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  • One Reason the Automakers May Be Failing

    Posted by Dan from Madison on December 14th, 2008 (All posts by )

    I have a personal story about doing business with (or trying to do business with) an automaker.

    For those who may be new, I am in the business of selling heating, air conditioning and refrigeration parts and equipment to contractors and servicers at plants and other facilities.

    Several years ago we used to do business with a plant of one of the big three.  There is a lot of equipment at these plants just for climate control, much less their process equipment.

    Eventually they made it so tough to do business with them that we took a good, hard look at the account and its potential and decided to fire them.  Sure, their volume was good, and they paid OK, but attached with every order (no matter how small or large) was a giant stack of paperwork that we had to plow through.  On smaller orders we would spend so much time filling out the paperwork that we lost money.  The larger orders made up for it, but it eventually became too much.

    What does this do to the company?  Well, there is one less competitor to bid on their services, and naturally their end prices for these maintenance items go up.

    Frequently this also happens to government agencies that we do business with as well.  It is interesting – some agencies are very easy to deal with (“here is my credit card number, just ship it to me”) and some are very paperwork and regulation heavy – these we usually avoid.

    Things may have changed from when I used to do business with that certain big three company years ago, but I would doubt it.

     

    12 Responses to “One Reason the Automakers May Be Failing”

    1. C Smith Says:

      So, is there a possible “crappy bureaucratic overhead” metric that one could derive for organizations to indicate when the atherosclerosis is killing them?

    2. Ralf Goergens Says:

      Several years ago we used to do business with a plant of one of the big three. There is a lot of equipment at these plants just for climate control, much less their process equipment.

      Eventually they made it so tough to do business with them that we took a good, hard look at the account and its potential and decided to fire them. Sure, their volume was good, and they paid OK, but attached with every order (no matter how small or large) was a giant stack of paperwork that we had to plow through. On smaller orders we would spend so much time filling out the paperwork that we lost money. The larger orders made up for it, but it eventually became too much.

      Dan,

      you are lucky that you aren’t dependent on doing business with automakers and could quit. If you absolutely need their buiness, they won’t just make you cope with a lot of paperwork, they will make you feel as if they were sucking the very lifeblood out of you. That doesn’t just go for US companies, but also their more successful foreign competitors. For example, it is not uncommon for certain carmakers to demand a 15 percent across-the-board price cut from their suppliers, retroactively for the previous 12 months.

      Here is an article about their practices, with a special mention of one Jose Ignaciao Lopez, who first worked for GM and then Volkswagen, with disastrous consequences for the suppliers.

    3. Dan from Madison Says:

      Ralf,
      Having all of your eggs in one basket as a business (or investor) is never a good stragegy, as many, many businesses around the world are about to find out. Hopefully many of the businesses that were dependent on automakers will be able to diversify in the future. Good link btw, thanks for posting it.

    4. Jonathan Says:

      Socialized medicine is going to be great!

      /sarcasm

    5. Shannon Love Says:

      I know from programming business systems that the complexity of a businesses data model goes up quasi-exponentially with size of the business. As the size of the business increases, it develops more and more interdependencies between departments and layers which multiple all the interactions.

      Age is also a factor. Overtime, the org chart mutates from a clean schematic into something almost biological with numerous odd little groups attached to the main structure like barnacles on a ship. Routing information through the organization becomes like exploring a cities whose streets were laid down in medieval times. You find yourself navigating streets no wider than sidewalks, squeezing between buildings and groping down dark alleys just to hit a dead end.

      Government institutions are worse because they are almost never pruned.

      This is one of the reasons that businesses must be allowed to go bankrupt. They need to be radically reorged every couple of decades or the evolved complexity will choke them to death.

    6. Ralf Goergens Says:

      Having all of your eggs in one basket as a business (or investor) is never a good stragegy, as many, many businesses around the world are about to find out. Hopefully many of the businesses that were dependent on automakers will be able to diversify in the future. Good link btw, thanks for posting it.

      You are welcome. Unfortunately, many companies didn’t have much choice. They either didn’t have the capital to diversify, or they couldn’t have gotten the necessary funsing from capital markets if they didn’t “specialize on their core competencies”. And many companies big enough to diversify also were acquired and dismantled into their component parts by hedge funds. I do agree on the ugly results we’ll see in the near future, but the incentives many businesses faced during the last decades with one speculative bubble after the other made them inevitable.

      On that note, congratulations for avoiding this kind of trap. :)

    7. Harold P. Butts III Says:

      Jonathan: tell me what you mean by “socialized medicine” and then cite any place by Obama, The Democrats, or McCain that begins to suggest “socialized medicine.” Do remember that it has been made clear that one need not be a part of the various sytems suggested by any and all candidates running for office in this past election. Fret not. You are safe in paying for what you have and will retain it.

    8. Shannon Love Says:

      Harold P Butts,

      You are safe in paying for what you have and will retain it.

      Perhaps you can explain why the Democrats strongly opposed a proposition in Arizona which would have protected an individual’s right to pay for any legal medical procedure. The only reasons someone would have opposed the measure was out of a desire to force people to use politically managed, compulsory health care.

      Medicare and the VA already make it difficult for people to go outside the program by making it difficult for health care providers to sell services outside the program. Don’t kid yourself. As we convert to a politically managed health care system, they will begin to close off other options

    9. Obloodyhell Says:

      > Socialized medicine is going to be great!

      What do you mean “going to be”, Kemosabe?

    10. Obloodyhell Says:

      > This is one of the reasons that businesses must be allowed to go bankrupt. They need to be radically reorged every couple of decades or the evolved complexity will choke them to death.

      What’s needed is to work on devising a larger networking model for larger businesses, something that doesn’t depend on on a heirarchical structure to perform more extensively complex planning, and uses modern communications to handle .

      With a networked structure the business could practice “creative destruction” on those parts which have become useless either through sclerosis or market atrophy while maintaining the rest of the business functionality.

      Someone’s going to win a Nobel in Econ or something similar for doing that — at the same time they make themselves very rich.

    11. Obloodyhell Says:

      > “modern communications to handle…”
      … the necessary command and control functions.

      Arg.

    12. Tim Fowler Says:

      And the UAW extends this complexity to labor force allocation.