On the Downhill

August 1, 2006

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IMT reader Nick Sevastian, a mechanical engineer by education who specialized in Special Purpose Machinery and has 27 years' of experience, tries to pinpoint the reasons for "the American industrial decline" — especially in comparison with Japan.

Has anybody wondered why the Japanese automotive industry continues to gain market while United States automotive players keep losing it? While many of us have some answers, in my opinion nobody has put his or her finger on it, dotted the "i"s and crossed the "t"s. I will try to take a shot at it.

I will start with what I think is the basic reason for the American industrial decline: High- and middle-management is selected from business school graduates — typically accounting or sales — and not from engineering and science-focused disciplines.

I am sure that there are many people who will jump up and say, "Where did he come up with that one?" and grab the silver bullet and garlic and send nasty comments my way, but I would ask for your indulgence and allow me to make a few points.

1. Most Japanese companies' management** rises within the organization from the engineering ranks after having been exposed to all aspects of the automotive business and that company's operations. They trust technology, they understand technology, and they find (though not exclusively) technological solutions to overcome the high cost of doing business either in Japan or in the U.S.

The U.S. does not.

2. The Japanese have applied Six Sigma, "lean," Kaizan and other industry standards successfully at the lowest production level with a good understanding of what their measurables are, with good feedback as to what works and what doesn't, without building a huge bureaucracy around those tools. By "the lowest production level", I mean they create the culture, provide the tools and empower the production operator to apply the principles in day-to-day operations without the high maintenance costs of the technocrats that North American automotive manufacturers endure.

The U.S. did not, and has not.

3. The Japanese used a non-unionized workforce both in the U.S. and in Japan, paid competitive wages and benefits, and got back a full day's worth of quality work with as much dedication that any Japanese or American worker is capable of.

The U.S. could not. Of course, in the U.S. we must contend with the unionized workforce. However, if there were to be a plan that would commit both Union and Management to providing the same work conditions as the Japanese transplants in North America, and which would be followed by the same output from the production assembly line with comparable technological infrastructure and operating cost, why couldn't we come to a mutually advantageous agreement.

4. The Japanese have treasured their intellectual resources and human capital (i.e., engineers) and listened to them; they were able to design more reliable and appealing and cheaper cars, more luxurious cars, more fuel-efficient cars and higher performance cars.

The U.S. has not, and is not.

5. The Japanese are expanding their products, markets and technology.

In the U.S., we're cutting back.

Look at Delphi negotiations. Management wants to cut benefits and reduce the wages of the hourly employees by almost 50 percent, while the same management will retain most of the high wages and benefits they receive. This attitude only leads to confrontation and mistrust.

Aside from this aspect, one of the most important points often missed is that the U.S. is not going to gain market share or strength through attrition. We must come up with 1) quality products, 2) exciting products and 3) reasonably priced products. This is how we gain market share.

In these three market-gaining requisites, the experience of the engineering force is the key element. The engineer's involvement in developing designs that are better quality, more innovative, more appealing and, yes, more cost-effective cannot be denied. What our industry is doing, instead, is offering retirement packages to the most experienced while retaining the inexperienced but lower-paid engineers to do Project Management so engineering can be done in China or India.

On a larger scale, one only need look at our export imbalance or trade deficit. Obviously, it is growing. We are producing less in the U.S. every year. People often forget that what made the United States a great economic power was the ability to export a huge number of products to the world after World War II. The lead continued into the 1960s, and after that, it began to be eroded by the Japanese economy. We must realize that if our manufacturing continues to be widely outsourced to China, and if our know how and engineering moves to India and China, and perhaps most important, if we export only military power, other countries will be much less inclined to invest in the U.S. when most of our remaining expertise resides in housing and services. In the long run, this approach is not sustainable.

The U.S. has forgotten how to be "lean and mean" because it is easier and more comfortable to be "fat, lazy and mean." Unfortunately, when it becomes obvious that the current way we work is no longer sufficient, it will be too late to turn it around (if we have not already reached that point). We must remove the layers of bureaucracy at every level of our economy. Remove the intermediaries, the brokers or the non-value-adding players at all levels. Restore the pride in a job well done. Remove the focus from how to create, control and maintain an abstract system, and redirect it to how to produce more, better and smarter.

**I spent some time at a Honda plant in Hiroshima and Osaka, Japan. Over there, from my best estimates, at least 60%-70% of the top-level management has some engineering education. The tradition also exists in Germany (See BMW.), et al.

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Industrial Market Trends reader and frequent provider of feedback, Nick Sevastian is a mechanical engineer by education, specialized in Machine Tools design and built, in Special Purpose Machinery. He has 27 years' of professional experience. For seven years, he ran his own small engineering business, before going to work for a midsize automotive supplier to the Big 3 (mainly), where he's been for the last six years.

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