on buying Saab, and poured money into the black hole that is Fiat. While the Japanese invested in gasoline-electric hybrid engines, GM invested in blue skies research into hydrogen powered transportation that is years away from mass production. And while the public is losing interest in gas guzzling sports utility vehicles, GM is accelerating investment in them.
More significantly, according to Car & Driver magazine, GM's new Chevrolet Malibu, a car designed to compete with the two best selling cars in North America, Toyota's Camry and Honda's Accord, is so lacking in charisma that it stands no chance of reaching its sales targets unless GM gives it away.
Average is not enough
GM is producing products that are no better than average. In a highly competitive market, average is just not good enough.
The huge losses that result when the car buying public rejects their products should make them think. But companies find it hard to change their ways, and prefer to listen to their technical and design teams who think they know better than their customers. Years ago car companies claimed to research what customers wanted. But they restricted their research so they didn't get answers they didn't want to hear, and just asked about colour, fabrics and dashboard layout. They researched the icing on the cake, not the cake itself. And they asked about their advertising so they could sell more of what they had decided to sell. The money had been committed and spent so they didn't want to risk rejection at that late stage. But it would have been a lot cheaper than discovering their product was a lemon after the launch. Sadly, this isn't unusual. Most companies do the same. GM and Ford just got caught out.
Even the largest companies confuse the icing with the cake, and marketing communications with marketing.