Business Excellence in the Automotive Industry

Business excellence is an ideal that all good entrepreneurs strive to achieve.  In fact, many organizations are devoted to honoring those businesses that best exemplify this concept.  However, business excellence cannot be strictly defined.  Rather, it varies from one industry to another.  For example, in the automotive industry, business excellence includes customer commitment, quality control, efficient supply, and innovative management.

Leaders in the automotive industry understand the need to form a strong bond with customers.  Perhaps more than other sectors, consumers are more likely to make a decision regarding an automobile purchase based upon their experience with those in the industry.  Thus, entrepreneurs need to be concerned with two key features relating to customer commitment.  The first is meeting the needs of the consumer, financially and socially.  People need automobiles that meet their economic means.  This not only means getting a good initial purchase price, but also finding a vehicle that will require minimal repair and maintenance down the road.  Consumers also want to purchase automobiles that will not require excess money to be spent on fuel.  Therefore, business excellence includes finding more cost-efficient production and distribution processes, and subsequently passing these savings on to the consumer. 

The second aspect of customer commitment is meeting societal needs and desires.  This means staying informed of what vehicle features are most important to consumers.  Such information can be garnered using formal surveys and demographic research.  Once you understand the buyer, you are more capable of catering to him or her.  For example, people in some regions are especially concerned with the environmental impact of their purchases.  Thus, the automobile industry would need to show those people they are committed to using recycled materials and alternative fuels.  Additionally, many consumers want family vehicles that are safe and comfortable for children.  Therefore, excellent automobile entrepreneurs will focus their attention on crash test results and extra amenities.

In addition to customer commitment, business excellence must include exceptional quality control measures.  This means ensuring that automotive vehicles are safe and easy to maintain.  Appropriate testing should be undertaken for each new product model, and the results of these assessments need to be made public in a timely manner.  Additionally, individual dealerships should take care to ensure every vehicle is inspected prior to sale and stored under ideal conditions prior to purchase. 

Efficient supply is an aspect of business excellence that is frequently overlooked.  The balance between supply and demand is vital to the automotive industry.  Producing too many vehicles can lead to severely diminished profits.  It can also lead to a waste of resources that could have been better utilized for vehicles more likely to be purchased.  Meanwhile, a supply that is too short can cause companies to lose customers.  When an individual needs to purchase a vehicle, he or she may not be able to wait any extensive period for a desired product to come into supply.  As a result, they will simply find an alternative automobile to purchase.

Finally, business excellence in the automotive industry requires innovative management.  There are several parties involved in the manufacture and distribution of vehicles, and financial as well as labor resources need to be managed from the top down as well as controlled on a micro-level.  Thus, not only do large factories need to communicate with business executives and the dealerships that asses supply, but individual sales representatives need to be appropriately trained and supervised at each individual dealership.

The Automotive Industry Crisis is a Customer Service Crisis

“If we are not customer driven, nor will our cars be.” Henry Ford

As you read this article, I believe you will discover the real key to true greatness. The key is to be of service to others. No matter who you are, if you are breathing you are in customer service in one way or another. The concept of service has not been understood by most people. Whether you are Madonna, or Billy Graham, you are in customer service. We are all rewarded materially based on the pleasure or service we bring to others.What do all the great ones have in common? They have an attitude of being of service instead of being self-serving. They all serve their audiences or customers with impeccable excellence which resulted in them becoming great.

THE AUTOMOTIVE INDUSTRY CRISIS
We have a crisis in this country underlying the financial crisis. I believe that it is at the root of the present financial crisis. It is called the CUSTOMER SERVICE CRISIS! The word crisis in Chinese means danger yet opportunity. We definitely have lots of opportunity to improve in our nation in the area of customer service. I think it is the real financial problem we face today. I am not an economic genius, but I am a customer service expert. I am tired of watching people put band-aids on economic cancer. So I am writing a series of articles which will get to the root of the economic problem and if heeded could help turn this crisis around.

AMERICA WAS BUILT ON SERVICE, BUT TODAY WE HAVE BECOME “SELF-SERVING!”

We have a service crisis that has caused a financial crisis in everything from banking to housing, and of course, automotive.With GM, Chrysler and others bleeding, and people losing their livelihoods and retirements you don’t have to be a rocket scientist to see it. Have you had any poor customer service lately? Cold food or dirty restrooms, Late deliveries, Defective parts, Unfulfilled orders, Lazy, rude staff (this is epidemic!!!)

I started out in the auto industry in the mid 70s or what we now call the good old days. I was working for the largest GM dealership in Alaska and one of the largest in the country. This was when GM was GM! I started out washing cars (or busting suds as we use to say). I eventually moved up and became a corporate trainer for the SOUTHEAST Automotive group. One thing I noticed over the years was the deterioration of customer service in the automotive industry. My first boss was a thirty year company man that was customer driven and he constantly reminded us that without a customer we would all be unemployed!

I drank the kool-aid, I believed him. But as the years passed, I noticed that the customer started to become more of a statistic on a graph in a conference room where strategies for up-selling and getting more out of each transaction at the point of sale was the goal. At the same time we were cutting back on quality and service! “Higher profits” – less service became the mantra. Don’t misunderstand me, I believe in profit. But I believe what my good friend and mentor Dr. Ken Blanchard has said about it; “Profit is the applause we get for taking care of our customers…

“If We Are Not Customer Driven, Then Our Cars Won’t Be Either!” Henry Ford

The Automotive Industry and Global Trade

In the United States, one city is typically synonymous with the automotive industry. It’s challenging to think of an American made car without thinking of Detroit, Michigan, and in recent years the financial trouble the automobile giant has endured. Though foreign manufacturers in Japan and Korea have gained strength and drivers in the US, it doesn’t necessarily mean US automakers are done. MSNBC reported in late 2011 that the Big 3 in Detroit – Chrysler, Ford, and GM – enjoyed a nearly 30 percent increase due to a demand in sports utility vehicles and trucks.

Quick Facts About the Automotive Industry

  • Since 2000, an average of 48 million passenger cars alone have been manufactured annually around the world.
  • According to Worldometers, China produces one of every four new cars, and more than half of all cars are produced in Asia and Oceania.
  • Of the approximated one billion passenger cars on the road around the world, close to 25 percent of them are registered in the United States. (Source: International Organization of Motor Vehicle Manufacturers)
  • According to Businessweek, the top selling car in the world is the Toyota Corolla, with sales of well over 35 million.

Major Exporters of Automobiles

While China is one of the world’s largest producers of passenger vehicles, the country is not necessarily ranked high among top global exporters. The International Trade Centre recently put out a report on top automotive exporters, with the following leading the pack:

  • Germany – The roots of the German automotive industry date back to the late nineteenth century and the various patents owned by Karl Benz. Where in that time the country produced barely a thousand cars a year, now over five million are manufactured. Popular German brands include Mercedes-Benz, Volkswagen, BMW, and Porsche.
  • Japan – Gasoline-powered vehicles have been built in Japan early as 1907. Despite natural disasters that threatened the nation’s economy, Japan has worked to maintain its place among top car producers and exporters. Toyota, one of the top selling brands of all time, is based in Japan, as are Nissan, Honda, Mazda, and Subaru.
  • The United States – The US auto industry took a hit in recent years due to the economy. Through a combination of asset liquidation and government funding, the major brands (Ford, Chrysler, and General Motors) have worked to stay afloat. Despite this issues, the US remains a top producer with over seven million cars made on average in the country.
  • Republic of Korea – Over the last decade, South Korea has established itself as an automotive power thanks to an association between Daewoo Motors and GM, and Hyundai’s presence in the US with a major assembly plant.
  • Canada – While the country has no major native brand, Canada is important to the automotive industry by virtue of the many plants established by foreign brands, including Ford, Toyota, Chrysler and Honda.

Major Importers of Automobiles

While many countries produce domestic brands, automobile imports remain strong in economies that seek certain qualities, such as fuel efficiency and safety features. Among the top importers of automobiles:

  • The United States – Of the top brands sold in the US in the last year, many names bring to mind manufacturers from other lands: the Toyota Camry and Corolla, the Nissan Altima, and the Honda Civic and Accord.
  • Germany – While German brands dominated domestic sales in 2011, there is enough of a demand for foreign models to make Germany an important importer. Ford, Skoda (based in the Czech Republic), and Hyundai are popular names.
  • United Kingdom – Luxury is often synonymous with the British automotive industry. Aston Martin, Bentley, and Rolls Royce are three makes manufactured here, though Ford, Volkswagen, and the French Peugeot are seen more often on the roads.
  • Italy – Italy is known for the Fiat and Ferrari, but foreign makes like the Ford Fiesta, the French Citroen C3, and the Volkswagen Golf are also in demand.
  • France – The French appear greatly committed to domestic brands, particularly Renault and Peugeot, but foreign models from Ford, Volkswagen and the Romanian Dacia are gaining ground in the last year.

The Aftermarket

Equally important to the automotive industry is the manufacture and sale of auto parts and accessories, commonly known as the aftermarket. Sub-industries relevant to automobile sales may include products like tires and paint, stereo and GPS, engines and chemicals needed for operation, leather and vinyl for seating and safety features. According to the Automotive Aftermarket Industry Association (AAIA), the aftermarket in the US alone totals over $250 billion.

Though faltering economies and natural disasters have given the international automotive industry a number of challenges, one can conclude sales are destined to remain strong so long as the need for personal transportation remains. How and where people will by their cars may change over time as considerations for eco-friendly features grow in demand, but so long as people continue to buy automobiles the global industry will continue to gain speed.

Failure of the Automotive Industry – The Primary Reason

The US automotive industry suffered a fatal blow. Yet anyone who claims that the industry’s demise can be linked to a single root-cause of failure is sadly mistaken. I spent the greater portion of 10 years within that industry many of which in an executive or managerial role.

Unfortunately, there’s no silver bullet that caused the fall. I say unfortunately because a single cause of failure could be prevented in the future. In this case, the blame can be put only on the system as a whole making it difficult to protect against a repeat occurrence.

What the automotive industry suffered was a catastrophic failure caused by multiple points of failure. We’re talking systemic failure in its truest form. As an insider in the industry, I can personally attest to some of the actions (or lack thereof) that pushed the industry to a collapse.

One of the biggest gremlins that undermined the industry was a myopic focus on piece price (cost). Over the years the automobile manufacturers became totally engulfed in driving (no pun intended) suppliers to lower sell prices in an attempt to reduce the production cost of a car or truck and therefore increase the bottom line.

This shortsighted focus on lower piece cost was so strong that supplier relationships were sacrificed. In fact, one of the Big 3 automotive companies believed that if one supplier went under that another would always step up. How is that for arrogant?

The pressure for lower piece cost was so extreme that suppliers were forced to seek low-cost countries for the procurement of parts and for their own manufacturing processes. On the surface this approach may seem logical. However, what was lacking was a holistic view of the situation to see that lower piece price demands were leading to other systemic issues:

Reduced quality and increased life-cycle costs due to overseas outsourcing
Suboptimal designs because of shortcuts to reduce costs
Jobs being pushed out of the US
Collapse of solid, reputable suppliers
Tarnished relationships with the legacy supply base

The situation went as far as the automotive manufacturers demanding payments from suppliers to maintain current business or to be awarded new business. These payments were commonly known in industry as “givebacks”. These givebacks started as checks that were written for absurd amounts of money and then changed into piece price concessions over the length of a given contract (the SEC wouldn’t necessary like the check approach, i.e. buying business).

Business is about more than just the bottom line. The way in which you go about producing profit makes a difference. Our friends in the automotive industry learned the hard way that relying upon myopic, dictatorial and selfishly driven profits at the expense of your suppliers and customers is not sustainable.