GM, Ford, and Chrysler chose to reject government support for developing fuel efficient automobiles
January 1, 2009
by Robert A. Letcher, Ph.D.
Ten year-old “system analysis” of how GM, Ford, and Chrysler chose to reject government support for developing fuel efficient automobiles in favor of doing what they had historically organized to do: cut costs
[Author’s note: “PNGV” refers to the Partnership for a New Generation of Vehicles, a Clinton-Gore era effort to help the three US-identified automobile companies develop vehicles capable of 80 mpg. After years of going trough the motions, and with the approach of the 2000 election and the increasing likelihood that the election would replace Clinton-Gore with a Texas oil man, all three companies ceased development efforts that they had ostensibly been aiming at breakthrough technologies, and shifted their attention over to internal cost cutting and cost recovery, The body of this essay is the exact text of an analysis that I wrote and sent circa 2000 to each of the three companies’ PNGV program directors, to critique their continuing effort to shift their focus back to how the companies had traditionally organized themselves. I have left the original wording unchanged despite a few impertinent points, in order to emphasize how unreceptive auto company executives have remained to change.]
For people inside the PNGV program, cutting internal costs is what they have always done, what their organizations are organized for, what their rewards are based on. Actually going beyond cost cutting will just as likely require working through organizational resistances. A lot of people would have to step beyond their accustomed roles, and many of them would likely find that unsettling.
That’s why an organizational learning approach makes sense. To begin with, that approach would help avoid the trap of “shifting the burden”. (See Peter Senge et al, The Fifth Discipline Fieldbook, pages 135-140 for a description of this “archetype”.) In that trap, organizational momentum pulls problem-solving efforts toward the familiar challenge of cost-cutting, while uncertainties and risks push efforts away from addressing the unfamiliar non-technological challenges. Further complicating these tendencies, the combination of the objective cost-cutting a team achieves through conventional practices and the subjective satisfactions such successes bring reduces their perceived need to address those non-technological challenges at all.
Being forewarned can help take steps to avoid this pitfall, including setting up an early warning system for detecting it. A manager would probably want to develop new visions, new role identities—and new incentives aligned with them; revamped work teams, organizational arrangements, and enhanced lines of communication; and some sort of facilitated program for facilitating this transition. Someone will have to do the legwork for the initiative, and PNGV managers are in the right spots to do it. They might for help from government leaders and decision makers. And the current heightened attention to fuel economy will surely help in all these matters.
Further complicating this situation within a PNGV effort, corporate higher-ups may view the PNGV program as just another program. There are, I imagine, established protocols for developing new programs; and specifically, I imagine that there are established protocols for programs recovering costs they incur. It is easy to conceive of corporate decision makers treating the PNGV effort formally (viz, without attending to its nuance), and on that basis assigning one of their established “new line” protocols to the PNGV program. This would explain an emphasis on internal cost cutting.
If I’m right, the PNGV effort could be moved forward by helping corporate higher-ups appreciate three specific nuances of the PNGV program. Specifically, they could be shown how these specific nuances allow them more flexibility in the cost recovery protocol they assign to the PNGV program. The first nuance involves compliance with CAFE requirements in the United States, and the other two involve international marketing and production. The central concept is that corporate decision makers should compensate the PNGV program for benefits it brings to other programs within their purview.
With regard to CAFE, PNGV sales would create substantial room for additional sales of highly profitable SUVs and trucks. If PNGVs were not available, fewer SUVs and trucks could be sold within the CAFE constraint, and corporate profit would be lower. It makes sense for corporate decision makers to compensate the PNGV program for this, by charging the SUV and truck programs and allocating those charges to cost recovery within the PNGV program. Note that this benefit does not exist within the purview of the PNGV Director.
With regard to international marketing, availability of PNGVs would facilitate corporate efforts to open up new markets. That’s because the markets that have not yet been opened are for structural reasons less-developed countries, where only elites can afford SUV fuel-consumption and most people would of necessity be much more sensitive to fuel cost. Availability of PNGVs would enhance the product mix in such markets, and corporate decision makers could compensate the PNGV program for its contribution to an objective outside the program itself. Please note that the additional sales of PNGVs in newly opened markets would itself lower the PNGV program’s internal costs.
PNGVs offer a further advantage for opening up new markets. When national governments seek local production “offsets” in return for access to their markets, corporate decision makers would have the additional choice of offering facilities for producing PNGVs for local sale as well as for export. Depending on a nation’s development strategy, this might be more attractive than production strictly for export. If national leaders did find it more attractive, they might agree to reduced offsets—effectively reducing the car company’s cost of getting into the market. Here again, corporate decision makers could compensate the PNGV program for its contribution (here, an avoided cost) to an objective outside the program itself.
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