FUTURISTIC GROOVES

America is the world’ s biggest market for cars and General Motors (GM) is the world’s biggest car manufacturer. In a few years, Toyota’s relentless growth is likely to render this statement only half true.

After several recent pieces of bad news and a share price languishing at a ten-year low, GM has revealed how it intends to keep itself at the top, at least for the moment. On Monday April 4th, Rick Wagoner, the firm’s chairman and chief executive, said that he would assume direct responsibility for GM’s North American operations in an attempt to reverse the company’s decline. But it is unlikely that GM and Detroit’s two other car making giants, Ford and Chrysler (the Detroit-based arm of DaimlerChrysler), will be able to keep Toyota and the rest of Japan’s high-revving carmakers at bay for long.

Is there anything US car suppliers haven’t tried to counteract the enormous purchasing power of the handful of car manufacturer that make up their customer base? As the suppliers’s profit margins have been squeezed again and again, they have responded with an array of strategic initiatives, including diversifying their customer base, going global, positioning themselves further upstream in the value chain, and actively helping to design components in hopes of capturing more value than they could by simply bending metal. In the 1990s, the industry also went through an M&A wave that many hoped would deliver the heft needed to push back against the car manufacturers.

Currently, facts speak for themselves, dwindling market share in the face of fierce competition from Japan has forced General Motors to shake up its management. Ford faces similar problems. DaimlerChrysler’s American arm is taking advantage of their misfortune but may be held back by problems at the group’s European operations. Detroit has bounced back before. Can it do so again?

The winning car suppliers of the future won’t try to fight size with size to gain an advantage against their big customers’s purchasing power. Only a restructuring that focuses on excellent processes as well as excellent products will provide the precision-targeted leverage suppliers need to fight back effectively and to preserve the long-term health of their industry.