Toyota, the icon of lean manufacturing, now has a big fat problem that could devalue the brands which vaulted it to the top selling car company in the world.
The sticky gas pedal that has prompted the recall of Toyotas and Lexus going back to 2005 has been traced back to a bad design in a component made by CTS, an Indiana auto parts supplier. Because Toyota was so committed to lean manufacturing, which translated into common components across platforms and models, the company has to callback the RAV4 SUV, Avalon, Corolla, the top of the line Lexus and the ubiquitous Camry.
Besides being a tort lawyer’s buffet, this debacle besmirches the reputation of Toyota, because the problem must have been recognized in the field years ago, yet was never fully acknowledged until now by the corporation.
This is a tremendous opportunity for Ford, GM and Honda to attack Toyota. Toyota is suffering because of the dark side of lean manufacturing which corrupted virtually every one of its major models from the last five years. Toyota’s reputation will also take a blow just for the fact that it refused to come clean about the problem for years in a marketplace that increasingly demands transparency.
Question: Do you think Toyota’s commitment to lean manufacturing was a significant contributor to its current crisis?
Imagine, this goof is from a company that can develop a thought-controlled wheelchair.
The default position for many in the machining world has been to flee the automotive business like it was an ominous cloud of swine flu.
I admit to lapsing into that mindset, but after reading a provocative article in Inc. Magazine by Bernard Avishai I am becoming a believer in a new golden age of car technology.
Avishai used to sell car parts in college in the 1960s and is now a part-time professor at Hebrew University Jerusalem. He is convinced the electric car (plug-in) is coming soon in a big way and will present fabulous opportunities for entrepreneurs, including people who make stuff.
The core of the new electric vehicles will be the battery. The first generation batteries may come from LG in Korea but the much maligned Obama stimulus package is tossing a ton of taxpayer money at jump starting American competitors.
The cynics mock the $40,000 Chevrolet Volt coming in 2010, but what if it’s the prototype for an important new class of vehicles?
GM does not have Delphi anymore, but may have something much more valuable for the next decade of car making—OnStar.
According to the Inc. piece, OnStar gives GM the first mover position in car connectivity. We will see the connectivity of all of the car’s systems—charging data, mechanical components, GPS—as well as responding to collisions and malfunctions. If OnStar becomes the defacto standard for car connectivity it becomes the Windows of the new smart electric vehicles.
I think I have been so focused on the question of whether we are going to have a 10 or 12 million car year in America that I have missed the forest for the trees. The next several years will probably transform this gigantic business. With major change will come huge opportunities for entrepreneurs who are not wedded to making gas guzzlers.
Question: Are you looking to do more or less automotive work in the next several years?
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Productivity in manufacturing rose an unprecedented 13. 5 percent in the third quarter. It means business is rising but the number of employees isn’t. The inflation vigilantes do not accept these numbers. But I’m feeling groovy about productivity gains which will give a big chill to the dollar killers and gold hoarders. Sell your bullion unless you’re going to make soup.
After discussing murder in the workplace, Tuesday, how about some good news? Chrysler is breaking even now despite its third grade styling. Costs have been pared to the femur. Fiat’sMarchionne is a serious guy and he has brought in a young, aggressive team to turn the joint upside down. With money in the bank (taxpayer’s) and minimal cash burn, Chrysler has a fighting chance to make it when its Chef Boyardee Italian-American line hits the market in two or three years.
Ford made a billion dollars last quarter and gained market share. They have 23 billion in cash. GM gained market share in the quarter. Toyota made money in the quarter after predicting a loss. Automotiveland is producing at the rate of 10.5 million units per year and making some money. At 12 million they will feel good. The emasculated supply base will need to rebuild capacity.
Ninety yen to the dollar, and a 1.45 Euro will make American suppliers tasty dollops for acquirers. The Canadian dollar has risen .80 to .93 to the U.S. dollar. We are seeing Canadians in Ontario stepping up for CNC lathes here because they look like bargains with the almost 20 percent swing in the relative value of the respective currencies and because of the upswing in automotive.
Question: Are you feeling happy today?
Jerry Seinfeld’s 1967 (Summer of Love) Fiat 500 that he crashed in 2008
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By Lloyd Graff
It seems today that the conventional wisdom in business is wrong at least half the time. A few years ago the banking industry was built on the tenet that the price of single-family homes would never go down in price. Missed that one.
Then there was the cardinal principle that the world was quickly running out of oil and the price was headed upwards forever. Missed that one too.
And now it appears that the long-held popular theology that the United States is going to be held hostage by Middle Eastern sheiks for a century is soon to be toppled too.
It may not be the electric car that kills the oil ogre, but the abundance of natural gas, cheaply attainable in North America.
Almost overnight the U.S. and Canada have become the Saudi Arabia of natural gas, a clean fuel that can run power plants, heat homes and fuel cars without a revolution in technology. The natural gas pipeline from Alaska and the incredible gas finds in Pennsylvania, the Dakotas and many other places on the continent are changing the game on fuel.
The plug-in hybrid automobile is an elegant technology but still presents big hurdles in mass production of viable batteries and ultimately, in finding an efficient way to dispose of the spent ones. Developing the infrastructure for recharging batteries, like filling cars with gasoline, will be very expensive.
But if the politics become favorable for natural gas in Washington in the next few years the end of dependence on imported oil is within sight.
With coal and nuclear power doing the heavy lifting on electric power generation, at least until solar becomes readily available, the swing fuel is natural gas for cars. With massive, new supply in our midst the conventional wisdom about long-term dependence on expensive foreign oil may soon be as obsolete as the old axiom about a never-ending escalation of house prices.
Question: Do you think your next car will be powered by a fuel other than Gasoline?
Zipcar has outflanked Hertz and Enterprise in this fast growing segment of the rental business, though the biggies are now pushing to catch up.
The Zipcar approach is 10 years old with 325,000 members who pay $50 per year for the privilege of being a Zipster. Cars are available at unattended parking lots in big cities. People rent them to go to the store, move residence, visit friends, go for an interview etc. Average users claim they save $600 per month on car ownership and drive 44 percent less miles than before shedding their car.
Nice for the environment and all that good stuff. But the Zipcar idea excited me not just for what it means in automotive land, but for what it portends all through the economy.
As I look at my own buying habits today I am growing more and more in sync with the short-term rental—forget about owning—idea.
A week ago I decided on the spur of the moment to go to the Cubs—White Sox game which was the make up for a June rainout. I asked Noah to accompany me to Wrigley Field. I told him I was going to buy the best box seat available, because if I go to a game (which I rarely do) I want it to be the perfect ballgame experience. We sat in the second row behind the first base dugout and loved the game despite the Cubs losing.
My wife Risa and I did the same sort of thing on our 48-hour summer vacation in the city. We booked the cheapest room in the best hotel in Chicago and had a wonderful weekend getaway.
I see the value of ownership of depreciable things like cars and homes to be a less and less attractive concept today.
We may see the same view take over in the machine tool realm. With short-term jobs being the flavor of the day I can imagine machine rental by the hour. The same for attachments. A thread whirling attachment for a Swiss CNC might not be worth the money for a buy, but could make sense for a one-week rental. I can imagine an entrepreneur setting up a shop with big lathes and horizontal machining centers and renting the machine time and the operator by the hour.
Have you used the Zipcar service? How was the experience?
Would you be interested in a machine sharing approach in your operation?
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Mike Jackson, head of the publicly traded dealer group, AutoNation Inc., says the automotive economy has turned the corner. He sees a 13 million car year as early as 2011 or 2012. Ford is making money. GM may have an IPO as early as next year. Inventories of cars have been halved in the last few months. The green lights are illuminating the highways. Yet business in my world, the machining world, still stinks.
What do you do if you are making decisions now that could affect your business for the next three years?
From experience I know that the big money is made in the tiny window of a market turn. We have already seen that in the stock market’s 50 percent rebound since the March bottom. If we are at the pivot point in machining, particularly in automotive work, this may be the time to go into business if that’s what you’ve always wanted to do. If you are a business person still standing after 18 months of being pummeled, this is probably the time to gamble on the upside.
When a bear hibernates his bodily instincts tell him when to exit his cave. Rational humans tend to want to stay in the cave well after the thaw begins because a spring blizzard might hit and finish them off.
I must make the decision in the next few days about whether to increase the number of Today’s Machining World issues from the survival mode of every other month, to nine or even 12 issues for 2010. After I almost died a year ago I fear being reckless in case of an economic relapse. But because I survived near death in the hospital and on the economic playing field, I am much more inclined to say to myself and the world, “If not now, when?
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By Lloyd Graff
June 3rd, and the world looks a lot different than just 30 days ago. GM finally did the dirty deed and filed, and the stock market reacted with relief. It appears suppliers are going to get paid from the Feds lending as the reorganization goes forward. BorgWarner stock is up 80 percent from its low and Johnson Controls has also bumped. All of the commodities are zooming with copper near $2.30 and ArcelorMittal stock more than double from its yearly low. Obviously, the markets are signaling a bottoming of the economy. One of the most encouraging aspects of what’s going on is the strength of the California home market. Sales have been improving for existing homes and the unsold overhang is shrinking. Home prices have actually been rising recently. California led us into the housing chaos and it appears to be leading us out. New homebuyers are appearing in Phoenix, Florida and Vegas where syndicates are coming in with speculative bids for cash on multiple units. In the real machining world we live in, the signs of a rebound are beginning to show. Hoff-Hilk’s Bystrom sale last week was a winner with Swiss CNC machines, and Gerry Mannion told me that his recent Bosch sale surprised big on the upside. On the other hand, Robert Levy of Hilco says that he remains very conservative after seeing the market for used twin grip Cincy centerless grinders grind to a halt. Presses and multi-spindle screw machines have no pulse right now, and gear equipment is languishing. Intrest rates are rising on 10 year U.S. government bonds, the dollar is weak, the big banks have floated $70 billion in stock and are begging to pay back the TARP. Huge money is leaving the sidelines for investments that appear to have upside. Put it all together and it smells like a recovery in the womb, if we can hang in there while inventories gradually rebuild.
Question: Do you feel more upbeat about business now that GM has finally filed?
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By Lloyd Graff
Over a dozen years ago I developed a wonderful business relationship with Ed LeClair, who used to be operations manager at Curtis Screw Company LLC., of Buffalo N.Y., one of the largest precision machining companies in the U.S. Among Ed’s many responsibilities at Curtis was buying used machinery, which put us on the opposite sides of the table, but we developed a great rapport even while we were negotiating like pit bulls on the price of Schüttes and Acmes. It came as a shock when Ed told me he was leaving Curtis in 2007 to buy a printing shop franchise in Raleigh, North Carolina, which he planned to run with his wife Carol. I knew that Ed had long had the dream of going into business for himself because he had queried me periodically about what job shops were on the market. But Ed and Carol were entrenched in Buffalo, and I doubted he would put it all on the nose to buy a screw shop in Detroit or L.A. But one day he and his wife, a long time teacher, found themselves rattling around in their big house, their youngest child now off at college, looking for one more big challenge before retirement. It was the right moment; the print shop opportunity popped out of the weeds and they grabbed it. Mild Raleigh winters sounded good, and the thought of absorbing the pressure of running an automotive supplier had lost some of its appeal. Ed regretted leaving his good friend and colleague Paul Hojnacki, the general manager of Curtis Screw, and the tremendous team of professionals he and Paul had shepherded in Buffalo, but as it turned out his timing was impeccable. The auto market tanked and the stock market imploded, but Ed managed to escape from both calamities with his move to Raleigh, a place where he found relative stability in job shop printing and a community heavy in colleges and drug companies. He and Carol have now been working together for more than 500 days, definitely an experiment, but Ed says they still love each other. Ed is a thorough and charismatic operations guy and he brought the rigor of automotive land to the AlphaGraphics franchise he bought. Business is prospering. He called me to ask if I knew of a good sales person in North Carolina he could hire. He told me he stays in touch with Paul Hojnacki at Curtis, but he is happy to have fled the misery of the car industry. Ed LeClair is living proof that there is life after automotive. He says he’s just a lucky guy. He bought Ford stock in February and it has tripled. Lucky, maybe, but smart enough to live out his dream before life runs away.
Ed LeClair, former operations manager of Curtis Screw Company LLC., Buffalo N.Y.
The General Motors train is lumbering toward bankruptcy. Does it give you any comfort that Elmer Fudd in pinstripes, otherwise known as Fritz Henderson, is now running the show at GM? Henderson is another GM lifer who has been a successful bureaucrat politician at General Motors—not exactly a guy who looks like the next Lee Iacocca or Steve Jobs. What a mess the company has become. Alfred Sloan must be laughing or crying in his grave as he watches jokes like Rick Wagoner and Elmer Fudd, excuse me, Fritz Henderson, fumble toward bankruptcy. I felt like retching as I watched GM’s current TV advertising joke, “Put on your rally caps America. It’s time for a comeback.” The ad deftly admonishes the viewers. How incredibly corny and out of touch can you get? And then the announcer talks about the GM “total confidence” program. How can the people at GM and their ad agency think viewers are going to buy this kind of cynical condescending eyewash? But this is how GM got to where they are today. The company has become a joke, a Jay Leno one-liner, because the management continues to be laughable. The GM trucks and cars are not bad, but who wants “not bad” when you can buy Honda and Toyota for the same money and you know they’ll be around in five years? When GM guts the company, throws out the Elmer Fudds and talks to its customers as intelligent consumers, not stupid yahoos, I’ll consider buying a vehicle from them.
Also, don’t forget that today is your last chance to win the Gerstner toolbox and other prizes by posting on the TMW Shop Doc Forum! Join and post on the forum by going to www.shopdocforum.com.
I had always seen GM head, Rick Wagoner, as a figure like Leonid Brezhnev, the Russian Premier who just seemed like he would rule forever. When Wagoner was finally ousted from GM on March 30th, I was compelled make a video blog to reflect upon the man’s contributions to his company. If Wagoner did remain GM’s ruler for life, what would be the arguments to justify his reign?