Why GM Couldn't Be Apple, According to a Former GM Exec

Discussion in 'Economics' started by olias, Jun 7, 2011.

  1. olias


    ---I thought this was a pretty good article. ...from The Atlantic---

    Steve Jobs' Apple has become the premiere consumer technology company in the world by focusing on making products that people love. Sure, Apple runs a tight ship and hires smart people and all that, but what really sets the company apart is Jobs' intense focus on making good products. Competitors like Nokia were shocked when the iPhone came out, not because of its touch screen or tech specs, but because it just ... worked so well.

    General Motors is symbolic for roughly the opposite reasons. A once-great American company, it had to be bailed out by the government and now has a market value of roughly one-sixth Apple's.

    All of which makes the new book, Car Guys Versus Bean Counters: The Battle for the Soul of American Business, by Bob Lutz, the former vice chairman of global product development for GM, a fascinating indictment of our country's corporations. In it, Lutz charges that American business has become entranced by planning and forecasting. MBAs and planners -- people who know all business generally but no business specifically -- receive special scorn. In the drive to narrowly optimize for the bottom line, American businesses forget about the real world necessity of pleasing their customers.

    Product planners, Lutz told me, approach a new car design as if it was a Harvard Business School case study, creating beautiful, profitable spreadsheets that don't translate well to the real world. Lutz told the following story about how it works in practice:

    In the planning process for a new car, you're got a design that's kind of ready. It's going to be a new Chevy Malibu and everybody has agreed that we'll plan for 220,000 units. So you come up with an average selling price to dealers of $22,500 and you deduct the costs and have your gross margin times 220,000 vehicles. You end up with a huge blob of money.

    Everybody signs off on that and the bean counters start going to work. They work with the product planners and say, "We don't have to put in 12oz carpeting, we'll put in 8oz carpeting. Why do we need this expensive protein vinyl? Let's go with regular vinyl. Why are we painting the plastic parts? Just grain the plastic. It's not going to be that much of a difference. Why do we have so many chrome moldings?"

    And they all think they are heroes. They'll say, "I was on such and such a program and I was able to boost the returns by two full points." And you'll say, "But how did the car do?" And they'll say, "Not well, I think the marketing guys blew it. But man, it was a great program" because it was one that looked wonderful on paper when they got done with it.

    In pinching those pennies, the car companies end up ruining the consumer experience. That, in turn, Lutz contends, forces the American automakers to offer thousands of dollars of incentives -- more than their foreign competitors -- to get people to buy the cars, which erodes the margins on the cars. But that last step, the incentives, isn't included in the spreadsheets created by the bean counters.

    But, of course, the destruction of the cars' finish is never projected to impact the sales of the cars because the look and feel of the car aren't quantifiable. Lutz said that also meant that the predictions made by product planners tend to be terribly off. "They don't know anything about cars, but they are very good at macroeconomics. They generate tons of paper, but it's all useless," Lutz said. "You're far better off is to have four or five senior people who have a good feel for the market, who can look at the car, know where it's going to be priced, look at the competition, and then come up with a [sales] number." He pointed to the Pontiac Solstice, which GM's planners thought might sell 6,000 units, but which sold 45,000 in its first year, and to the PT Cruiser, which was projected to sell 5,000 units as a "retro" vehicle but which sold more than 120,000 units in 2001.

    "Look at the past record. Our volume estimates are always wildly off. There are almost none that come close to what happened," Lutz said. "And yet [the product planners] say, 'That might be true but that's no reason that we shouldn't try to take a rational approach.'"

    Lutz referenced Apple under Steve Jobs as a shining example of the kind of product development companies should be doing rather than the quantitatively driven kind that they are.

    "In all of these industries where you are playing with the psyche of the consumer and her perceptual capability, you must have people who understand that industry, understand those consumers, who can put new things in front of the consumer and come up with the next big idea the way that Steve Jobs does with the iPhone, iPod, iPad, iPad 2, and who knows what next," Lutz said. "Just pick up an iPhone. It's an object of beauty. And so is an iPad You want to own it even if you don't have a clue what it does. It's much the same way with cars."

    Unfortunately, American businesses have become obsessed with the kind of narrow, data-driven analysis that consultants and MBA-toting quants can do. And those guys want to hear hard numbers. They want the cars to have good stats. That would have been like counting the megapixels or processor speed on the original iPhone, which would would have missed the whole point. It's the "If you can measure it, you can manage it," ideology gone wild. Ever wonder why cars now seem to have an ever-increasing amount of cupholders? It's because they can count them. "And now, we're having an airbag race. What do you mean, you've got 10! We've got 12!" Lutz cried. "None of those things have an impact on the consumer."

    It turns out that there are actually two sets of consumers for a new product design in a huge organization like GM. There are the real people who will purchase the car, but there are also the "bean counters" who have to approve the design before it gets to the real people. And those two groups actually want different things. While any sociologist of technology probably could have pointed that out, it's fascinating to hear someone who spent so much time inside the machine like Lutz express this kind of exasperated alarm bell. "The focus is never on, 'Hey, maybe the product isn't good enough,'" Lutz said. "It's always cost optimization."

  2. My label has direct contracts with Itunes/Apple and now icloud music.

    I did not put up any new releases on Itunes, for about two years as my music was being sold through other outlets.

    However, one phone call to Apple, reconfirming my contracts and they were on the ball. They no longer accept direct contractual agreements, so I was a lucky bastard to have signed with them in 03. Even though my label presence on Itunes has not been strong in the last few years....they are going to allow my 'INDI" label to part of their Icloud Music project...which is 99% major artist.

    My back catalog and all future release will be with Itunes.

    After reworking the business model for my label...we project 6 figures in sales just the first full year of my releases on Itunes.

    Apple is a Force to reckon with in the music business. I was trying to keep in real in the Techno world by not sitting at the table with Apple and trying other outlets. Non compare in global sales and my label did not make much money with the other outlets, compared to what I made in 03 with my first year with Apple.

    Apple is a great company and you don't have to play ball with them. However, they have the best business model for Digital Releases and best payout for artist and labels. So Apple make good business sense for consumers and artist/labels.

    GM is nothing but a two bit thug. Bailed out by the US GOV, run by a bunch of idiots and now want a dollar tax added to US Gas Sales to force their volt into our lives.
  3. Apple isn't about the product, it's about the experience.

    That is the key to understanding their success.

    Lutz appears to have some insight.
  4. Eight


    Apple has done a great job by selling quality products. I admire almost no American companies whether large or small, but Apple, wow, quality products and soon to be the world's biggest buyer of electronic components...

    Japan makes quality stuff but it's optimized for the Japanese consumer, they love to have a zillion features krammed into a cubic inch, the rest of the world, not so much... and the Japanese are so ethnocentric that they just make stuff that they like and expect the whole world to accept it...

    The PT Cruiser was designed for Americans by Mercedes. Guess what, Americans test drove it and they bought it...

    I worked for a German corporation. They were willing to spend money to make money and they valued employees... the division got sold to Americans and there was just one value in the value system: Cheap!! And they treated employees and customers so badly that it bordered on sadism...
  5. Apple should start making cars.

    electric, of course.
  6. Banjo


    Lutz is spot on, all American business suffered from that illness, most still are. The AAPL of the auto biz now is BMW.

    TSLA will be the AAPL of the elec car biz.
  7. Porsche is the AAPL of the auto business:D
  8. Apple isn't about the product, it's about the experience.

    That is the key to understanding their success.

    BINGO! The experience and their forward thinking.
  9. piezoe


    I think it would be fair to say that the Japanese and Germans collectively are the AAPL of the car business.

    Lutz is exactly right! The reason GM failed is because they made inferior cars. Chrysler had a similar problem until Mercedes bought them and improved quality some, however Mercedes paid too much for a company that had already acquired a bad reputation. Mercedes was forced to cut their loss and exit. Ford makes almost 100% junk, and not content to make American junk they proceeded to wreck Jaguar as well with their business model and engines that would not last past 75K miles. Ford survived in spite of the trash they produce mainly because they borrowed heavily in advance of the financial crisis. Their old guy "Crown Victoria" customer base is moving into the nursing home and their flesh colored upholstery no longer has much appeal, nor do their gas guzzling muscle cars and trucks.

    The big surprise is going to be Chrysler. Having been taken over at a bargain basement price by FIAT, after Fiat forced GM to pay them nearly a billion dollars to get out of the Fiat purchase agreement GM had negotiated. Fiat has top notch engineering and design. Fiat failed in the US before because they lacked a sufficient dealer network, and for other reasons as well. The time is now right for the newly resurrected Chrysler under the brilliant Sergio Marchionne. Fiat has the engineering, design and quality to compete with the Japanese and Germans, and the wind is at their back because they picked up Chrysler on the cheap and it's been shed of extra baggage.
  10. I know what he is talking about. I worked on the launch of a new ford model about 15 years ago. We met with the head of the team responsible for development. This little nerd with a short sleeve shirt and tie. Like you see in the movies.

    He was going on about how customers would love this car because they had done heaps of customer research and it ticked all the boxes.

    The research said that customers wanted fords with more chrome on them, because chrome was a sign of luxury.

    So they launched a car with chrome plated plastic hub caps. When they pulled back the curtain, we almost cried with laughter.

    Some people just don't get it. And many of them run large companies.

    #10     Jun 7, 2011