In his most recent book, Hot, Flat and Crowded, Thomas Friedman quotes Michael Mandelbaum on page 108: “People don’t change when we tell them they should. They change when they tell themselves they must”.
I was reminded of this when watching and listening to the top executives of the major automobile producers speaking before the House Financial Services Committee members last week. Did you sense a bit of frustration on the part of the committee members? I sure did! But what really frustrates me is the lack of questions and or suggestions on the part of both the congressmen and the auto executives on innovative and creative ways to solve the many problems facing the auto industry today. As the author of Panasonic, Francis McInerney has been saying for years, it is “cash wait states” and “out dated distribution channels”.
When McInerney says cash wait states, payable, he means how long does a business or enterprise wait until they get paid for their product or service once the product leaves the production facility or factory or the service is provided. Because of the velocity at which all businesses operate today, velocity of cash and capital is crucial. In the auto industry, when the unit leaves the assembly line, shipped to the dealer, placed in inventory, sold by the sales person-who does not work for the auto maker-finance approved and then money sent to the auto maker, it could be 130-145 days. Even longer today if the vehicle is a “gas guzzler”. You might say “so what’s new”? Apple!
Apple’s payables are about twenty minutes. In a world where speed-velocity-is crucial, there are many lesson the auto industry could learn from Apple. One is how important controlling the point-of-sale is in today’s business environment. Apple owns the retail store and is opening more stores while other retailers are suffering-even before the economic tsunami of two months ago. The enthusiastic, well-informed people at the Apple Stores work for Apple. The car salesperson works for the dealer in the particular state and town where they live. Their loyalty is mainly to the dealership that hired him or her and pays his salary and not the auto maker. Brand loyalty is local. Any feedback about the quality or performance of any particular vehicle may take months or years to filter upwards to the automaker, providing the customer feedback is being considered. How long did it take for the message to stop making SUV’s take and did the automakers’ listen? Don’t get me wrong, the automakers need the local dealers for service and parts. And I do admit I am not in the auto industry so I am sure there are many more qualified and experience people looking at these issues, at least I hope so.
What I am is a concerned auto enthusiast. I feel terrible about the circumstances in which the auto industry has put itself-mainly from the auto executives and their struggle with outdated distribution channels. Donald Keough former executive at Coca Cola mentions in his recent book The 10 Commandments for Business Failure that one of the commandments for failure is for executives of large established companies to isolate themselves from their customers and markets will insure business failure. Surely, in a business environment where the consumers are not only in charge but where they figuratively have been handed the keys to the factory in most business sectors because of the Internet, the last thing executives and their decision makers want is to be isolated from their customers.
We should all be asking for answers, after all the taxpayers of the United States are now shareholders and we seem to be buying more and more into companies who do not suggest any changes for improvement and congressmen who do not ask enough questions as to how change will happen given the circumstances of today’s business environment. As Nicola Machiavelli said and Don Keough quoted in his book: “For this is a tragedy of man, circumstances change but he doesn’t”
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