The decades long decline for the U.S. auto industry culminated last year with a government “take over” of two of the three domestic auto companies. The Wall Street Journal recently featured an article on Sergio Marchionne, CEO of Chrysler Group LLC. Since he is also the CEO of Italy’s Fiat SpA, he is technically not an auto industry “outsider,” but he is not a part of the culture that brought Detroit down. I found two key lessons from his observations and actions that can be applied to any business.
Lesson One: Don’t resort to discounting when sales are tough
Many businesses, especially the auto industry, tends to react to a decline in sales or market share by slashing prices. Here are a few insights from the article:
- In Detroit, “there’s almost a fanatical, maniacal interest [market] share.”
- “Unprofitable volume is not volume I want. We have a very good track record for how to destroy an industry – run the [plants] just for the hell of volume, and you’re finished.”
- He was frustrated by the use of hefty rebates and other incentives to maintain sales which is an industry-wide problem.
If discounting is the only thing you can do to try and create sales, you’ve got a very weak value proposition. Ford has created a more compelling car lineup recently and has not resorted to the level of discounting that has been a core part of the auto industry playbook in recent years. To show that this works in other industries as well, consider that Apple has been creating high demand products that aren’t cheap and has not needed discounts to sell them.
Lesson Two: Culture is important.
The culture in Detroit has been insular. Marchionne has tried to shake up Chrysler’s “plodding corporate culture” by ousting several veteran industry executives and flattening the company’s bureaucracy.
Have you ever heard the saying, “you can’t read the label when you’re inside the bottle?” Sometimes a company or an industry culture gets so insulated in its thinking and practices that it takes a real shakeup to get things moving in the right direction. I don’t know why, but companies have a tendency over time to create bureaucracies, which leads to hierarchies and inefficiencies. This does not create a competitive advantage; it diminishes it.
Ironically (or maybe not), Ford brought in an auto industry outsider as CEO in 2006. They were the only U.S. automaker that didn’t file for bankruptcy protection or accept government bailout funds. Ford has also been gaining market share and profitability. They are building autos that people want.
What are the results of Marchionne’s actions? It’s too early to tell, but Ralph Giles head of the Dodge brand, says that Marchionne “has brought a refreshing energy” to the Chrysler workforce. Mr. Giles also had this to say: “We were starting to look at the product as a commodity, which is disgusting.” He also said that he has “resumes spilling off his desk compared with a year ago when he couldn’t find someone to hire to sketch cars.”
There are a lot challenging variables at play here that will determine whether or not Chrysler succeeds. Regardless, these two lesson we’ve covered today are a good first step, and are lessons that can be applied to every business.
So, how will you apply these two lessons to your business?
Facebook
Twitter
Linked In
Subscribe by Email