Thursday, November 20, 2008

GM and Value - Everything You Ever Wanted to Know about Economics

I drive a Toyota. I think that about suns up my opinion of why the Big Three are failing. My Toyota truck has 219,000 miles on it. It does not leak or consume oil. I can go 50,000 without an oil change if I wanted to. It gets 28 MPG. I once owned a GM car, and it was a total POS.

Everything about the GM car I owned cost me money and was plain poorly and cheaply designed. Everything about my Toyota truck rocks.

All You Ever Wanted to Know about Economics
When I was young, I read a lot of Karl Marx. Marx knew absolutely nothing about the 21st century. Marx said basically workers work and create value. The bosses underpay the workers and the value that they do not pay the worker is called profit. Profit equals surplus labor value. This theory completely does not understand value. But it does explain, how GM management thinks. Both GM and Marx miss the point of value. Let me explain.

Consider in front of you two chairs. Both are made of about $5 worth of wood and fabric. Maybe one has about $6 of wood and fabric. Both take about $5 of labor to build and both have about $20 of various overhead costs also amortized into the cost. One sells for $40 and the other for $100. One company has to pinch pennies and cut costs to survive in a competitive market. The other has to cut costs and pinch pennies to crush the competition. What is the difference between the two chairs? Design!!!

Human intelligence creates value. One company had an engineer who was creative and gifted and made beautiful innovative designs. The other company understood a chair as something with four legs, a seat, and a back. The knowledge of what a chair is is called commodity knowledge and generic chairs are commodity products. Stuff that is unique and innovative is called proprietary product.

Proprietary ideas equals profit.

The big three have been making generic cars for about 60 years. What is the difference between a $60,000 BMW and a $16,000 Ford Taurus. Design. Design. Design.

Toyota is successful because they have designed in functional, innovative ideas in both the design of their cars and the design of the production of their cars. Toyota has an inexhaustible supply of CASH.

My advise to GM. Squeeze 30 years of innovation into the next three months or you are toast. Or continue your old strategy of going to the government to protect you from the need to actually innovate. What is the definition of insanity? To keep doing the same thing over and over and expect different results.

1 comment:

Allensville said...

Good post. Hopefully in their 'business plan' GM starts to look a lot like Toyota.
F(ound) O(n) R(oad) D(ead).