The Big Three: Will a Bailout Be Enough?
Perceptions and high costs, not poor quality, led to U.S. automakers’ woes
It’s not that General Motors, Ford and Chrysler are building subpar cars. The quality is there, but so are the higher costs to produce vehicles that some foreign manufacturers don’t face, as well as ongoing perceptions among consumers that the quality of U.S.-built vehicles lags behind foreign competitors’ products.
Those reasons led the Big Three to near bankruptcy, prompting them to spend the last few months trying to convince Congress they need a multibillion dollar bailout to survive.
"There are soft spots in the U.S. auto industry, but quality isn’t one of them," said John Casey, the head of ASQ’s Automotive Division and the director of supply chain improvement at the Whitehall Group in Troy, MI. "Perception of quality, too, is so real."
In the early to mid-1980s, consumers perceived—and rightly so—that Japanese manufacturers were building superior cars, Casey said. For instance, Japanese automakers were producing vehicles with 1.5 defects per car, while U.S. automakers had three defects per car.
Toyota was making its initial splash of success with high-quality, affordable cars, while domestic manufacturers’ sales and production took a beating. Since the early 1990s, the gap between foreign and domestic products has been closed "on the backs of quality people and the quality movement," Casey said.
"Today, while the standards are higher and tolerance for defects is more strict, the gap between the Japanese and domestic automakers is real, but insignificant," Casey said, noting that Japanese manufacturers are at 0.9 defects per car and U.S. automakers are at 0.95. "The gap is nowhere near where it once was."
"It’s the perception of quality (that) is massive," said Casey, who spent 20-plus years as the director of supplier quality at GM’s North American headquarters in Detroit. "The Japanese have taught us that quality is an absolute."
In addition to this ongoing perception problem, there are significant disparities in the costs of doing business between domestic and foreign manufacturers, including:
- Federal income taxes: General Motors paid $37.16 billion in 2007, and Toyota paid $7.61 billion.
- CEO compensation: Ford’s Allan Mulally received $21.7 million in 2007, and Toyota’s Katsuaki Watanabe was paid $900,000 in 2005.1
- Employee wages and benefits: The average hourly wage and benefits for Big Three workers is $72.21. Toyota and Honda’s employees average $48 in hourly wage and benefits.2
- Labor groups: Union contracts and pensions boost the cost of each American-made vehicle by an estimated $2,300 per vehicle.3
As auto sales have plummeted from an average of 17 million a year in the past nine years to 10.5 million this year, foreign manufacturers have benefited from less overhead to weather the storm. For instance, U.S. automakers are stuck with more factories and workers than they need at this time of sagging sales.
"They’re caught in a situation where they have not yet learned how to make money on small cars," said Kim Korth, president of IRN Inc., an automotive consulting firm.4
Part of early government bailout packages included restructuring plans for the Big Three to shift toward more fuel-efficient vehicles. This would include plant closings, vehicle brands being eliminated and smaller dealerships closing.
Still, quality must remain a central focus for automakers during this period of transition, Casey said.
"Toyota has created an unstoppable, unbelieveable culture of quality—that everybody is responsible for quality every single day. Quality has got to be the engine of continuous improvement," Casey said. "Toyota is the best I’ve ever seen in terms of ‘I’m here for quality. We have to give it to our customers every day.’ The domestic [automakers] don’t have that," he said.
But it’s not just the Big Three that must bring quality to the forefront.
"It’s a message to us all," Casey said. "You must, must, must focus on quality. This applies to all of us—even the people making popcorn machines. Act with a passion and a sense of urgency. If you need help—get it. Don’t wait."
—Mark Edmund, associate editor
References and Note
- Procon.org, http://bigthreeauto.procon.org.
Zremski, "Big 3 Can Point to Better Vehicles as They Take Their Plea to
Buffalo News, Dec. 5, 2008, www.buffalonews.com/nationalworld/national/story/512918.html.
Quality News Today articles were also used to compile to this report.
ASQ Signs Pact With Business Group in India
Making another inroad to promote quality and business excellence outside the United States, ASQ has formed a pact with a large association of businesses in India.
The agreement with the Federation of Indian Chambers of Commerce and Industry (FICCI), signed in late November, allows ASQ to participate in India’s local quality movement and disseminate ASQ’s body of knowledge.
FICCI’s membership includes more than 1,500 corporations and more than 500 chambers of commerce and business associations.
In 2007, ASQ established an office in New Delhi to offer training and certification to quality professionals. ASQ also operates an office in China, and the organization is taking further steps to expand offerings in Brazil, Mexico and South Korea in the coming years.
"This agreement opens many doors for both ASQ and senior-level executives in India," said Roberto Saco, ASQ’s president. "Bringing ASQ’s body of knowledge to India will assist Indian corporations, executives and quality professionals in producing quality goods and services, which is good for both India and the many multinational corporations that do business there."
For more information about ASQ’s activities in India, visit www.asq.org/global/countries/india.html.
ASQ President-Elect, Board Candidates Named
E. David Spong has been identified as the candidate for ASQ president-elect for the 2009-2010 membership year by the board of directors.
Spong will become the 61st president of ASQ following next year’s elections, assuming another candidate doesn’t enter the election through petition.
Spong, now a consultant, is the retired president of aerospace support for Boeing Integrated Defense Systems in Missouri.
Other candidates announced for the board of directors are:
- Director: Lloyd Barker, director of corporate quality, Alcoa Inc., New York.
- Director: Kay Kendall, principal,
Other candidates announced are:
- Chairman: Roberto M. Saco, owner and principal, Aporia Advisors, Florida.
- President: Peter L. Andres, quality engineer of integration, simulation and testing for Boeing Integrated Defense Systems, California.
- Treasurer: Jim Rooney, director, quality and lean Six Sigma Services, ABS Consulting, Tennessee.
The results of the election will be announced in May during ASQ’s annual business meeting, which will be held in conjunction with the World Conference on Quality and Improvement in Minneapolis.
LEARNING ABOUT LOYALTY A survey is being conducted to learn how ASQ sections can improve the ASQ experience for members. Input from the survey will help leaders make decisions on future products and services. Those who complete the survey can enter a drawing to win one of four registrations to this year’s ASQ World Conference on Quality and Improvement. Take the survey at www.asq.org/mr/09-sect-sat.html until Jan. 30.
NEW SCHOLARSHIP The Healthcare Division will award one annual $2,000 scholarship in honor of Florence Nightingale, who is widely recognized as the initiator of nursing as a profession. The scholarship recipient will be announced at the Quality Institute for Healthcare, May 18–20, in Minneapolis. For more information, visit www.asq.org/health/scholarship/index.html.
Det Norske Veritas Healthcare Inc. (DNV) has been granted Medicare-deeming authority by the Department of Health and Human Services. DNV becomes the first approved national Medicare accrediting body whose accreditation process incorporates an ISO 9001 platform. ASQ had endorsed the concept that independent bodies that incorporate recognized quality management systems should be permitted to have a role in the Medicare accrediting process … ASQ may petition to be involved in providing input to the Centers for Disease Control and Prevention’s CDC Working Group on Processes to Prevent Hospital Infections. ASQ would be able to provide council members with information on where quality may be beneficial.
Capitol Q is a regular Keeping Current feature that highlights ASQ’s advocacy efforts with government leaders.More information about ASQ’s legislative activity and other issues and activities can be found at ASQ’s Advocacy Room at www.asq.org/advocacy/index.html.
3 Achieve Baldrige Award
Three organizations have been named recipients of the 2008 Malcolm Baldrige National Quality Award. They are:
Poudre Valley Health System, Fort Collins, CO, in the healthcare category. The private not-for-profit healthcare organization serves residents of northern Colorado, western Nebraska and southern Wyoming.
Iredell-Statesville Schools, Statesville, NC, in the education category. This K-12 public school system, located in southwestern North Carolina, includes 19 elementary schools, seven middle schools, five high schools, two alternative/at-risk schools and two early colleges.
Cargill Corn Milling (CCM), Wayzata, MN, in the manufacturing category. CCM employs 2,321 people and operates nine manufacturing facilities in eight states.
Baldrige examiners selected these three recipients after receiving and judging 85 applications this year and conducting site visits for 13 applicants.
The Baldrige program is managed by the National Institute of Standards and Technology, an agency of the U.S. Commerce Department, with sponsorship and administrative support from ASQ. The awards will be presented during a Washington, D.C., ceremony early this year.
For more information about the award and this year’s recipients, visit www.nist.gov/public_affairs/releases/2008baldrigerecipients.htm. Watch for profiles of each award recipient in future issues of QP.
QP ONLINE ON PAPER
Quick Poll Results
Each month at www.qualityprogress.com, visitors can take a short, informal survey, and we post the results. Here are the numbers from a recent Quick Poll:
Could quality methods and principles have
prevented the current financial crisis?
- Yes 71.2%
- No 28.7%
Visit www.qualityprogress.com to answer the most recent Quick Poll question posted:
"Which of the seven basic tools of quality do you consider the most important?"
- Cause-and-effect diagrams
- Control charts
- Check sheets
- Pareto analysis
- Scatter plots
THE AMERICAN NATIONAL STANDARDS INSTITUTE (ANSI) focused on food safety during a meeting last month. Participants in breakout sessions widely agreed that to make progress, a permanent infrastructure that looks at the issue of food safety is needed. Many suggested that ANSI could coordinate such an infrastructure. Attendees also came to the consensus that greater cooperation between the Food and Drug Administration, the U.S. Department of Agriculture and industry is needed. For more information, visit http://web.ansi.org/news_publications/latest_headlines.aspx?menuid=7.
THE INTERNATIONAL SOCIETY OF AUTOMATION has announced that it transferred its Certified Industrial Maintenance Mechanic (CIMM) certification program to the Society for Maintenance and Reliability Professionals. CIMM certification provides a third-party assessment of the skills of industrial maintenance mechanics who are responsible for preventive, predictive and corrective maintenance, and who perform troubleshooting and analysis.
ENGINEERS WEEK is slated for Feb. 15–21. The goal of the National Engineers Week Foundation, a formal coalition of more than 100 professional societies, major corporations and government agencies, is to ensure a well-educated and diverse future engineering workforce by increasing understanding of and interest in engineering and technology careers among young students and by promoting precollege literacy in math and science. Engineers Week also raises public understanding and appreciation of engineers’ contributions to society. For details, visit www.eweek.org.
CANADA’S NATIONAL QUALITY INSTITIUTE has announced that its Quest for Quality training is now available as a webinar. For details, visit www.nqi.ca/NewsEvents/details.aspx?ID=672.
Who’s Who in Q
Name: Amar Raja Thiraviam.
Residence: Daytona Beach, FL.
Education: Master’s degree in industrial engineering from University of Central Florida (UCF) in Orlando. He is pursuing a doctorate in reliability engineering at UCF.
Introduction to quality: Statistics and reliability engineering courses taught by Linda Malone at UCF.
Current job: Reliability engineer at Teledyne-Ocean Design Inc., a manufacturer of subsea electrical and fiber optic interconnect systems.
ASQ activities: He has worked on several Community Good Works Six Sigma projects through Section 1509 and participated in several certified reliability engineer and certified Six Sigma Black Belt exam review workshops. He has also presented at many ASQ conferences.
Other activities/achievements: Research awards at UCF in 2003-2004; Future Leaders of Manufacturing Award from the Society of Manufacturing Engineers; and Presidential Doctoral Fellow at UCF.
Published works: At different conferences, he has presented papers on topics such as aesthetic engineering and quality improvement of complex systems.
Recent honors: ASQ Freund Scholar in 2008.
Favorite ways to relax: Traveling, watching and playing cricket, and listening to music.
Quality quote: Even the greatest minds, such as Einstein, have struggled in explaining the mystery of time. Reliability engineers continue to unravel this mystery of time by ensuring quality over time.