‘How do you make God laugh?’ goes the old joke. ‘Tell him your plans.’ Karl Ludvigsen assesses the apparent failure of some grand plans in the car industry and their implications for the future.
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Hype was hot and heavy recently over the plans of DaimlerChrysler for Mitsubishi Motors. The German-American company would invest billions more in its loss-making Japanese affiliate, came confident reports from Tokyo. With the help of DCX, said the pundits, loss-making MMC would at last implement the turnaround that it had been talking about since 2000. Together they would march hand-in-hand into the sunset.
I wasn’t so sure. DCX boss Jürgen Schrempp had made it clear that all options were open where Mitsubishi was concerned. And his recent history showed that the ‘Jürgennaut’ didn’t flinch from taking tough decisions. I thought back to the Fokker case. When he was running Daimler-Benz arm Deutsche Aerospace, then known as Dasa, he invested DM530 million in a 51 percent share of Holland’s Fokker. Though the veteran aircraft maker was struggling, Fokker seemed to have the key to the regional-jet-airliner market that was a gap in Dasa’s offerings.
In 1994 Jürgen Schrempp became Daimler’s chairman, and in 1995 Dasa became Daimler-Benz Aerospace. Fokker wasn’t getting any healthier, however, one commentator saying that with its funding Daimler was keeping it ‘on life support’. In January 1996, Daimler announced that it was withdrawing its ongoing backing of Fokker. Schrempp forthrightly admitted making ‘a $1.4 billion mistake’. Stunned, the Dutch company had no alternative but to file for bankruptcy. Against this background the digging in of heels in Stuttgart was easier to understand when Mitsubishi proffered its begging bowl.
In fact, DaimlerChrysler showed some stubbornness when it bought its 34 percent share of Mitsubishi in 2000. The deal was originally pegged at $2.1 billion, but when word surfaced about some of the Japanese company’s latest peccadilloes – such as concealing faults in its cars for several decades – DCX negotiated the price down to $1.9 billion. In acquiring that shareholding Schrempp was on the rebound from a failed negotiation with Nissan, which he saw as a company too far for his hard-pressed managerial cadre. Thereafter, in March 1999, he said, ‘We are not making a move on Mitsubishi.’ His aim of gaining 25 percent of DCX’s revenue in Asia could, he said, be achieved by the company on its own: ‘On the car side, there is no need for an acquisition. We can do that ourselves.’ Less than a year later he would rethink that assertion.
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By GlobalDataOf course this is déjà vu all over again for Chrysler’s people. In 1971 Chrysler negotiated for a 35 percent share of MMC, only to discover – to its embarrassment – that it didn’t have access to enough cash to fund the deal. That’s why it bought 15 percent then and another 20 percent later. The alliance was a help to Chrysler and an incredible windfall for Mitsubishi, which sold millions of engines and cars to Chrysler during their relationship. Of the 100,000-odd imports that Chrysler sold in the USA from 1983 to 1992, 80 percent came from Mitsubishi. This partnership continued even though Chrysler began selling its MMC holding in 1989, as it was obliged to do by the Loan Guarantee Act passed by the US Congress.
The partners made cars together in America as well at their new plant in Normal, Illinois, set up by their Diamond-Star Motors joint venture. Although viewed dimly by Bob Lutz, who arrived from Ford a year after the project was launched in 1985, Diamond-Star did have the merit of educating Chrysler in the latest Japanese production techniques. These were proselytised by Glenn Gardner during the push for platform-team engineering at Chrysler and did help the American partner raise its manufacturing game. On a strictly financial basis Lutz’s concerns were justified by Chrysler’s loss of $200 million on Diamond-Star operations, thanks to parts supplied from Japan in high-valued yen. The loss, plus the initial investment of $100 million, was recouped when Chrysler sold its half share in the plant back to MMC in 1991 for $305 million.
Although in those days Chrysler never contemplated the degree of product-line integration with MMC that’s been on the cards since the beginning of the 21st Century, there’s certainly ample evidence that the two companies can work well together, with or without shareholding links. Nor has DCX indicated any early plan to dispose of its 37 percent shareholding in MMC. This is likely to shrink, of course, if parent Mitsubishi invests more in the company in the absence of a proportional investment from Daimler. Thus in the medium term the product plans that have been launched jointly between MMC and Chrysler should not be in jeopardy.
This assumes, of course, that one way or another Mitsubishi will keep on building cars. Signs are that its parents will step up to the challenge of stanching its losses. You may recall that three years ago MMC announced a restructuring plan that was to cut costs and personnel so that it would achieve operating profits of 2.5 percent in 2002/03 and 4.5 percent in 2003/04. Instead, in the latter year it lost $700 million. A miscalculation of that magnitude makes any failure of strategy by DaimlerChrysler look like very small beer indeed.
Why wasn’t MMC dealt with as effectively by DCX as Nissan was by Renault? The reason was that while Nissan was and is a stand-alone enterprise, at the centre of its keiretsu relationships, MMC was and is an arm of the Mitsubishi Group, which has a wide range of other businesses. With Mitsubishi Central constantly interfering and blocking the initiatives of DCX’s people in Japan, the latter had far less scope for making meaningful change than did Carlos Ghosn at Nissan. Here, for sure, is fair warning for anyone thinking he can succeed where DCX didn’t. And if the folks at Mitsubishi are hoping to entice yet another gaijin to invest in their troubled car company, those hopes are likely to be misplaced.
In the wake of its decision not to fund MMC further, the press is coming down heavily on DCX’s strategy. ‘The idea behind it was neither dreamy nor theoretical,’ said the Daimler chief of his grand plan. ‘Not the conception, nor the vision was wrong,’ he added. ‘It had much more to do with a somewhat defective execution by the respective management.’ Much though they apply to the current stance of DCX’s leader, these were the comments of Edzard Reuter, speaking in 1998 of the failure of his strategy of transforming Daimler-Benz into ‘an integrated technology concern’. In 2000 the current boss, Jürgen Schrempp, sounded much the same when he said that ‘the operational issues have nothing to do with what I term an absolutely perfect strategy.’ His strategy, he said, simply needed ‘operational implementation’.
Now, it seems, grand strategies are not to be attempted. ‘Schrempp is the poster child for overwhelming vision and underperforming execution,’ tut-tutted Peter Brown in Automotive News. Rightly enough, Brown added that ‘vision without execution is a road to ruin for investors and employees alike’. He mentioned the Jac Nasser era at Ford, where the energetic Nasser tried to manage massive change centrally with a few sidekicks. He could have added the preceding ‘Ford 2000’ fiasco under Alex Trotman. It turned out to be less easy to transform Ford into Toyota than Alex thought.
Nevertheless, visions are necessary. ‘Make ye no little plans,’ said poet Robbie Burns, ‘for they have no power to move persons’ minds.’ A vision is essential, if it is to carry all stakeholders with it. We have enough good and bad examples from the dot-com era. But a grand strategy must be clear, communicable to all and directly relevant to a company’s business. If it isn’t, it’s better not to have one and to stick to hard graft instead.
The last word can go to another and exceptionally able German. ‘I must confess that I am opposed to the making of theoretical plans which do not face up to practical experience,’ he said. ‘Obviously all economy must be directed according to definite general principles, but the now fashionable setting up of four-year plans and similar plans, the creation of planning bureaus, etc., is propaganda rather than effective achievement.’ These were the views of Hjalmar Schacht, the financial genius behind the revival of Germany’s economy in the 1930s and the funding of its preparations for war. By all means make plans, Schacht was saying, but be sure that they are capable of being implemented on the ground. That’s been forgotten too often in our industry.
Karl Ludvigsen is an award-winning author, historian and consultant who has worked in senior positions for GM, Fiat and Ford. In the 1980s and 1990s he ran the London-based motor-industry management consultancy, Ludvigsen Associates. He is currently an independent consultant and the author of more than three dozen books about cars and the motor industry, including Creating the Customer-Driven Car Company.
