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It’s not just about making better cars in Detroit

To get healthy, America’s automakers need to build better companies. CNBC’s Phil LeBeau reports.
/ Source: CNBC

To get healthy, America’s automakers — especially General Motors and Ford — not only need to build better cars and trucks, they also need to build better companies.

To do that, America’s carmakers first and foremost need to become leaner and more efficient. After all, theirs is an age-old complaint: As companies, they’re too fat and too tied to out-of-date work habits.

But when it comes to facing the future, domestic automakers have made a start. Since November, Ford and GM have announced plans to cut more than 60,000 blue- and white-collar jobs. And both are also shutting manufacturing plants to bring supply in line with demand.

But Ford and GM must also change their corporate culture.

“The very management structure is set up with different departments to blow chimney smoke up, and not focus on working with each other so the company winds up making a good car,” notes Jeffrey Liker, a professor at the University of Michigan.

In short, Liker says the big U.S. automakers need to structure themselves and operate more like — you guessed it — the Japanese.

Automotive consultant Bill Schwartz agrees. He helps companies implement Toyota’s proven production system, which features greater cooperation between workers and management

“The barriers that are created on the shop floor with the unions, the work rules, the ‘we-they’ mentality must be broken for the Big Three to be successful,” Schwartz said.

Those old work practices will take years, if not decades, to undo. But one thing the big U.S. automakers can do faster is add more flexible manufacturing. They need more assembly lines churning out more than one model, so production actually matches what consumers want.

Right now, 22 percent of Ford’s vehicles come from flexible assembly lines. Chrysler and GM do more than Ford, but all three are trailing behind Toyota, which boasts 73 percent.

“The problem with the domestic [automakers] is to this point they really have not had that much flexibility,” said Michael Robinet, an automotive consultant at CSM Worldwide. “So they had to start all new and that takes several years, and they’re late to the market.”

Yet a third way to build a better American car company is to focus on China, which is rapidly becoming the world’s second-largest automobile market.

Jack Perkowski, President and CEO of Asimco, a growing Chinese-American auto parts maker, sees the changes now taking place in China fundamentally impacting the automotive industry over the next 10 to 15 years. He believes that to win in China, U.S. automakers and suppliers need to fully embrace the country and its workers.

“You want your managers to be completely localized, and you want them to have the same cost perspective as your customers and competitors,” Perkowski said.

GM estimates that it has already invested $2 billion in China with its joint-venture partners. And GM is now that country’s top automaker, having sold 660,000 vehicles there last year.

Ford and Chrysler are playing catch-up. And the stakes in this game couldn’t be higher. Growing at 19 percent a year, the Chinese car and truck market will soon be a multi-billion-dollar titan — one with the power to help pull Detroit out of its ditch, or keep it there.