Alfred Sloan was Right

According to automotive writer and historian Thomas Bonsall, the domestic auto industry’s corporate-centric structure stands in the way of its success. Only by looking to the past and giving its divisions a degree of autonomy can U.S. automakers hope to thrive.

“If nothing is done to return semi-autonomy to each automaker’s divisions, to build and fight to maintain an image for each brand, and to restore character to American vehicles, the Big Three will quickly fall below 50% market share, and continue to lose out to the foreign competition. It’s that simple,” observes award-winning automotive historian Tom Bonsall. As an example of the direction he sees domestic automakers heading, Bonsall cites the British car industry. After the war, the British Motor Corporation (BMC) held nearly 60% of the U.K. market. Today all that’s left is the tiny MG Rover Group, a company BMW had to pay investors to take off its hands. “It took the British 30 to 40 years to kill that company,” says Bonsall, “but they moved inexorably toward that by mismanaging every brand they had acquired by taking away their autonomy.” An example: Within weeks of taking over Jaguar, BMC executives renamed Jaguar’s Coventry plant “Large Car Plant No. 3,” thereby minimizing the facilities perceived–and actual–status and independence. It was a move similar to Ford’s imposition of its “Trustmark,” wherein the Ford Motor Company script loomed large over the logo of each division, from Ford to Aston Martin.

“Look how badly defined Mercury is after 64 years,” Bonsall, “or how Lincoln has fallen from grace.” Neither, he believes, is contributing what they could to Ford’s bottom line because there is no one inside Ford at a sufficiently high level whose career depends upon the success of Mercury or Lincoln. “Frankly,” he says, “there is no one who eats, lives, and breathes either brand.” Decisions are based on what is best for the corporation, he feels, “not understanding that what’s best for the divisions is what is best for the corporation.” It is a situation that isn’t helped by Ford’s current management structure, “the British Mafia,” which doesn’t understand the American market on an intuitive level.

The Ford situation is similar, he says, to the culture clash within Chrysler. “It has not helped Chrysler to be occupied by a German company and reduced to a German culture,” says Bonsall, who maintains it takes a visceral understanding of the American market and the American buyer to be successful here. “If you have an MBA from Harvard,” he remarks, “you could probably run as good an aluminum siding company as anyone else because it’s a commodity. But when you are dealing with automobiles, you are dealing in things that are not easy to quantify. For a lot of people, it is a product that tells the world who they are.” And what they are, he insists, is Americans.

“The current appetite for foreign cars comes from Detroit’s past mistakes,” Bonsall contends. “Had Cadillac and Lincoln challenged Mercedes when it introduced the S-Class in the 1970s it could not have established an ultra-luxury segment on top of them.” At the time, Ford and GM were still in the driver’s seat in North America, and could have stopped the Germans from taking the high ground by building better Lincolns and Cadillacs. Plus, Detroit could have stopped the Japanese from gaining market share by building good entry-level vehicles–even if they lost money on them. However, it was easier to concede the market, ask for “voluntary” quotas that forced the Japanese upmarket, keep costs in line, and play to the financial community. “Now, whenever you think of luxury vehicles you think of Mercedes,” Bonsall says, “and everyday vehicles are Hondas and Toyotas.”

He continues: “I am absolutely convinced the fatal decision was [former GM CEO] Roger Smith’s elimination of divisional autonomy. By the time the ‘merchandisers’ came into GM in the 1990s, there really was no difference between a Chevy and a Buick.” Bonsall regards the adoption of the NOVA project (for Nova, Omega, Ventura, and Apollo the compact cars for Chevrolet, Oldsmobile, Pontiac and Buick, respectively) as a seminal moment in the decline of GM that paved the way for Smith. “The whole reason for that project was to use Chevy’s excess Nova capacity by giving each division a badge-engineered Nova of their own,” he says. “When they didn’t immediately crash to the ground and die, they were tempted to do it again.”

Decisions like these were common at Ford and Chrysler, where strong divisions never existed and there was little to choose between a Ford and a Mercury, or a Dodge and a Plymouth. But GM’s level of divisional autonomy had given it 60% of the American market by tying a person’s career path to doing great things for their division. And it truly was “their” division. “If Pontiac went down the tubes, you were going to get blamed–even if you weren’t the top guy,” says Bonsall. But replacing unique powertrains, body styles, and components with corporate pieces, and encouraging every division to compete in every market eliminated any loyalty an employee had to the brand. “At that point, you were just a freelance operative loyal to General Motors, an entity so vast and amorphous that it’s like being loyal to nothing,” he remarks. Also, the company’s loyalty to its employees diminished over time as they became as interchangeable as the cars. “If your people are worth their salt,” Bonsall says, “you can’t just cut some of them loose without it having a serious impact on product development unless they were just dead wood. And what decent engineer, product planner, or manager is going to want to work for you if there is no stability in their job?”

Bonsall admits there are overhead and other costs associated with a strong semi-autonomous divisional structure, but there also are a number of benefits. A cultural framework is established wherein employees have to benefit the organization in order to do what is best for themselves. An intuitive and historically based understanding of the brand is established and nurtured, and the pressure to build a vehicle for every segment diminishes. Overcapacity is held in check because model mix and production decisions carry consequences. Plus, managers, engineers and designers are encouraged to take risks. As Bonsall sees it, “The cars that never get built never show up on the books.” Which makes it impossible, in an accounting sense, to compare the cost of a semi-autonomous divisional structure with the alleged savings that come from component and platform sharing. And so the domestic industry continues down the finance-driven, corporation-centric road. Which brings to mind another quote from George Santayana: “Fanaticism consists of redoubling your efforts when you have forgotten your aim.”

Alfred Sloan got it right when he established semi-autonomous divisions within GM. When he started, Ford–buoyed by the success of the Model T–held 60% of the young U.S. market, while GM controlled 18%. At the outbreak of World War II twenty years later, the numbers were reversed. Despite extensive sharing of common components and assembly plants, the unique divisional cultures created vehicles that were distinctive in the minds of the buying public.