Good News, Bad News on GM Doubling ‘Volt’ Production
I don't often go back to write about GM, the first company I worked for out of college. Thanks to my dad who sent this article from the Detroit paper: “GM delays 2nd shift at Detroit-Hamtramck.” You might think, as a shareholder (directly or through the U.S. government's holdings), that it's bad news, that sales aren't increasing.
The article tells the rest of the story — that GM still plans to produce more. Hopefully, this is because the vehicles will be sales to end customers (not “overproduction” that's pushed on dealers). The good news, as a shareholder, is that GM is able to double production without adding the full second shift as originally planned. They followed the Lean mindset of “creativity before capital,” it seems. But this is bad for the Detroit area and the country because there are fewer jobs?
From the article:
GM had said in May it would add a total of 2,500 workers on two shifts at Detroit-Hamtramck, with the first of those shifts to start this fall. But during a four-week shutdown this summer, GM made its production line and body shop more efficient, allowing the company to make twice as many Volts in the same amount of time, the company said Friday. That will allow the factory to meet scheduled Volt production by adding only 300 workers by January.
As the GM spokesperson says, this is good for the company – they are saving money on labor and energy costs from only having to run the plant one shift. I guess there's a “green” benefit for a green vehicle.
Good for GM, bad for the UAW. It's an interesting dynamic, to say the least, since the UAW has an ownership stake in GM, post-bailout. The current administration certainly wants more jobs, but they also want GM to be successful as a business.
Dr. W. Edwards Deming famously said the role of a company is to provide jobs, looking at #1 of his 14 points:
Create constancy of purpose for continual improvement of products and service to society, allocating resources to provide for long range needs rather than only short term profitability, with a plan to become competitive, to stay in business, and to provide jobs.
I agree that it's an important function of any organization to provide jobs in the community, for the betterment of all. That's one reason I think manufacturers need to take a long hard look at outsourcing and offshoring jobs. Chasing the cheapest labor possible might bring short-term profits, but what's the impact on the community and country if people here aren't making enough money to buy GM products? Think back to Henry Ford and the famous $5 workday – by boosting pay, he was also creating demand for his cars. As Ford historians look back, he was building a strong middle class. Many companies have been gutting the middle class as manufacturing jobs move overseas.
So, I'm in favor of creating jobs, but they can't be “make work” jobs like the infamous “jobs bank” that the Detroit Three had, where unneeded workers were typically paid to sit and read the paper (as was the case when I worked there in the mid 1990s). But, sometimes, the best thing to do is to find other solutions than adding more people. For example, I know some hospital labs where they have been able to take on 50% more workload without adding people – thanks to the Lean improvement process. They are meeting patient needs while helping keep healthcare costs down… that's as much of a good thing as “creating jobs” might have been.
I cringed when I read former President Clinton say the following, in FORTUNE Magazine:
If you're in the private sector, your first obligation to your investors, to your customers, and to your employees is to provide a product or a service at a sufficient profit to keep the enterprise going. But when a company does have extra money, I think it's a good idea to invest in the community, because I think it's not only the morally right thing to do, it's good for the companies involved.
He doesn't elaborate on the points of what “extra” means and how hiring people when they aren't needed would be good for the companies involved.
Jobs aren't charity. If we look at the Deming chain reaction cycle, the best way to create jobs is to have a successful business, for the long-term:
“… improved quality leads to lower costs and improved productivity, allowing companies to capture the market, stay in business, and provide ‘jobs and more jobs.'
Factories provide jobs. Hospitals provide jobs. But we have to keep in mind that, without happy customers, none of those jobs exist. Instead of “creating jobs,” maybe we need to think more about “creating value.” Where is the President's council on customer value?
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I happen to agree with what Clinton said. But it is beyond the scope of LEAN, which doesn’t address moral responsibility to other people in the world, unless perhaps they happen to be our customers.
Actually, Chuck, I think the Toyota “respect for people” philosophy is a very strong statement of caring for employees, customers, suppliers, the community, etc.
Can you elaborate on your thoughts on Clinton’s point? I think the former president speaks like a guy who always worked in government. What would you do exactly with these “extra” people you hire? Build products people don’t want? Use up more of our earth’s resources?
Who decides what money is “extra” and that it shouldn’t be used or invested in other ways?
I’d say it’s immoral to hire “extra” people if they have nothing constructive to do and if that extra cost jeopardizes the jobs of others.
The CEO of Barry-Wehmiller has expressed this well. It’s a stool with three legs: People, purpose, and performance. If the financial performance of the business isn’t adequate, there won’t be any employees and there will be no ability to meet the organizations purpose (to deliver fuel efficient transportation).
Similarly, GM, in recent history, did a poor job of meeting it’s purpose: it didn’t give people the transportation they wanted. Toyota et al gained market share, GM’s financial performance suffered and its people ultimately suffered layoffs and bankruptcy.
I think Deming would be pleased by this story in that GM is delivery a product that people are demanding–it’s purpose, in a way that acheives its financial goals–performance, while respecting the employees already on the job.
If they are pumping out cars to dealers without any end customers, they are violating their purpose and their people and performance will ultimately suffer.
Deming’s not talking about jobs for jobs’ sake. The jobs he’s talking about are the result of long-term thinking. It’s more about ensuring that jobs exist by doing good business rather than doing business at the expense of jobs (e.g. layoffs to improve short term profits). He’s talking about “cathedral building” and not “laying bricks”, if you know that analogy. The jobs banks did not respect people, and they did not add value. Now, it seems that GM may have finally seen the value of utilizing people’s brains when there’s less work to do, and leveraging that to improve flow, but this could still be the old GM that found a way to cut costs and push more product into the market (they call it sales) at the same time. In contrast to your last Deming quote, I did not see a mention of quality in GM’s statement, just a focus on output and costs. To steal from Andy: What’s GM’s purpose?
Henry Ford’s $5 a day did show some understanding that we seem to lack today that there is a reciprocal relationship between domestic wages, domestic sales and national prosperity. We can’t tax and cut our way out of this hole we’re in, we need to rebuild the middle class.
I agree it’s not jobs for jobs sake… it’s about creating value (through quality and happy customers).
GM seems more like the type of company whose purpose is to make money – hence it’s run by professional managers and finance people who aren’t car guys.
I wonder how things would be different with a Bob Lutz in charge? He was more the “Steve Jobs of the auto industry” but was never able to have the power and control that Jobs had over the product.
There will be 2 types of customers – those who just want a competitively priced car that meets their needs – and those who want an “All-American” car. The latter might only be a minority or niche, and if GM wants to survive on only that demand, you would not need the ‘Big GM’ we’ve known for so many years.
[…] a recent article on his site, Mark Graban discussed General Motors’ plan to increase production of its Volt vehicle. It […]