Blog: Dave LeggettMotown's scale economies

Dave Leggett | 27 July 2009

It looks almost criminal when you peruse the bald stats.

Detroit has ostensibly squandered one of the biggest natural advantages it could have had: vast scale in its domestic market. I was reminded of that by Rob Golding last week.

Let's remind ourselves that we are talking here about a domestic market reliably in the 14m-17m vehicles a year range with the Detroit makers commanding well over half of that for many years. That's a lot of vehicles.

The big mistake made in Detroit was to go for easy money at home and treat North America and the rest of the world very differently.

Detroit, in its defence, was for many years simply giving the market what it apparently wanted. The US, with its cheap gas and fondness for trucks, was very different to other places. But somewhere along the line, that appears to have crossed a line to breed a culture of complacency that led to uncompetitive products and long-term loss of share. And 'supply push' and the primacy of  shifting the metal whatever the cost eroded margins.

But even now, it would be way too simplistic to say that we have full global market convergence in automotive product terms. Major differences to vehicle operating environments exist across the globe and they won't disappear anytime soon. However, there are also areas where consumer wants overlap, or where globally engineered products can be effectively tweaked for local market requirements.

The effective separation of the NA and RoW markets was probably instrumental in creating some of the structural problems for Detroit that this recession has so brutally exposed.

Detroit could have used that home scale advantage, combined with much more integrated global operations and engineering, to have developed a more internationally competitive industry. It could even have developed the US as an export base for some models.

As many industry observers have remarked, GM and Ford have both given the impression over the years of having split personalities – the largely positive experiences of the two firms' operations in Europe and Asia contrasting sharply with the steady decline at home.

The hope must be that One Ford and New GM are capable of putting an end to the operational schizophrenia of the last decade. It doesn't mean anything as simplistic as 'no more trucks' but it does mean learning from what has worked elsewhere, integrating more for greater efficiency and determining that there are no sacred cows in the struggle to survive. What we have seen so far amounts to a start.

Ford and GM still have a substantial volume base in North America and an opportunity to lever their international operations with that scale to gain a highly competitive position.

As Rob notes, it sometimes perhaps takes an outsider – like Alan Mulally - to point out the blindingly obvious.

GOLDING'S TAKE: One Ford and the fountain of free money


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