Toyota Remakes its R&D Efforts to Speed Decision Making and Reduce Costs

The Wall Street Journal reported this week that Toyota is in the process of streamlining its R&D process:

TOYOTA CITY, Japan—Toyota Motor Corp. 7203.TO +1.51% said Monday that it has reorganized its vehicle-development system in order to speed decision making, cut costs and better appeal to car buyers world-wide.

The changes to core engineering and design programs bolster the authority of the company’s chief engineers, consolidate research and development into three groups based on geographical regions and limit final design decisions to smaller teams. Toyota, Japan’s largest car maker, dubs the effort its new “global architecture.”

Mr. Uchiyamada said a major challenge for Toyota is cutting costs while improving product design, a seeming contradiction that he aims to resolve by using more common parts and working more closely with key suppliers.

“We won’t feel we’ve succeeded until we raise the use of standardized parts to about 50% among similar-size vehicles in our lineup,” Mr. Uchiyamada said. He added that it will likely take “several years” to achieve that goal.

Using more standard parts reduces the need for smaller lots of dedicated components that can’t be shared among models. Greater volumes of common components help auto-parts suppliers spread out the cost of production.


The Four Dimensions of Trustworthy Leadership

We just had an interview published in Chief Learning Officer Magazine about our new book, Becoming a Trustworthy Leader:  Psychology and Practice, which is due out next year by Routledge Press:

In the past two years, with the global financial collapse and resulting recession, the issue of trust in leadership has been catapulted into the spotlight. Never before has there been such a public and widespread example of its breakdown, nor such tangible evidence of its impact.

The irony is that while most companies tend to pull back, shut down and centralize decision making during tough times, being open and honest is actually what can save them during these periods.

Just ask Aneil Mishra and his wife, Karen, co-authors of Becoming a Trustworthy Leader, to be published in 2011. A few decades ago, Mishra was studying how the automobile industry was dealing with crisis.

“In a crisis or when you’re faced with tough times, top managers like to seize control, centralize decision making — often the rumor mill takes over because information is so poorly distributed — and people, not surprisingly because it is a crisis and resources are scarce, hoard those resources,” Mishra said. “That centralizing decisions and hoarding information and resources just creates a logjam; it freezes up the system.

“In contrast, when trust was present, we found that managers were much more willing to empower their rank and file, and the rank and file were even more willing to take on that responsibility because they thought, ‘Well, if I make a mistake, and the stakes are high, I’m not going to lose my job because I trust my manager,’” he continued. “Information was shared much more widely. People really felt that it was important to be open and honest about the problems and trying to find solutions to them. [This] created a lot more flexibility to deal with that crisis and help them prevent it from happening again.”

For the complete interview, please go here.


Two Cheers for GM’s Chevrolet Volt

Update 11-19-09:

Here’s a review of the driving experience of the Chevy Volt from the New York Times:

Unlike many electrics, including the Tesla Roadster, the Volt’s electric drive has no whine. The car feels solid and planted on the road. Clicking the Sport button on the dashboard releases a bit more oomph than when in Normal mode; in terms of efficiency, there isn’t much difference between the two except at peak power.

The Low mode— Chevrolet plans a flashier name for it by next fall — is unique in the electric-car world, and a useful feature. While coasting, it applies electric motor braking, then smoothly blends in the regular brakes.

Update 8-11-09:

DETROIT ( — The Chevrolet Volt, GM’s electric car that’s expected to go on sale in late 2010, is projected to get an estimated 230 miles per gallon, the automaker announced Tuesday.

The fuel efficiency rating is based on the EPA’s proposed methodology which GM used in its Volt tests and applies to city driving only. Henderson said GM is confident that when Volt’s combined city/highway mileage average is calculated, it will be over 100 mpg.

Henderson conceded the cost of building a Volt will be expensive, about $40,000 per vehicle. But he said the vehicle will qualify for a $7,500 tax credit, which will reduce the vehicle cost by that amount for consumers.

He also stressed that GM has not set the pricing for the Volt, and conceded the company may have to subsidize the vehicle. The goal: Make enough sales to move the Volt from “first generation” to lower-cost future designs.

“The cost of the vehicle in the first generation is high,” he said.

I’m doubtful with GM’s financial woes as to whether they’ll be able to offer much of a subsidy for the Volt.


Update 3-10-09:

Now comes another reason that GM’s Chevrolet Volt will have a tough time being successful in the marketplace.  It looks like GM’s planners and decision makers didn’t take into account important economic concepts such as marginal utility and marginal cost when designing the Volt’s electric-only mileage range, as reported by Fortune magazine’s auto industry reporter, Alex Taylor:

…one of the main justifications GM offers for its long-term survival, “leadership in advanced propulsion technology,” has been shaken by a report from Carnegie Mellon University.

The study concludes that plug-in hybrids like the Chevy Volt – GM’s most publicized technology project – “are not cost effective in any scenario.” GM says the Volt can go 40 miles on a single charge. But a better choice, according to the report, is a car that goes less than 20 miles on a charge.

But GM made some unusual decisions in designing the Volt. It decided that it wanted the car to go 40 miles on a single electrical charge because that was the maximum distance that it said most Americans travel on their daily commutes. Trouble is, configuring the car for all that electric driving means installing lots of big, heavy batteries.

The Carnegie Mellon study…found that small-capacity plug-ins that get less than 20 miles per charge are more efficient than conventional hybrids. And it said that large capacity hybrids like the Volt that go 40 miles or further on a charge are never cost-effective, because the batteries cost and weigh too much.

A car with the Volt’s range, according to the study, would also be extremely uneconomical traveling fewer miles as it hauls around battery capacity it doesn’t need.

Nearly 50% of U.S. vehicle miles are traveled by automobiles covering less than 20 miles per day, according to the report, and it concludes that 20 miles is a more sensible range. It also notes that as the charging infrastructure in public places becomes widespread, cars will be able to travel shorter distances between charges.

Let’s hope it’s not too late for GM to make some changes in the Volt’s design to reflect the economics and preferences of America’s drivers.  After all, as I learned in college when majoring in economics, they, like all consumers, always make decisions at the margin.

Original Post 9-17-08:

I am rooting for GM to succeed in its quest to give us a radically new vehicle that will help us reduce our dependence on foreign oil and improve our environment.  So, I am glad that it has continued to move forward in its plan to produce the Chevrolet Volt:

However, I’m not glad that GM will likely have to raise the price for the Volt beyond its initial proposed amount.  According to the New York Times this week:

Finally, there are questions about the cost. G.M. executives concede that they are revising the price upward. While the company initially hinted at a $30,000 starting price, executives have recently suggested that the Volt might end up in the mid- to high-$40,000 range.

The higher the entry-level price, the less likely this car will be able to make an impact in the marketplace and on Americans’ driving habits.  Honda has already announced plans for one of its new hybrid vehicles, the new Insight, to underprice the current Toyota Prius:

The new Honda Insight, which goes on sale in the US in April, is expected to sell in relatively high quantities. Honda is targeting annual global sales of 200,000 units per year, with approximately 100,000 in North America. Honda is aiming for affordability with the new Insight, which is expected to sell for approximately $19,000—several thousand dollars below the Honda Civic Hybrid and Toyota Prius. At the same time, the new hybrid should match or exceed the fuel economy of those vehicles. The new Honda Insight will be unveiled at the 2008 Paris International Auto Show in early October.

Currently, we own a Toyota Camry Hybrid and a Honda Civic Hybrid.  I’d love to drive an American hybrid that truly delivers outstanding fuel economy.  The question is whether GM will deliver such a vehicle at a price I can afford.


GM to Furlough Salaried Employees

This from today’s Wall Street Journal:

General Motors Corp. confirmed Wednesday it will force salaried workers to take up to three months off each year with partial pay as part of an effort to reduce costs during its expected summer shutdown of its car-making plants.

The program, called Salaried Downtime Paid Absence Policy, states that salaried and executive employees could be required to take time off in one-week periods. During the time off, an employee’s salary would be reduced to 75% of full salary. The program is in effect starting Friday.

GM told its employees that any required time-off at a 25% pay cut will not exceed more than 12 weeks in a calendar year. It could be mandated during periods when there is lack of work, according to an employee briefed on the program. For an employee asked to take time off for the entire 12 weeks under the program, the salary cut would amount to about 5.8% of total salary.

In our research on downsizing, we’ve found that across-the-board cost cutting like this rarely achieves its intended goal of actually reducing costs.  That’s because such measures have a significant negative impact on employee morale, among other negative outcomes.  I suspect that this new downsizing initiative will only speed up the departure of some of GM’s most talented employees.